How Government Inaction Ended the Depression of 1921

Mises Institute ^ | May 20, 2015 | Llewellyn Rockwell

[all the best]

As the financial crisis of 2008 took shape, the policy recommendations were not slow in coming: why, economic stability and American prosperity demand fiscal and monetary stimulus to jump-start the sick economy back to life. And so we got fiscal stimulus, as well as a program of monetary expansion without precedent in US history.

David Stockman recently noted that we have in effect had fifteen solid years of stimulus — not just the high-profile programs like the $700 billion TARP and the $800 billion in fiscal stimulus, but also $4 trillion of money printing and 165 out of 180 months in which interest rates were either falling or held at rock-bottom levels. The results have been underwhelming: the number of breadwinner jobs in the US is still two million lower than it was under Bill Clinton.

Economists of the Austrian school warned that this would happen. While other economists disagreed about whether fiscal or monetary stimulus would do the trick, the Austrians looked past this superficial debate and rejected intervention in all its forms.

The Austrians have very good theoretical reasons for opposing government stimulus programs, but those reasons are liable to remain unknown to the average person, who seldom studies economics and who even more seldom gives non-establishment opinion a fair hearing. That’s why it helps to be able to point to historical examples, which are more readily accessible to the non-specialist than is economic theory. If we can point to an economy correcting itself, this alone overturns the claim that government intervention is indispensable.

Possibly the most arresting (and overlooked) example of precisely this phenomenon is the case of the depression of 1920–21, which was characterized by a collapse in production and GDP and a spike in unemployment to double-digit levels.

[all the best]

The forgotten depression of 1920-21. By the time the feds got around to trying to fix it, it had ended. Because they did nothing.

[KC_Lion]

Ping!

[Tupelo]

Harding may well be the most vilified president of the 20th Century, but in the past 10 -12 years I have seen more than a few stories showing him in a better light. Especially in his economic policies. Of course being followed by Calvin Coolidge(my personal favorite) did not hurt.

Hoover and Roosevelt extended the “Great Depression” by at least 5-7 years by ignoring Harding and taking the socialist route. Now Obama has doubled down on their failures and the entire country is following along like sheep(le) to slaughter.

[11th Commandment]

One of the reasons the fed did not try to fix it is because it did not have all the data gathering we have today to know what to do. However, this was a blessing because the data leads us in really bad directions.

For example, during the "Great Depression" the US had the ability to measure national income (predecessor to GDP). Using massive federal spending, the US was able to increase national income. However, when the government hit its metric in 1937/38, it cut spending. The impact- national income declined. This lead many to ask, where did all the money go to.

[TBP]

And government action prolonged and deepened the Depression of 1929.