Facebook pixel The New Deal | Pepperdine School of Public Policy Skip to main content
Pepperdine | School of Public Policy

The New Deal

Herbert Hoover Speeches

Spending, Deficits, Debts, and Their Consequences

Herbert H. Hoover

California Republican Assembly, Oakland, California

You represent the young men and women in American life.  Before you is the responsibility of determining the fate of your generation.  Three years ago we were warning America against the consequences of the adoption of the ideas and the system which have since been forced upon us.  You have now had nearly three years in which these ideas and policies have dominated the nation.  They are no longer glowing promises of the more abundant life.  They are no longer emotional expressions of high objectives or good intentions.  They are practices in government.  You now deal with somber realities.  Now they can be examined and appraised in the cold light of daily experience.

And we have need to awake from the spell of hypnotic slogans.  Phrases can be made to scintillate like the aurora borealis, but such phrases are of as much practical utility in government of a great people as the aurora itself.  But the issue of America is not a battle of phrases, but a battle between straight and crooked thinking.  We need a return from muddling to sanity and realism.  We need to test ideas and actions with the plain hard common sense which the America people possess more greatly than any other nation.  We must bring that common sense into use if we are to resume the march of real progress.

The few minutes of this occasion do not afford time for examination or discussion of the enormous range of actions and confusions of public mind in these last three years.  I therefore shall confine myself to one hard practical subject—the fiscal policies of this administration.  In plain words I will discuss this policy of deliberate spending of public money.

I am taking up this issue because in this gigantic spending and this unbalanced budget is the most subtle and one of the most powerful dangers which has been set in motion by this administration.  If it be continued, its result to you, the young men and women of America, is as inexorable as an avalanche.

We must first examine the record as to what is being done and then diagnose the consequences.

As to the records, if you will examine the Reports of the Bureau of the Budget, you will find that the Roosevelt administration has changed the form of publishing governmental accounts.  That raises a barrier against easy comparisons with previous administrations.  All administrations since Washington were old-fashioned and simply put expenses down on one side of the ledger and receipts on the other.  They did not try to fool the taxpayer or make the taxpayer feel better than he really was.  Under the New Deal the expenditures have been divided into "Regular” expenditures and "Emergency” or "Recovery” expenditures.  These are new words for an old South American and European device of dividing the budget into "ordinary” and "extraordinary” budgets.

That device is most helpful in abundant spending.  By liberalism in what you designate as the "emergency” and "regular” expenditures you can blandly pronounce the ordinary budget as balanced.  Then all your deficit is concentrated in the "extraordinary” or "emergency” part of the budget, and having made the deficit a plausible necessity you justify borrowing, and make the spending happier for everybody.  The theory is that the next generation should pay for the emergencies of this generation.

The report of the Federal Budget Bureau shows that large items which have been an essential part of the government expenditures for years have now been styled "emergency.”  The vast area of spending through loans guaranteed by the government is not represented in the budget with any taxpayer's liability.  Under this arrangement the losses on that will come to the next generation.  And there are large items now excluded from the statements of expenditures which improve the looks of the accounts.  These jugglings will no doubt ease the taxpayer's mind, but they will not relieve his pocket.

However, we can with diligence dig the facts out from under these methods, and despite all these obstacles can compute with fair certainty from the present commitments where the nation will be in another fifteen months.

The first conclusion is that all losses counted in the expenditures are now running over $8,000,000,000 a year.  The annual deficit is running nearly three and a half billions, and each dollar of deficit is of course added to the national debt.

The second conclusion is that the unpaid government obligations which will fall upon the taxpayer at the end of the Roosevelt administration will exceed $35,000,000,000.

The third conclusion is that this peacetime debt will at the end of 1936 exceed our World War debt by ten billions, and the cost of the New Deal threatens to exceed that of the Great War.

Incidentally, outside of recoverable loans, the Roosevelt administration spending will exceed the Hoover administration by from $14,000,000,000 to $15,000,000,000.  I always have difficulty trying to comprehend what $14,000,000,000 or even $3,500,000,000 really is.  But I know that even the mere $3,500,000,000 would buy me 90,000,000 suits of clothes.  At least that is about one suit for every mile between the earth and the sun.

