[Marxism] Worse than Herbert Hoover

Louis Proyect lnp3 at panix.com
Tue Jul 26 10:01:51 MDT 2011

Counterpunch July 26, 2011
Obama's Wrecking Crew
Worse Than Herbert Hoover


It’s actually a bit over the top and unfair to compare Barack 
Obama with Herbert Hoover – unfair that is, to the memory of 
Herbert Hoover.   The received image of the latter is the dour, 
technocrat who looked on with indifference while the country went 
to pieces.  This is actually an exaggeration.  As Kevin Baker 
convincingly argued in his Harper’s Magazine piece, “Barack Hoover 
Obama”, President Hoover did try to organize national, voluntary 
efforts to hire the unemployed, provide charity, and sought to 
create a private banking pool. When these efforts collapsed or 
fell short, he started a dozen Home Loan Discount Banks to help 
individuals refinance their mortgages and save their homes. 
Indeed, the Reconstruction Finance Corporation, which became 
famous for its exploits under FDR and Jesse Jones, was actually 
created by Hoover.

Often tarred with the liquidationist philosophy of his Treasury 
Secretary, the establishment of the RFC was, as Baker suggested, 
“a direct rebuttal to Andrew Mellon’s prescription of creative 
destruction. Rather than liquidating banks, railroads, and 
agricultural cooperatives, the RFC would lend them money to stay 

Hoover’s tragedy lay in the fact that whilst he recognized the 
deficiencies of the prevailing neo-classical laissez-faire 
nostrums of his day, he could not ultimately break with them and 
accept that the economic tenets which he had grown up with were 
deficient in terms of dealing with the huge unemployment 
challenges posed by the Great Depression.  By contrast, Roosevelt 
was himself instinctively a fiscal conservative throughout much of 
the early stages of his political career (and campaigned as a gold 
standard man during the election of 1932), but ultimately had the 
vision (or, at least, excellent political instincts) to recognize 
the need to cut himself off from the dogma of the past and try 
something new in a persistent spirit of experimentation. Not 
everything FDR did worked, but his lack of rigid ideology and his 
bold spirit of economic experimentation ultimately did much to 
reduce the scourge of unemployment, though of course such policies 
brought him into significant conflict with the economic royalists 
of his day.

Barack Obama’s style of governing largely reflects an acceptance 
of the status quo.   His “economic experts” also reflects this 
preference.  As Baker argued, “it’s as if, after winning election 
in 1932, FDR had brought Andrew Mellon back to the Treasury.”
To the extent that he displays any kind of radicalism, it is to 
roll back the frontiers of the New Deal and Great Society, in 
effect gutting the Democratic Party of its core social legacy. 
This assertion will no doubt inflame the dwindling band of  Obama 
supporters, who insist the president would never cut Social 
Security or Medicare, that he's merely been exploring every 
possible route to a deal with the GOP.  But the evidence 
increasingly suggests otherwise.

Perhaps the president sincerely believes that the intense 
polarization of American politics isn't merely a symptom of our 
problems but a problem in itself – “and thus compromise is not 
just a means to an end but an end in itself, to try to create a 
safe harbor for people to reach some new common ground”.   One 
finds further support for this view within Barack Obama’s own 
writings. A major theme of his 2006 book The Audacity of Hope is 
impatience with “the smallness of our politics” and its 
“partisanship and acrimony.” He expresses frustration at how “the 
tumult of the sixties and the subsequent backlash continues to 
drive our political discourse,”

There appears little question, then, that the President values 
compromise, indeed appears to enshrine it as the apex of all great 
Presidencies (ironically citing Lincoln’s compromise on slavery as 
a perfect illustration of this ideal).  But the problem is that 
the President’s accommodation with his political enemies, his 
apparent infatuation with a “third way”, suggests that he is being 
forced to compromise on a particular set of ideals and principles 
which he has hitherto embraced dearly.
But what is this President's ideal? The only time in our national 
discussions where  Obama has evinced any kind of passion has been 
during the debt ceiling negotiations.  He has, since the inception 
of his presidency, elevated budget deficit reductions and the 
"reform" of entitlements as major transformational goals of his 
Presidency (rather than seeing deficit reduction as a by-product 
of economic growth).  As early as January 2009, before his 
inauguration (but after the election, of course), then 
President-elect Obama pledged to shape a new Social Security and 
Medicare "bargain" with the American people, saying that the 
nation's long-term economic recovery could not be attained unless 
the government finally got control over its most costly 
entitlement programs.

