Uncommon Sense

politics and society are, unfortunately, much the same thing

How Government Inaction Ended the Depression of 1921

original article: How Government Inaction Ended the Depression of 1921
May 20, 2015 by Llewellyn H. Rockwell Jr.

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. But by the time the federal government even began considering intervention, the crisis had ended. What Commerce Secretary Herbert Hoover deferentially called “The President’s Conference on Unemployment,” an idea he himself had cooked up to smooth out the business cycle, convened during what turned out to be the second month of the recovery, according to the National Bureau of Economic Research (NBER).

Indeed, according to the NBER, which announces the beginnings and ends of recessions, the depression began in January 1920 and ended in July 1921.

James Grant tells the story in his important and captivating new book The Forgotten Depression — 1921: The Crash That Cured Itself. A word about the author: Grant ranks among the most brilliant of financial experts. In addition to publishing his highly regarded newsletter, Grant’s Interest Rate Observer, for more than thirty years, Grant is a frequent (and anti-Fed) commentator on television and radio, the author of numerous other books, and a captivating speaker. We’ve been honored and delighted to feature him as a speaker at Mises Institute events.

What exactly were the Federal Reserve and the federal government doing during these eighteen months? The numbers don’t lie: monetary policy was contractionary during the period in question. Allan Meltzer, who is not an Austrian, wrote in A History of the Federal Reserve that “principal monetary aggregates fell throughout the recession.” He calculates a decline in M1 by 10.9 percent from March 1920 to January 1922, and in the monetary base by 6.4 percent from October 1920 to January 1922. “Quarterly average growth of the base,” he continues, “did not become positive until second quarter 1922, nine months after the NBER trough.”

The Fed raised its discount rate from 4 percent in 1919 to 7 percent in 1920 and 6 percent in 1921. By 1922, after the recovery was long since under way, it was reduced to 4 percent once again. Meanwhile, government spending also fell dramatically; as the economy emerged from the 1920–21 downturn, the budget was in the process of being reduced from $6.3 billion in 1920 to $3.2 billion in 1922. So the budget was being cut and the money supply was falling. “By the lights of Keynesian and monetarist doctrine alike,” writes Grant, “no more primitive or counterproductive policies could be imagined.” In addition, price deflation was more severe during 1920–21 than during any point in the Great Depression; from mid-1920 to mid-1921, the Consumer Price Index fell by 15.8 percent. We can only imagine the panic and the cries for intervention were we to observe such price movements today.

The episode fell down the proverbial memory hole, and Grant notes that he cannot find an example of a public figure ever having held up the 1920–21 example as a data point worth considering today. But although Keynesians today, now that the episode is being discussed once again, assure everyone that they are perfectly prepared to explain the episode away, in fact Keynesian economic historians in the past readily admitted that the swiftness of the recovery was something of a mystery to them, and that recovery had not been long in coming despite the absence of stimulus measures.

The policy of official inaction during the 1920–21 depression came about as a combination of circumstance and ideology. Woodrow Wilson had favored a more pronounced role for the federal government, but by the end of his term two factors made any such effort impossible. First, he was obsessed with the ratification of the Treaty of Versailles, and securing US membership in the League of Nations he had inspired. This concern eclipsed everything else. Second, a series of debilitating strokes left him unable to do much of anything by the fall of 1919, so any major domestic initiatives were out of the question. Because of the way fiscal years are dated, Wilson was in fact responsible for much of the postwar budget cutting, a substantial chunk of which occurred during the 1920–21 depression.

Warren Harding, meanwhile, was philosophically inclined to oppose government intervention and believed a downturn of this kind would work itself out if no obstacles were placed in its path. He declared in his acceptance speech at the 1920 Republican convention:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

Harding, that least fashionable of American presidents, was likewise able to look at falling prices soberly and without today’s hysteria. He insisted that the commodity price deflation was unavoidable, and perhaps even salutary. “We hold that the shrinkage which has taken place is somewhat analogous to that which occurs when a balloon is punctured and the air escapes.” Moreover, said Harding, depressions followed inflation “just as surely as the tides ebb and flow,” but spending taxpayer money was no way to deal with the situation. “The excess of stimulation from that source is to be reckoned a cause of trouble rather than a source of cure.”