It is of course true that during the last years of the last Republican administration deficits were incurred.  Just as advance information on misrepresentation, I may state that the deficits of those years were not as large as are being made to appear by the New Deal publications.  They include expenditures which the New Deal now excludes in publishing its own accounts.  They also include over two billions of loans to industry, agriculture, and banks, which have since been mostly collected and spent by the New Deal administration.  But the important thing is that the Republican administration genuinely endeavored to balance the whole government budget.  That was not a pious subterfuge.  It was a definite program.  The record shows that in the year 1931 the Democratic Congress was urged by the Republican administration to enact additional revenues of $1,200,000,000 and to co-operate in a cut of $600,000,000 of less pressing expenditures.  Only a part of this revenue was wrung from the Democratic Congress after nearly six months of fighting, delay, and obstruction, punctuated by vetoes of pork-barrel appropriations.  Even then over half of the recommended decreases in expenditures were rejected.  Again in 1932, $700,000,000 of additional revenues and $300,000,000 of additional reductions in expenditures were urged, and again, after months of delay, were refused altogether.

It is not overstatement to say that had the Republican principles of balancing the budget been accepted in 1931 and 1932, the final stone in the foundation of permanent recovery would have been laid three years ago instead of deferred for years hence.

I do not need recall the promises so vigorously put forward by the Democratic platform, the Democratic candidate, and the Democratic orators in the campaign of 1932—the promises that they would balance the budget and reduce expenditures by one billion a year.  I may suggest that our opponents in 1932 would have received far less votes had they disclosed to the country their intention to increase the expenditures by $14,000,000,000 in four years; or had they disclosed that they would maintain a deficit of three and a half billions per annum; that they would increase the number of government bureaucracy by 160,000 persons and create five thousand paid committees and commissions.  They would have lost still more votes had they informed us that they would abandon the gold standard; that they would devalue the dollar by 41 per cent; that they would repudiate government obligations; that they would seek to circumvent the Constitution; that they would attempt to socialize and regiment Americans.  It is perhaps not an overstatement that on the now demonstrated principles of this administration they could not have won the election of 1932.

But the wreckage of representative governments is strewn with broken promises.

I do not need to tell any one within the sound of my voice of that huge waste in government expenditures that is going on.  Every one of you knows instance after instance of waste and folly in your own city and village.  It appears day by day in the headlines of your papers.  Think it over and multiply it by all the thousands of other towns and communities in the United States and get the appalling total.

I would call your attention to the numbers and potency of the army of spenders which has been created.  According to the reports of the Civil Service Commission, there were about 573,000 civilian employees in the Federal Government at the end of the Coolidge administration.  There were about 565,000 at the end of the Hoover administration.  There are 730,000 today.  And this does not include some 100,000 part-time paid members of some 5,000 committees and agencies of one sort or another who all spend money.  Nor does it include the people on relief.  The whole system of non-political appointments under the Civil Service which had been steadily built up by every administration for years has now been practically ignored.  Almost this whole addition of 260,000 new people on the Federal payroll constitutes the most gigantic spoils raid in our history.  Even Andrew Jackson appointed less than ten thousand.

Whenever you increase the numbers of political bureaucracy you not only have to pay them but they are veritable research laboratories for new inventions in spending money.  Bureaucracy rushes headlong into visions of the millennium and sends the bill to the Treasury.  And there are three implacable spirits in bureaucracy—self-perpetuation, expansion, and demand for more power. Moreover, they also serve to help win elections.

The Roosevelt administration is now clutched in the meshes of the gigantic spending bureaucracy which it has created.  Even with expenditures of some eight billions annually, with deficits of about $3,500,000,000, there is to be no "breathing spell” in spending, as witness the ten billions of new appropriations just passed by Congress.  One administration writer kindly assures us that the budget will be balanced four years hence in 1939.  That happy ending no doubt marks the end of anything to spend.

Incidentally the Congress supinely surrendered one of the hardest-won battles of human liberty—the control of the nation's purse.

When we protest at those expenditures we are met with the sneer, "Would you let the people starve?”  No, never!  It was, in fact, a Republican administration that in 1930 announced that no American should go hungry or cold through no fault of his own.  It organized the relief so effectively by co-operation of the Federal Government with the state and local authorities that the public health actually improved during that whole period. And here let me pay tribute to the thousands of devoted men and women who gave of their time and energies to conduct that relief over three long years.  Theirs was no political objective.  Nor was it their object to spend the people's money to prime economic pumps, nor to make social experiments which delayed real jobs.  Theirs was a solicitude that those in distress from no fault of their own should be tided over until productive jobs returned.

Real relief is imperative, but its necessary and generous cost unmixed with other objectives would be but a minor part of this eight billions per annum.  The presumed purpose of this spending has been to secure recovery.  And we may well inquire what has been accomplished toward finding real jobs in productive industry and commerce by this roaring torrent of Federal spending and deficit.  The best measure of the depression is the number of employed.  Justly, I take the date of the election of November, 1932, for this test.  For months prior to that election unemployment had been steadily decreasing, but with the election, industrial orders were canceled; the nation at once slowed down its engine.  As the fiscal and currency policies of the New Dean were gradually disclosed, the nation skidded into a bank panic.  From the day of that election, the New Deal policies dominated economic and business life.  In October, 1932, prior to the election, there were 1,585,000 people out of work, according to the American Federation of Labor.  Sixty days ago, two years and eight months after election, after all this gigantic spending, there were still 10,900,000 unemployed, according to the same authority, or a decrease of only 700,000.  And if it were not for artificial support of industry by this hugely increased flood of government money, the unemployment would be greater than in 1932.