In other words, Obama has been on about this since the inception 
of his Presidency.  Recall that it was Barack Obama, NOT the GOP, 
who first raised the issue of cutting entitlements via the 
Simpson-Bowles Commission.  The President has also parroted the 
line of most Wall Street economists as he has persistently 
characterized our budget deficits and government spending as 
“fiscally unsustainable” without ever seeking to define what that 
meant.  One of his earliest pledges was to cut the deficit in half 
by the end of his first term, in effect paying no heed to the 
economic context when he made that ridiculous assertion.

In essence, the debt ceiling dispute is not forcing a compromise 
on this President, but is instead is viewed by him as a golden 
opportunity to do what he's always wanted to do. That also 
explains why he won't ask for a clean vote on the debt ceiling, 
why he has ignored the coin seignorage option, and why he has 
persistently avoided the gambit of challenging its 
constitutionality via the 14th amendment, even though his Democrat 
predecessor has already suggested that this is precisely what he 
would do: Bill Clinton asserted last week that he would use the 
constitutional option to raise the debt ceiling and dare Congress 
to stop him.

It also explains why President Obama remains infatuated by bigger 
and bigger "grand bargains", which seem to take us further away 
from averting the immediate economic catastrophe potentially at 
hand, which is to say national default.  The Administration, then, 
is not going for a bipartisan compromise, but going for broke on 
something which the President apparent holds sacrosanct.  In 
reality, true compromise would start with the notion of a clean 
vote on the debt ceiling or, at the very least, a minimal series 
of spending cuts that would avert the immediate risk of a default, 
whilst creating less deflationary pressures.

Have you actually seen the President ever get angrier than he was 
at his press conference announcing the collapse of the 
negotiations on the debt ceiling extension? Not even on health 
care "reform" can we ever recall seeing Obama this engaged, and 
manifesting something close to real emotion as he has here.  That 
does suggest something beyond mere political calculation; it hints 
at core beliefs.

And to what end?  Neither he, nor the Congress appear to recognize 
the downward acceleration in GDP triggered when the spending 
limits are reached if the automatic stabilizers are disabled 
because they are no longer funded as a consequence of the debt 
ceiling limitations (again, a legal, rather than operational 
constraint – the debt ceiling reflects an unwillingness to pay, 
rather than an inability to pay).

So spending will be further cut, debt deflation dynamics will 
intensify, sales will go down more, more jobs will be lost, and 
tax revenues will collapse even further.  Which will set the whole 
process off again:  more spending is cut, sales go down more, more 
jobs are lost, and tax revenues fall more, etc. etc. etc. until no 
one is left working.  All are radically underestimating the speed 
and extent of the subsequent damage.

Unlike President Hoover, who inherited the foundations of a huge 
credit bubble from the 1920s and found himself overwhelmed by it, 
this President is worse.  He is, through his actions, creating the 
conditions for a second Great Depression because of his 
misconceived belief that too much government spending “crowds out” 
private investment, and takes dollars out of the economy when it 
borrows. And therefore, goes the perverse logic, when the 
government stops borrowing to spend, the economy will have those 
dollars to replace the lost federal spending.

And so after the initial fall, Obama believes, it all come back 
that much stronger.

Except, that as my friend Warren Mosler insists , he is dead 
wrong, and therefore we are all dead ducks.

As Warren notes, have you ever heard anybody say 'I wish they'd 
pay off those Tsy bonds so I could get my money back and go buy 

Of course not! Warren:

“Treasury borrowing gives dollars people have already decided to 
save a place to go. Dollars that came from deficit spending- 
dollars spent but not taxed. If they were spent and taxed, they'd 
be gone, not saved.

“Treasury bonds provide a resting place for voluntary savings. 
They are bought voluntarily. They don't 'take' anything away from 

“For example, imagine two people, each with $1 million. One pays a 
$1 million tax. The other doesn't get taxed and decides to buy $1 
million in Treasury bonds.  Pretty obvious who's better off, and 
who's still solvent and consuming.”

Someone please explain this basic economic tenet to the President 
so that he can effect a genuine compromise, not a destructive 
“grand bargain” which will suck trillions of demand out of a still 
fragile economy. The predictable result is of his current stance 
is that, even as he claims to recognize the interlocking nature of 
the problems facing us and vows to “solve the problem” once and 
for all via a “grand bargain”, Obama is in fact tearing apart most 
of the foundations which were tentatively initiated under Hoover, 
but which came to full fruition under FDR.   If he continues down 
this ruinous path, $150 billion/month in spending will be cut. 
Such economic thinking isn’t worthy of Mellon, let alone Herbert 

Marshall Auerback is a market analyst and commentator. He is a 
brainstruster for the Franklin and Eleanor Roosevelt Intitute. He 
can be reached at MAuer1959 at aol.com

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