Even John Skelton Williams, comptroller of the currency under Woodrow Wilson and no friend of Harding, observed that the price deflation was “inevitable,” and that in any case “the country is now [1921] in many respects on a sounder basis, economically, than it has been for years.” And we should look forward to the day when “the private citizen is able to acquire, at the expenditure of $1 of his hard-earned money, something approximating the quantity and quality which that dollar commanded in prewar times.”

Thankfully for the reader, not only is Grant right on the history and the economics, but he also writes with a literary flair one scarcely expects from the world of financial commentary. And although he has all the facts and figures a reader could ask for, Grant is also a storyteller. This is no dry sheaf of statistics. It is full of personalities — businessmen, union bosses, presidents, economists — and relates so much more than the bare outline of the depression. Grant gives us an expert’s insight into the stock market’s fortunes, and those of American agriculture, industry, and more. He writes so engagingly that the reader almost doesn’t realize how difficult it is to make a book about a single economic episode utterly absorbing.

The example of 1920–21 was largely overlooked, except in specialized treatments of American economic history, for many decades. The cynic may be forgiven for suspecting that its incompatibility with today’s conventional wisdom, which urges demand management by experts and an ever-expanding mandate for the Fed, might have had something to do with that. Whatever the reason, it’s back now, as a rebuke to the planners with their equations and the cronies with their bailouts.

The Forgotten Depression has taken its rightful place within the corpus of Austro-libertarian revisionist history, that library of works that will lead you from the dead end of conventional opinion to the fresh air of economic and historical truth.

budget, conservative, crisis, economics, economy, funding, government, history, ideology, philosophy, politics, president, public policy, recession, Republicans, right wing, spending

Filed under: budget, conservative, crisis, economics, economy, funding, government, history, ideology, philosophy, politics, president, public policy, recession, Republicans, right wing, spending

If you want to help the poor take an honest look at the data instead of cherry picking it

So you think you know how the world works? The very popular push to raise the minimum wage to $15/hour is in full swing and gaining ground. But there are many false assumptions at work in this movement. I realize some of you already are aware employees get their paychecks from their employers, the businesses who’ve hired them. But not everyone knows this. And many people don’t realize where businesses get their money; many think all businesses have millions in cash resting safely in the bank, and the only reason workers are paid low wages is because of corporate greed. That’s the sort of enlightened ignorance that governs not only the popular movement for a $15/hr minimum wage, but also the political one.

So instead of reading (or rather listening to someone else talk about) only the things $15/hr advocates want to hear, someone needs to explain how the world really works. These two articles address the flawed studies used to support the high minimum wage.

A $15 minimum wage is a terrible idea
June 22, 2013 by Dylan Matthews

Raising minimum wage won’t lower poverty
September 16, 2011 by Michael Saltsman

The Congressional Budget Office has looked at a higher minimum wage as well, and that office says something very different from what President Obama is saying.

Minimum Wage Hike Could Cost 500K Jobs, CBO Reports
February 18, 2014 by JOHN PARKINSON

Of course, if you’re really a nut job who wants to actually look at a real study instead of just reading news articles journalists have written about the data, you can find one here:
Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?
January 2013 by David Neumark, J.M. Ian Salas, William Wascher

I also recommend considering some dangerously explicit common sense on the matter.

Fast Food Workers: You Don’t Deserve $15 an Hour to Flip Burgers, and That’s OK

culture, economics, economy, government, ideology, left wing, liberalism, nanny state, philosophy, political correctness, poverty, progressive, propaganda, public policy, recession, reform, regulation, socialism, spending, study, unintended consequences

Filed under: culture, economics, economy, government, ideology, left wing, liberalism, nanny state, philosophy, political correctness, poverty, progressive, propaganda, public policy, recession, reform, regulation, socialism, spending, study, unintended consequences

Liberal Tea Party good, actual Tea Party bad?