In any event, all this spending of deficits has not consequently restored genuine jobs in industry and commerce.  The reduction of the unemployed was its only conceivable justification. As a matter of fact, until the Supreme Court decisions of last spring, the industrial world had been so scared as to stifle employment.  By destroying confidence the administration has retarded recovery.

Since those Supreme Court decisions, the nation is showing some hopeful signs of progress.  Every American prays that it may be genuine and come quickly—not alone because it would end infinite misery but because with recovery would come an atmosphere in which the vast problems of the nation can be solved more rationally and more fully.  They could be solved in a spirit of Americanism rather than be dominated by the spirit of Europeanism.  But whatever recovery we have is constantly endangered by this riotous spending and this unbalanced budget.  We cannot spend ourselves into real prosperity.  Certainly an artificial prosperity can be created by borrowing to spend, whether by individuals or governments.  That is joy-riding to bankruptcy.

These gigantic budget deficits must inevitably be paid for somehow, sometime.  There are only three ways to meet the unpaid bills of a government.  The first is taxation.  The second is repudiation.  The third is inflation.

Already our country is highly taxed.  Our total taxes today—Federal, state and local—are the highest of any great country in the world except the British, even in proportion to our national income.  But the British have a balanced budget and are yearly reducing taxes.  We, even with our burden of taxes today, must take on the further load from a budget about fifty percent balanced.  We are on the way deeper into the morass of more and more taxes.  The British are on their way out of the stifling swamp of taxation.

Who will pay these taxes?  We have just seen a tax bill estimated to produce $300,000,000 per annum.  That apparently could not have been designed to meet the regular annual deficit of three and a half billions.  It was put forward with the slogan "Soak the Rich.”  But with the passage of that bill the rich are now "soaked.”  We may therefore conclude that some one else will have to meet the $3,250,000,000 remaining annual deficit if the bill is paid.  If it is paid by taxes those taxes must fall on the so-called economic middle class and the poor.  There is no one else left.  The poor will pay out of indirect taxes, hidden in the rent and everything they buy.  And when the price of the necessaries of life to those who have but a living wage is advanced by hidden taxes, those people are not sharing a surplus with the government.  They have no surplus.  The poor must go without something in order to pay the taxes wrapped up in the package they take from the store.  Every butcher knows that today the poor are depriving themselves of bacon and meat.  The economic middle class—whether they be farmers or workers at the bench or the desk, professional or businessmen—produce eighty per cent of the national income.  They, like the poor, will pay by indirect taxes in the cost of living, and in addition, they will pay again and again in direct taxes.  No matter where you place taxes, the bulk of them must come from those who work and produce.

The subtle process of issuing government bonds to pay that deficit not only leaves it to be paid from your lifelong earnings, but it daily creates new dangers.  No doubt these unpaid bills can be canceled by repudiation.  The New Deal form of repudiation is devaluation.  We can further devalue the dollar—which is, of course, repudiation on the installment plan.  Devaluation is a modern and polite term for clipping the coin.  Rome relied upon this method during its decline.  If devaluation has the inflationary effect that the New Deal claims, then in the long run it raises the prices of everything we buy and the cost of living goes up to everybody, farmer and worker alike.  The loss comes out of the people.  But more than that, the returns from your insurance policy, your savings account for old age and for your children, your veteran's allowance, and your old-age pension, are also depleted in purchasing power.  Who then pays?  It is the same economic middle class and the poor.  That would still be true if the rich were taxed to the whole amount of their fortunes.

It is not my purpose to discuss the credit or currency policies of this administration, but you may put it down both economically and historically that every continued government deficit has led to inflation in some form.  That is the implacable avenger of profligate spending in government.  Our government today is in large degree financing its deficit by credits from banks and financial institutions upon the government promise to pay.  By this action a large part of that credit is being manufactured.  I will not take your time to describe the process.  It is a sort of dervish dance, whirling from budget deficits to government bonds, from bonds to bank credit, from bank credit to more government spending.  That is one of the oldest and most dangerous expedients used by spendthrift governments.  The new banking laws make it all easy.  Governments must, in some emergencies, finance through the banks.  But it must be only for the short interval necessary to raise increased revenues and reduce expenses.

