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Published On: Sat, Apr 17th, 2010

Should we really choose the economic policies of Hoover/FDR over those of Warren Harding to get out the recession?

This is a question that should be asked more often by economists, politicians and the general public. If we take a look at history and the different outcomes of the two depressions, you may be asking the same question.

Remember the depression of 1920-21? No? Well I’m not surprised. It was just a blip in the history of the United States and barely taught in school but is highly instructive.

Much like other depressions and recessions, including the one that started in 2007, the Federal Reserve had been inflating the money supply quite dramatically after World War I. When the Fed finally decided to raise the discount rate, the economy slowed quite a bit.

It was the middle of 1920 and production had dropped 21 percent in 12 months (worse than in 1930 after one year into the Great Depression). Unemployment was at 12 percent and the Gross National Product dropped by 17 percent.

How did Warren Harding handle the economic downturn? He did just the opposite of Herbert Hoover, FDR, George Bush and Barack Obama, instead of trying to “stimulate” the economy; he cut the budget in half.

Instead of doing what the Keynesians of that time suggested and economists like Paul Krugman say now, he attacked the depression by cutting government spending and taxation and reducing the public debt.

The government and the Fed didn’t do any of the actions we saw in the Great Depression or now; they refrained from public works spending, government deficits and inflation—the conventional wisdom as the best solutions to get out of an economic downturn.

The market was instead able to make the appropriate corrections, debt was liquidated and we took our losses.

By August 1921, the economy started over again. Unemployment was down to 6.7 percent in 1922 and 2.4 percent by 1923.

Just a blip in our history…

Even Keynesian economists have said “despite the absence of stimulative government policy, however, recovery was not long delayed” and “the economy rebounded quickly from the 1920-21 depression and entered a period of quite vigorous growth”. Even though they acknowledge the success of a hands-off, tax and spending slashing Harding policy, they still subscribe to the government intervention policies that have proved ineffective over and over.

Look at the above opposed to the 15 long years of economic stagnation under the administrations of Hoover and Roosevelt.

The Great Depression was also a result of loose Fed monetary policies and a huge inflationary boom leading up to 1929. In fact, some economists at the peril of the American people said that America was in an era of permanent prosperity.  Then the bubble burst and the stock market crash of 1929.

What did Hoover and then Roosevelt do? Just the opposite of Warren Harding. Hoover started public works projects, raised taxes, gave emergency loans to failing businesses and lent money to the states for relief. Sound familiar?

Historians wrongly accuse Hoover’s “laissez-faire” approach as the cause for the Great Depression. It was far from laissez faire. Even Roosevelt said that Hoover presided over the “greatest spending administration in peacetime in all history”. Ironically after his criticism, FDR just extrapolated on Hoover’s programs when he came into office (and the list of government programs is an alphabet soup of economy destroying policies).

FDR just out-Hoovered Hoover.

In a nutshell, unlike Harding, the Hoover/Roosevelt tandem wouldn’t let the economy’s bubble deflate. Does this sound like a more current tandem? They propped up failed businesses and diverted money from the private sector into public works projects that did nothing for the long term economy.

Even economists from UCLA, not exactly a bastion for free-market thought, calculated that the destructive policies of Franklin Delano Roosevelt extended the depression by at least 7 years.

So here comes 2007 and the worst recession since the 1930s. Team Bush/Obama strangely reminiscent of Hoover/FDR, try the same big government “stimulus” policies, to pull the country out of the recession. Now we have the $787,000,000,000 American Recovery and Reinvestment Act.  Will we never learn?

Interestingly enough, Team Bush/Obama didn’t need to go back to the beginning of the 20th century to figure out what works (tax and spending cuts, slashing debt and a passive Fed monetary policy) and what doesn’t (government “stimulus” and easy credit and a loose money supply).

All they had to do is look at the economic policies that have left former economic powerhouse Japan in economic stagnation for the past two decades. Same horrible policies, same horrible outcomes.

Unfortunately for us, Mr. Obama will continue these economic policies with no end in sight. And the situation now is actually worse than the situation during the Great Depression. Then we were a creditor nation and had some semblance of a strong currency. Now we are a huge debtor nation with a dollar on the brink of collapse.

Unless things change now and change drastically, I believe we are in this for the long, long haul.  

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About the Author

- Writer, Co-Founder and Executive Editor of The Global Dispatch. Robert has been covering news in the areas of health, world news and politics for a variety of online news sources. He is also the Editor-in-Chief of the website, Outbreak News Today and hosts the podcast, Outbreak News Interviews on iTunes, Stitcher and Spotify Robert is politically Independent and a born again Christian Follow @bactiman63

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