NBC Cheers Wall Street Protests As Liberal Version of Tea Party But Denounced Actual Tea Party
October 3, 2011 by Kyle Drennen

On Monday’s NBC “Today,” correspondent Michelle Franzen reported on the left-wing “Occupy Wall Street” protests in New York and proclaimed: “Protesters fed up with the economy and social inequality turned out en masse over the weekend….Voicing their discontent and marching for change.”

Touting the protest as “a movement that has taken off in the past few weeks with protests spreading to other cities around the country,” Franzen declared: “Labor experts say uprisings overseas have empowered protesters to speak out.” A sound bite was included of Columbia University’s Dorian Warren arguing: “Those movements, those revolutions led by young people [in the Middle East]…I think that’s another, let’s say, inspiration for why they are sitting-in now.”

On Saturday’s “Nightly News,” Franzen offered a similar report, including another sound bite from Warren, who asserted the Wall Street protests were “a liberal version of the Tea Party.” He added: “I think this could potentially carry over into the 2012 elections and get people to the polls.”

On Sunday’s Meet the Press, host David Gregory asked liberal Washington Post columnist E.J. Dionne about the movement: “…your column out tomorrow talks about the equivalent Tea Party movement on the left. What did we see over the weekend in lower Manhattan and in Brooklyn, this ‘Occupy Wall Street’ movement….does the President, in a way, need more of this, more activism on the left to say, ‘We need a response to what we’re seeing on the conservative side’?”

Dionne agreed and lamented: “I think the President has been hurt by the lack of an organized left….A left would be out there saying, ‘Wait a minute, Barack Obama is a moderate or a moderate sort of liberal. We want to push farther than this.’ Right now, the whole discussion is skewed because the media has been obsessed by the Tea Party.”

That media “obsession” with the Tea Party actually began as an attempt to completely dismiss it.

read full article

New York Times Freelancer Arrested In Occupy Wall Street Protest
October 2, 2011 by Noel Sheppard

The folks at the New York Times aren’t happy with just reporting the news. They want to be a part of it.

Such is quite apparent given the arrest of Times freelancer Natasha Lennard during an Occupy Wall Street protest Saturday:

In a tense showdown above the East River, the police arrested about 500 demonstrators from the Occupy Wall Street protests who took to the roadway as they tried to cross the Brooklyn Bridge on Saturday afternoon. […]

A freelance reporter for The Times, Natasha Lennard, was among those arrested. She was later released.

read full article

bias, conservative, culture, economy, hypocrisy, left wing, liberalism, news media, philosophy, politics, propaganda, protests, recession, relativism, taxes

Filed under: bias, conservative, culture, economy, hypocrisy, left wing, liberalism, news media, philosophy, politics, propaganda, protests, recession, relativism, taxes

Selective attention to polls, most believe economy is over-regulated

Media Silent on Poll Showing 74% of Voters Think Economy Is Over-regulated
September 14, 2011 by Ken Shepherd

On Monday, the Tarrance Group released a poll showing that 74 percent of American voters believe “that businesses and consumers are over-regulated.”

What’s more, “another two thirds (67%) believe that regulations have increased over the past few years. These percentages include majorities of all partisan affiliations, with 91% of Republicans, 75% of Independents and 58% of Democrats saying businesses/consumers are over-regulated,” the polling firm noted in a press release.

What’s more, “[a] key fear among voters is that regulations will hinder job creation, as most believe the result of new regulation will be either job losses (47%) or increased prices for American made goods and services (22%).”

Yet a search of Nexis of both major newspapers and broadcast network transcripts found no mentions of this poll and its results, perhaps because the numbers show the public agreeing with conservative arguments about how regulation is burdening American business and stifling economic recovery.

read full article

bias, crisis, economy, ideology, indoctrination, left wing, liberalism, news media, philosophy, political correctness, recession, regulation

Filed under: bias, crisis, economy, ideology, indoctrination, left wing, liberalism, news media, philosophy, political correctness, recession, regulation

How does increasing gov’t spending equal a funding cut?

