23 Aug 2011

Lee Ohanian Explains Why Hoover Did More Than “Jawbone” Businesses

Economics 15 Comments

Mark Priddy (a student in my Keynes class) reminded me of this great paper by Lee Ohanian of UCLA. Some of you (Blackadder, in particular) never liked the currently fashionable Austrian move of blaming Herbert Hoover for propping up wage rates and thus exacerbating unemployment in the early 1930s. Ohanian gives the rest of the story.

15 Responses to “Lee Ohanian Explains Why Hoover Did More Than “Jawbone” Businesses”

  1. Daniel Kuehn says:

    Have you read Rose’s paper in the JEH on this?

  2. Blackadder says:

    Interesting paper, but the upshot of it is that the Depression would have been even worse without Hoover’s actions.

    According to Ohanian, the reasons firms were willing to accept Hoover’s wage demands is that the alternative would have been dealing with union wage demands. That only works if firms dealing with the unions probably wouldn’t have been able to cut wages either. And indeed, Ohanian’s own model shows that if firms had chosen to deal with the unions the Depression would have been even more severe. So ironically if Ohanian is right then Hoover’s actions were largely beneficial (though presumably it would have been even better if Hoover had made it his mission in life to destroy the unions, etc.)

    I’m not sure if I buy the “Unions did it” story, but it’s something to think about. Certainly it’s more persuasive than the Hoover jawboning story.

    • bobmurphy says:

      At this point Blackadder I blame you for the Great Depression.

      • Blackadder says:

        Bob, I think you just won the Internet.

    • kavram says:

      Unions had surprisingly less influence at the time, since FDR had yet to sign the National Labor Relations Act (the act that practically made it illegal to fire unionized workers). I doubt they could’ve fixed wages to the degree that Hoover did

      • Blackadder says:

        I doubt [Unions] could’ve fixed wages to the degree that Hoover did

        Hoover didn’t fix wages. He told businesses that if they didn’t accept his recommendations, they would have to deal with the unions.

        • kavram says:

          well not explicitly, he never enacted wage/price controls if that’s what you mean. But pretend you’re a business owner in the early 30’s and the POTUS calls you into his office and requests that you not cut wages. Do you really want to refuse his request and potentially get on the President’s bad side?

          It’s kindof like if a Mafioso thug kindly requests for “protection money,” obviously you are free to not pay, but you know that not doing so will likely lead to a worse outcome. (For the record, I’m not stating moral equivalence, I’m merely comparing them from a microeconomic rational-choice perspective).

          Anyways, I maintain that unions are pretty powerless without government backing, as evidenced by the fact that they need laws granting them special privelages in order to succeed.

    • Nicholas Glenn says:

      Hoover could have have told the business leaders he would help them with the Union problem, and for them to go ahead and cut wages to increase productivity. That would have been what the mythical “Laissez-Faire” Hoover would have done.

    • bobmurphy says:

      Blackadder, let’s do this in stages. Do you agree with me in this article when I claim that unions only have their power because the government prohibits employers from hiring military services to defend themselves against violent strikes?

      • Blackadder says:


        I don’t agree. Wildcat strikes, for example, need not depend on violently preventing employers from hiring replacements to be effective, and there are lots of tactics short of the strike (e.g. work to rule, go slow, etc.). I could go on, but you get the point.

        This isn’t to say that unions can’t be given greater power by the state than what they would have otherwise, of course.

        • Silas Barta says:

          Do you think that these kinds of union actions have no long-term effect on employer estimation of the value of labor in that region/union/workplace? Do you think that employers say, “hm, the workers are deliberately slowing down … I guess I’ll just have to put up with this and walk right into any future slowdowns that happen … I’ll tell S&P to hold off on the upgrade”?

          • Blackadder says:

            Do you think that these kinds of union actions have no long-term effect on employer estimation of the value of labor in that region/union/workplace?


            • Blackadder says:

              Above answer should be: surely not. Of course it has an effect.

  3. David S. says:

    This is incredibly moronic. How big were Hoover’s interventions in GDP terms compared to every president that followed? Give me a break.

    Stick to the bible Bob. Everyone’s better off with you focusing on things that don’t matter.