Hoover raised taxes in the 1931 recession to signal fiscal resolve, deepening the depression

Evidence

This Austrian strain in American thinking about the inevitability of cycles, the centrality of the entrepreneur, and the importance of failure, coexisted with and was boosted by another line of American economic thought that stressed the need for a policy of “sound finance.” Favored by the banking community, these ideas reinforced the Austrian flank by insisting that business confidence, the key to supply-side growth, would only be restored if the government credibly signaled that it would allow the emetic process to unfold as it had to via austerity. While temporary relief of the symptoms of unemployment could be countenanced, the state’s role in such moments devolved to balancing the budget, even raising taxes in a recession if this was deemed necessary, to restore the investor confidence. During 1931, the last year of his administration, Hoover did exactly this to signal resolve in the face of financial difficulties. The result was the worst depression in American history. — Mark Blyth, Austerity, 326

Categorization

• XREF: Connects directly to Mattei’s account of austerity as a policy idea that fails to deliver its promised recovery; also to the IMF-EC-ECB troika orthodoxy discussed in later chapters of this same book. — connects to: Hoover turned to austerity after his public-works response proved fiscally trivial — Mark Blyth, Austerity: The History of a Dangerous…, 507; Hoover’s 1931 tax hike to balance the budget drove US unemployment to 23 percent — Mark Blyth, Austerity: The History of a Dangerous…, 508; Hoover’s treasury secretary Mellon urged liquidating labor and assets during the Depression — Mark Blyth, Austerity: The History of a Dangerous…, 319
• ADDENDUM: The link between ‘sound finance’ banking-community doctrine, business confidence signaling, and raising taxes in a recession parallels the sacrificial logic examined in ‘On Sacrifice’ — austerity as a deliberate act of renunciation to restore confidence.