1932  Will It Never End?

% gdp
The depression continued in 1932 and President Herbert Hoover actively intervened to reverse it. Congress passed and the president signed the Reconstruction Finance Act. It authorized the establishment of a Reconstruction Finance Corporation, modeled after the War Finance Corporation of World War I, and loaned money to banks, railroads, and agricultural organizations. The RFC also extended aid to state and local governments. In 1932, it dispersed a total of $1.5 billion. By 1932 the federal government’s budget balance was seriously in deficit and President Hoover pushed the Revenue Act of 1932 through Congress. It raised individual tax rates with the top rate increasing from 25 percent to 67 percent, doubled inheritance taxes, and raised corporate income taxes by 15 percent.

In the November presidential election campaign, Governor Franklin D. Roosevelt of New York criticized the incumbent President Hoover for increasing government spending, blocking trade, and putting millions of Americans on the dole. Governor Roosevelt won the election in a landslide of 42 states to 6 and a popular vote of 57 to 40 percent over President Hoover. In the Senate elections the Democrats picked up 12 seats, and in the House elections an additional 97 seats. In the new 73rd Congress the Democrats controlled the Senate with 59-36 seats, and in the House with 313-117 seats.

Bailing Out Businesses with the RFC

The Reconstruction Finance Corporation was created after President Hoover signed the RFC Act of 1932 in January. It was designed to lend to national and state-chartered banks that benefited the public the most. It could lend for railroad construction and crop lands and, after July 1932, to state and local governments.
Intention: The RFC was intended to boost the country’s confidence and help banks resume normal functions.Liberal Line: Wait a minute! The RFC was a New Deal program!
Outcome: The loans made by the RFC helped slow the decline in the money supply, but did not stop the bank failures, nearly 1,500 in 1932.Conservative Line: Just another bailout program that solved nothing.

Raising Tax Rates in the Middle of a Depression

By the start of 1932 the Hoover administration had become very concerned about the federal government’s solvency. Federal spending had surged from $3 billion to $7 billion and the surplus of 1929 had become a $4 billion deficit. Something had to be done. The solution was the Revenue Act of 1932 that increased federal income tax across the board, with the top rate increasing from 25 percent to 63 percent. The estate tax was doubled, and corporate income tax rates were raised by 15 percent.
Intention: The increase in taxes was seen as a necessary action to staunch the hemorrhaging of the federal government’s finances.Liberal Line: Typical President Hoover, trying to balance the budget instead of helping people.
Outcome: The expected revenue did not materialize. Government spending continued to increase and the revenues continued to collapse. Spending in fiscal year 1932 was $6.92 billion and the deficit ballooned from 0.8 percent of GDP in 1931 to 6.8 percent of GDP in 1932.Conservative Line: Hoover’s attempt to increase revenue by increasing tax rates was bound to fail.

1929-1939: “A Decade that will live — in stupidity.”

Why Stuck on Stupid?

Seventy years ago the leaders of both US political parties turned away from the policies that had created an economic powerhouse we call the Roaring Twenties. For ten long years Americans suffered through wrenching economic dislocations: deflation, inflation, a four-year economic contraction, endless unemployment, mindless political experiments, and ruthless attacks on businessmen for political gain as their leaders stayed Stuck on Stupid.

Today, after a twenty-five year economic boom, Americans are once more faced with a political elite that wants to monkey with success. It wants to raise tax rates. It wants to restrict trade. It wants to increase government power.

It’s time to look back and remind ourselves how it came to be, starting in 1929, that America got itself Stuck on Stupid. Otherwise it could happen again.

 — Christopher Chantrill



> archive

presented by Christopher Chantrill