The following is from a message by president herbert hoover...

The following is from a message by President Herbert Hoover to Congress, dated May 5, 1932: I need not recount that the revenues of the Government as estimated for the next fiscal year show a decrease of about $1,700,000,000 below the fiscal year 1929, and inexorably require a broader basis of taxation and a drastic reduction of expenditures in order to balance the Budget. Nothing is more necessary at this time than balancing the Budget. Do you think President Hoover was correct in saying that, in 1932, nothing was more necessary than balancing the federal government's budget? Explain.

Transcript

00:01 So the key thing here about this question is that 1932 puts a smack in the middle of the great depression, right? unemployment at this time is something like 30%.

00:13 The nation is in the midst of a vicious, unprecedented crisis economically.

00:21 There's been nothing like this that's ever happened before or since in america.

00:26 And that calls for extraordinary measures, right? my view on this is that, look, yes, balancing the budget may be good, but you have to weigh it against the times that we're in.

00:45 But or as an economist would think about it, to think of the opportunity cost of doing so.

00:55 The economy is already in a major, major slump, right? unemployment is through the roof, production is down, people are starving.

01:03 There is a huge problem, right? balancing budget will further reduce aggregate demand and make the depression worse, right? balancing the budget requires the government, as hoover is saying here, to reduce expenditure and increase taxes.

01:24 That's going to just be a recipe for further decreasing economic activity, right? the balancing of the budget is going to reduce the economic activity, make the depression even worse, increase unemployment even more.

01:39 I absolutely agree that everything else equal, balancing the budget is good.

01:45 But this is not the priority, right? it's like when the ship is on fire, right, do you, you know, don't worry about icebergs.

02:02 Here the ship is on fire, right? the ship is on fire.

02:05 People are on fire...

Question

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