The general public mind has been focused on the notion that inflation consists merely of printing-press money.  There is also printing-press credit.  That is a subtle daily increasing danger.  Already it has contributed to increase the price of the things you buy and the cost of living.  The present rise in the stock market is ample proof that some people know it.  There is a place on that road where there lurks an appalling national peril.  We have not reached these extremes, but that is the road we are traveling.  The administration may not know where they are going, but they are taking us with them.

Let us not forget that deficits and their resulting debts can be subtly accumulated to a volume where in agony democracy cannot be led to shoulder the taxes to lift them.  The tragedy is that the people at large are lulled into the belief that these borrowed deficits cost them nothing; that they do not have to pay; that the money comes out of some indefinite source without obligation or burden to them.

Deficits and debts can be paid by other forms of inflation, such as printing-press money—and then you go down the road that led Germany to ruin.  Who paid in Germany?  The economic middle class and the poor.  The farmer, the worker, the business and professional people—none escaped ruin.  They paid by the loss of all their savings; they paid until they were reduced to a universal and unparalleled poverty.  They paid more than this; they paid with liberty in the gutter, for universal poverty created a gigantic tyranny.

These indirect or direct schemes of inflation have been the curse of the earth since the World War.  They were one of the causes of our mad speculation in 1927 to 1929.  They were the immediate cause of the European collapse in 1931 and the world-wide depression.  And let me say that if the history of that last hundred years teaches anything, it is that inflation is more dangerous to a people than war.  It has been the abyss into which democracy has fallen in recent years.  It has been the cradle of tyranny in a dozen countries.  And they all started by inflating bank credit.

It is easy to overstate the dangers.  We yet have time to save any such peril.  But you will find that my view is a mild remonstrance compared to that of President Roosevelt's own Director of the Budget, who resigned because of these policies.

Even if these greater dangers of inflation be avoided, who will pay the bill in the end?  These billions of wasteful deficits will be paid by putting our hands into the pockets of you who are young and keeping them there all your lifetime.  It is not only a reduction of your standard of living but of your freedom and your hopes.

There can be no device by which the people may escape paying for this spending.

Here is where common sense cries out to be heard.  The folly and waste must be cut out of the expenditure and the Federal Budget balanced, or we shall see one of these three horsemen ravage the land—Taxation, or Repudiation, or Inflation.

We are asked for a constructive program.  The first step is a sound fiscal policy.

This flood of spending is but one of the many realities of the New Deal.  It is your duty to examine them all with the torch of common sense and appraise them in the sole light of the future of America.  And you should examine them with open mind.  You will find some that you should commend.  You will find some of right objective and wrong method, such as the acts regulating securities, the old-age pensions, and unemployment insurance.  You will find many that are destructive of every ideal and aspiration of American life and will destroy the value of all the acts that are good—and more.

And there is but one test you should apply—will these measures restore the prosperity of America?  Will they restore agriculture?  Will they give real jobs instead of the dole?  Will they maintain personal liberty?  Will they make America a happier, a better place in which to live?

In dealing with these great problems you need to remember that the shocks we have received from the War and the depression have created great despair and great discontent with representative government, and individual freedom.  Our system has faults but these faults are but marginal.  They must be constantly corrected.  Special privilege, exploitation of labor, the consumer, or the investor have no right or part in it.  But the soil of the American heritage of liberty is still fertile with vast harvest of human security and human betterment.

Alert opposition and incisive criticism and debate are the safeguards of a Republic.  But that is not enough.  The vast revolution in the powers of science and technology has placed within our grasp a future and a security never hitherto glimpsed by mankind.  The people hunger for the comfort, the security, and the freedom of spirit which we know they may bring.  But we would have but an empty husk should they come at the sacrifice of liberty.  Those securities will come if we do not stifle and handcuff the productive genius which alone thrives in freedom.  In the large, out problem is to stimulate and utilize the great productive capacity of our people.  Herein is the great constructive program—to find the road by which we may attain the vast enrichments of science and technology within the province of private enterprise and personal liberty.  Therein we must add the new upon the structure of the old—for therein lie the foundations of centuries of human effort.  It will succeed not through vast generalizations but through human sympathy, detailed policies, hard common sense, and political realism.  That is the greatest opportunity of statesmanship in two generations.

In the coming months the Republican Party will meet in convention with the responsibility of determining its policies.  It will be the most vital convention since 1860.  That convention should comprise the thousand best men of the Republican Party.  Theirs is the duty to enunciate great principles.  They should be inspired to determine a program of policies to solve great issues.  Minor issues, petty opposition, sectional interest, group ideas, and every shred of personal ambition must be dumped, that this great responsibility, this great spiritual purpose may be accomplished.  None of these things must count in the fate of the nation.  Upon the wisdom and courage of these men will depend the future of America.