Krugman’s Delusion: The Past Year Proves Cutting Spending Doesn’t Create Jobs
September 5, 2011 by Noel Sheppard

Exactly what country does New York Times columnist Paul Krugman actually reside in?

Before you answer, consider the following sentence from his article Monday:

Although you’d never know it listening to the ranters, the past year has actually been a pretty good test of the theory that slashing government spending actually creates jobs.

For the past year to be a good test of this theory, there would have needed to be a slash to government spending, right?

Was this the case?

Hardly.

In fiscal 2010, total federal outlays were $3.72 trillion. In fiscal 2011 which ends September 30, we’re projected to spend $3.83 trillion. That’s a $111 billion increase.

Yet this Nobel laureate in economics thinks government spending was slashed.

In reality, since the last time such outlays declined year over year was 1965, we should really be testing Krugman, Obama, and the Democrats’ theory that dramatic increases in government spending creates jobs.

Democrats have been radically increasing outlays since they took over Congress in 2007. During this time, as spending rose by 41 percent, the economy lost roughly seven million jobs sending unemployment skyrocketing from 4.4 percent to 9.1 percent.

read full article

bias, budget, crisis, economics, economy, funding, government, ideology, left wing, liberalism, news media, pandering, politics, recession, socialism, spending

Filed under: bias, budget, crisis, economics, economy, funding, government, ideology, left wing, liberalism, news media, pandering, politics, recession, socialism, spending

News media think American people are dumb, prefer the political class

Michelle Bachmann has been getting a lot of grief from our impartial news media of late. But it is interesting to see what the media are pushing.

Gregory Scolds Bachmann for Listening to Public Opinion on Debt Ceiling
August 14, 2011 by Noel Sheppard

It appears David Gregory is a bit confused about how our system of government works.

During intense questioning of Congresswoman Michele Bachmann (R-Minn.) on Sunday’s “Meet the Press,” the host scolded his guest for having the nerve to actually care what the American people thought about raising the debt ceiling (video follows with transcript and commentary):

read full article and see the video

CNN’s Candy Crowley Insists to Michele Bachmann That She’s ‘Outside the Mainstream’
August 15, 2011 by Tim Graham

On her Sunday interview show State of the Union, CNN host Candy Crowley pushed Michele Bachmann hard from the left, suggesting her stance on the debt ceiling is “outside the mainstream” of political society. Touting a CBS-New York Times poll which found the Tea Party were losing popularity among Republicans, she added, “we have a poll where the majority of Americans said you all need to compromise on this debt ceiling, you all need to raise the debt ceiling, and it out to be — the deal ought to include a combination of tax increases and spending cuts. You are opposed to both raising the debt ceiling and that kind of compromise. So doesn’t that put you outside the mainstream?”

Bachmann said “absolutely not” to that pushy question:

BACHMANN: Oh goodness, absolutely not. I haven’t gone…

CROWLEY: Even if most people disagree?

BACHMANN: I have not gone one place in Iowa or South Carolina or New Hampshire where anyone has said, please, raise my taxes they are not high enough already. Never happens. And people, I will almost every event I go to, and we don’t poll in just certain people, it’s open to the public, people are not there saying raise the debt ceiling, we want you to borrow more money. It doesn’t happen, Candy.

People are very upset and nervous about where the economy is at now. And what we saw yesterday in the straw poll, people in Iowa sent a message loud and clear to President Obama. They said we are done with your policies. We want something very different, because after all in this debt ceiling debate, this wasn’t about default. Remember, the president had no plan. I offered a plan. My plan says we don’t default, but what we do is pay the interest on the debt, our military and senior citizens and prioritize our spending. That’s what Washington is unwilling to do.

