Much of the media response to the worst economic contraction since the Great Depression resembles nothing so much as President Herbert Hoover’s response to the original Great Depression.
Faced with an economic crisis, Hoover tried to balance the budget by cutting government spending—disastrously reducing demand at a time when the economy had an oversupply of goods. The psychology behind this impulse was nicely illustrated in a New Republic blog post (11/30/09) by one-time Bill Clinton adviser William Galston:
What’s happening to us is not just a concatenation of policy problems; it’s a test of our moral fiber and our capacity to govern ourselves. Does our government have the guts to feed us some spinach before dessert?
A recession, in this view, is the necessary punishment for having it too good—a moralistic approach to economics that’s dubbed “neo-Hooverism” by its critics (Yglesias, 10/20/08). Thus when Obama said he wouldn’t raise taxes during the recession, the Washington Post’s Jackson Diehl (3/8/09) compared him to George W. Bush, who “failed to ask a willing nation for sacrifice” after September 11. Never mind that raising taxes to reduce the deficit during a recession will also reduce employment—pain is not a regrettable side-effect, it’s the whole point of neo-Hooverism.
The New York Times had a front-page article in this genre on November 23, headlined “Federal Government Faces Balloon in Debt Payments.” Ostensibly a news article, the piece by Times business reporter Edmund Andrews contained very little news; although it was not very clearly sourced, it appeared to be largely based on the Office of Management and Budget’s Mid-Session Review, which came out on August 25—nearly three months earlier.
The piece was really more of a front-page editorial making an impassioned plea for a neo-Hooverist approach to economics: Claiming that “the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages,” Andrews maintained that “there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.”
The comparison of the federal government to a defaulting homeowner is far-fetched; as economist Dean Baker (Beat the Press, 11/23/09) pointed out, “There is no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim.”
But Andrews’ piece was not so much about evidence as it was about the personal intuition that just as individuals need to tighten their belts in hard times, so too should the federal government; as Andrews puts it, “Americans now have to climb out of two deep holes: as debt-loaded consumers...and as taxpayers.” It’s natural to conclude that frugality is the necessary penance to pay for profligacy—even more natural for Edmund Andrews, who wrote a whole book—Busted—about his family’s debt woes. Applying that intuition to federal fiscal policy, however, is disastrous—that’s why Herbert Hoover is supposed to be your model of how not to respond to a financial crisis.
Give the Times credit for providing an antidote to this bad medicine: In the same edition of the paper (11/23/09), economist and New York Times columnist Paul Krugman wrote, “Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: The stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.”
But Andrews seems to have talked to a strikingly circumscribed set of sources—like a manager of the world’s largest bond fund, and a leader of the Concord Coalition, the vehicle billionaire Pete Peterson uses to express his opposition to government spending (Extra!, 3-4/97). The piece closes by quoting the Treasury Borrowing Advisory Committee—IDed by Andrews as a group of “private-sector...market experts”—as warning against inflation and calling for “prudent fiscal policy.” This group is chaired by a JP Morgan Chase executive, its vice chair is from Goldman Sachs, and its members include a representative of Peterson’s Blackrock group—among other members of the world’s financial elite.
Maybe Andrews thinks these folks have nothing but the best interests of the nation on their minds. But before he issued a front-page call for deficit-cutting in the midst of the deepest slump since the Great Depression, maybe he could’ve gotten a second opinion.