– March 27, 2020

Can Herbert Hoover, the 31st president of the United States, teach us anything with regards to the present coronavirus pandemic? The answer is that, yes, he can because the incentives that politicians face matter. 

Hoover became president on the eve of the Great Depression and his mandate was defined by the downturn. His management of the crisis has led him to be ranked quite poorly in historical rankings of American presidents. And when one says “poor management,” the most commonly advanced statement is that Hoover stood by and did nothing. 

However, Herbert Hoover was not a “do-nothing” president. First of all, as his biographers make clear, he was well-embedded in the progressive movement. While not a radical progressive, he was clearly neither a classical liberal nor a conservative. Thus, he was not ideologically indisposed towards intervention. 

Secondly, he did propose a ramping up of numerous programs such as government support for farmers. Probably most damaging were his efforts to keep wages up while the money supply and the prices of other goods were decreasing. Keeping nominal wages high while nominal prices were falling had the effect of raising real wages above what was justified by productivity. This raised costs and forced greater levels of unemployment upon the American economy. 

This is why some economic historians (although not all share this view) argue that he lengthened and deepened the recession. Some economists pile on this attempt to prop up wages to his support for the Smoot-Hawley tariff of 1930 which also deepened the recession. In fact, a few even go a bit further by arguing that, by supporting the Smoot-Hawley tariff , he precipitated the recession (the present author is skeptical of this claim, but it is a worthy argument to engage with). Moreover, many of his programs were continued and expanded by his successor, Franklin Delano Roosevelt. 

The extent to which Hoover made things worse by his actions is debated, but few economic historians credit his actions as having helped. Most seem to have been deemed counterproductive. 

Where is the link with the present coronavirus outbreak? Presidents care about their historical reputations. For this reason, the fear of being branded a “do-nothing” like Hoover is a strong enough stimulus to action. This is a strong incentive that shapes their behavior. Combined with the urge to be re-elected, it motivates them to act in a way to avoid the blame once the history books are written. However, they do not shoulder the costs of such actions in the same way as other economic actors. This means that there is an incentive to follow courses of action which may worsen the situation for others. 

In the present crisis, numerous politicians have taken draconian measures such as lockdowns, bans on public gatherings of more than two individuals, and forced closures for certain firms and businesses. However, as some epidemiologists point out, the efficacy of such measures is debatable and they come as considerable costs for those most affected. 

While emphasizing the need for policy action, they are discouraging against certain forms of action that are not clearly beneficial. However, these more draconian measures are beneficial to politicians in that it promotes both their electoral prospects and their standing in history. 

This bias in favor of draconian measures that avoid the stigma of the “do-nothing-Hoover” etiquette stems from the fact that these actions are observable. Even if they impose considerable costs to society at large or hurt the poorest most, they will be privileged over less easily observed but more efficient measures.

Consider for example the fact that there are important trade tariffs on some medical supplies such as face masks. The suspension of such tariffs (even better, the permanent elimination) would be a cheap but efficient policy move. 

Another example of a cheap policy is related to the fact that one of the most serious concerns in the face of the crisis is the supply of hospital beds. Numerous states have supply-side limits on the bed capacity through certificates of needs (CON) laws that explicitly limit hospital competition

The suspension of such laws, and the fast-tracking of hospital projects already underway, could help increase the supply. Easing laws permitting some clinics to provide additional services could also be cheap and efficient ways forward. 

These are only the first examples that come to my mind. Yet, these policies will fail to attract the attention of politicians who need to be seen to act decisively. In the present crisis, this configuration of incentives facing decision-makers is bound to generate policies that we can label as “overkill.” Just as Hoover’s policies during the Great Depression made things worse especially for the poorest in America, the policy responses we see now will hurt. 

Vincent Geloso

Vincent Geloso

Vincent Geloso, senior fellow at AIER, is an assistant professor of economics at King’s University College. He obtained a PhD in Economic History from the London School of Economics.

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