Crowley built up to that point with a series of inquiries about why the Tea Party’s popularity is collapsing among Republicans. Bachmann did not point out the obvious media bias in this polling. Was anyone polling the popularity of the Daily Kos/MoveOn/”anti-war” movement on the left in 2004 or 2008? CBS and The New York Times never did! And so it went, with a series of “but, but” questions returning to the poll:

read the full article

bias, crisis, economy, funding, government, ideology, indoctrination, left wing, liberalism, nanny state, news media, pandering, politics, propaganda, recession, separation, taxes

Filed under: bias, crisis, economy, funding, government, ideology, indoctrination, left wing, liberalism, nanny state, news media, pandering, politics, propaganda, recession, separation, taxes

Fed Chief clueless on economic slump

How many times are we going to hear government spending is the solution to our economic troubles, find out the people saying this don’t know what they are doing, and that the next solution must be more government spending?

Economic trouble puzzles Fed chief, too
June 22, 2011 by PAUL WISEMAN and MARTIN CRUTSINGER

WASHINGTON (AP) – The economy’s continuing struggles aren’t just confounding ordinary Americans. They’ve also stumped the head of the Federal Reserve.

Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.

“We don’t have a precise read on why this slower pace of growth is persisting,” Bernanke said. He said the weak housing market and problems in the banking system might be “more persistent than we thought.”

It was the Fed chief’s most explicit warning yet that the economy will face serious challenges next year. For several months, he had said the factors working against economic growth appeared to be “transitory.”

crisis, economics, economy, funding, government, politics, public policy, recession, spending

Filed under: crisis, economics, economy, funding, government, politics, public policy, recession, spending

Obama Health Care Plan Forces Tough Choice For SEIU

Union Drops Health Coverage for Workers’ Children
November 20, 2010 by Yuliya Chernova

One of the largest union-administered health-insurance funds in New York is dropping coverage for the children of more than 30,000 low-wage home attendants, union officials said. The union blamed financial problems it said were caused by the state’s health department and new national health-insurance requirements.

politics, government, liberalism, economics, economy, funding, spending, public policy, nanny state, family, bureaucracy, health care, reform, children, tragedy, recession, sacrifice, entitlements, unintended consequences

Filed under: bureaucracy, children, economics, economy, entitlements, family, funding, government, health care, liberalism, nanny state, politics, public policy, recession, reform, sacrifice, spending, tragedy, unintended consequences

Progressivism vs Reality – national debt is a myth?

Rep. Phil Hare Explains that the $13.3 Trillion Debt is a Myth

Is this ideology or idiocy?

“Everyday that I am here is going to be spent, debunking the MYTH, that this country’s in debt and we just can’t spend. Well you can spend.”-Rep. Phil Hare, D-IL

Democrats, bailout, budget, economy, elitism, funding, government, ideology, left wing, liberalism, nanny state, philosophy, politics, public policy, recession, socialism, spending, video

Filed under: bailout, budget, Democrats, economy, elitism, funding, government, ideology, left wing, liberalism, nanny state, philosophy, politics, public policy, recession, socialism, spending, video

Cuba makes way for capitalism because Marxism failed

MARXISM A BUST… Cuba Lays Off Half a Million – Allows Private Enterprise
September 13, 2010 by Gateway Pundit

Cuba says it will fire at least half a million state workers by mid-2011 and will free up private enterprise to help them find new work – radically remaking employment on the communist island.

The layoffs will start immediately and run through the first half of next year, according to an announcement Monday by the nearly 3 million-strong Cuban Workers Confederation – the only labor union the government tolerates.

To soften the blow, it said the government would authorize simultaneous increases in job opportunities in the non-state sector, allowing more Cubans to become self-employed, to form cooperatives run by employees rather than government bureaucrats and to increase private control of state land and infrastructure through long-term leases.

capitalism, communism, economics, economy, government, recession, spending, unintended consequences

Filed under: capitalism, communism, economics, economy, government, recession, spending, unintended consequences

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