Tuesday, April 20, 2010

The Proper Way to Handle a Recession

With the prevalent and rampant revisionist history of FDR, The Great Depression, and the current handling of our recent recession under President Obama, I finally reached the point where I no longer have any patience in dealing with those that spout such nonsense.

Keynesian economics as practiced by the huge governmental spending (i.e. stimulus packages) and foolish monetary policy of allowing the Federal Reserve to print huge sums of money does not correct an economic recession. FDR did this through his New Deal policies and ironically prolonged the Great Depression accordingly.

The Forgotten Depression that occurred in 1920 and 1921 during the unjustly-maligned President Warren Harding's administration is hardly ever recalled precisely because of Harding's excellent and non-Keynesian handling of the situation.

In 1920, unemployment had gone from 4 to 12 percent (today's national average is currently 9.7% in comparison). The gross national product had dropped by 17%. Instead of stimulus spending and printing or borrowing money, Harding cut the federal budget by 50% and ended up reducing the national debt by a third. He further did an across the board tax cut for all citizens. Lastly, he ensured that the newly created Federal Reserve did not start printing additional money to trigger inflation.

The result is that by 1923 the unemployment rate had fallen back to 2.4% and the roaring 20's were ushered in until The Great Depression and the exact opposite policies were enacted via Hoover and then FDR to try and correct it. Recovery did not happen until WWII started for us in 1941.

There is an excellent posting on this by historian Thomas Woods here. He does a far better job of explaining the intricacies of this than I ever could. It is refreshing to see that there are those that attempt to tell the truth about our history instead of looking at things through a myopic political eye. I strongly encourage any of you that care to read the truth of the matter on The Forgotten Depression, The Great Depression, and how we are going awry in today's depression by reading Mr. Woods' article.


Annie said...

Ah! So timely! Thank you. My daughter is just wrapping up her economics course and I think this article will round it out nicely!

T. Paine said...

Glad I could help! :)