The Harding Way by Thomas E Woods Jr.

Today’s article of the day comes from The American Conservative:

When Barack Obama urged passage of his so-called stimulus measure in February, he claimed that only bold government action would prevent the economy from slipping into a deep depression. In making that argument, he was only repeating the conventional wisdom, according to which markets are not self-correcting—except in the very long run—and state intervention is necessary to revive economic activity.

Economic theory can tell us why these claims are incorrect and why, in fact, even the appearance of prosperity that those measures can produce causes still greater damage and leads to a more severe correction in the long run. But we can also refer to the testimony of history. In particular, the depression of 1920-21, which most people have never heard of, is an example of the resumption of prosperity in the absence of government stimulus, indeed in the face of its very opposite. If economies cannot turn around without these interventions, then what happened in this instance should not have been possible. But it was.

During and after World War I, the Federal Reserve inflated the money supply substantially. Once the Fed finally began to raise the discount rate—the rate at which it lends to banks—the economy slowed as it started readjusting to reality. By the middle of 1920, the downturn had become severe, with production falling by 21 percent over the next 12 months. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921.

From 1929 onward, Herbert Hoover and then Franklin Roosevelt tried to fight an economic depression by making labor costlier to hire. Warren G. Harding, on the other hand, said in the 1920 acceptance speech he delivered upon receiving the Republican nomination, “I would be blind to the responsibilities that mark this fateful hour if I did not caution the wage-earners of America that mounting wages and decreased production can lead only to industrial and economic ruin.” Harding elsewhere explained that wages, like prices, would need to come down to reflect post-bubble economic realities.

Few American presidents are less in fashion among historians than Harding, who is routinely portrayed as a bumbling fool who stumbled into the presidency. Yet whatever his intellectual shortcomings—and they have been grotesquely exaggerated, as recent scholars have admitted—and whatever the moral foibles that afflicted him, he understood the fundamentals of boom, bust, and recovery better than any 20th-century president. (more…)


Deliberately Misplaced Blame by Sean Malone

The article of the day comes from

Let’s play a game. I have a not-so-famous quotation to share with you, and then you guess who said it:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.

I’ll give you a hint; it was spoken by a sitting US president. Not quite enough? How about multiple-choice? Was the speaker

  1. Current president Barack Obama
  2. Overseer of the first-round, $700 billion bailout George W. Bush
  3. New Deal designer Franklin Delano Roosevelt
  4. “Hands-off” free-market supporter Herbert Hoover

Ponder that for a minute or two, and we’ll come back to the answer later on.

Geesh! Free-market, laissez-faire capitalism sure has been taking a beating in the press lately. The official story seems to be that everyone knows the financial crisis represents a failure of the capitalist system, and now only a “gigantic program of economic defense” will save us.

I suppose that would make plenty of sense, if only the details we’re being told day in and day out were actually true.

It’s rather amazing the lengths to which many of the people chronicling the economic crisis are willing to stretch the truth in order to ascribe blame to those they wish to be responsible, all the while ignoring those who actually are. One depressingly common tactic, seemingly en vogue at the moment, is to falsely claim that a person said or believed certain wrong-headed things in order to denigrate the person about whom one is making the claim. Examples abound, but the case du jour is Thom Hartmann’s traducement of laissez-faire’s “intellectual roots” in the Huffington Post:

The intellectual forefathers and mothers of the insane conservative economic policies that have brought us to where we are include Ludwig Von Mises, Friedrich Von Hayeck [sic], Milton Friedman, Alan Greenspan, Tom Freidman [sic], Robert Rubin, Larry Summers, and Ayn Rand.

Hartmann will likely get away with this slap-dash conflation of names, simply because the people he impugns are mostly dead and relatively unknown to the average reader. Hartmann isn’t alone either; it seems almost daily we read another set of distortions, myths, and outright lies trotted out by similarly minded writers.

The reality, quite unfortunately for Mr. Hartmann and friends, is that his claim is built on a wobbly foundation of misinformation. Why? (more…)

Seriously Congress, Do nothing…

This is a great article from the Christian Science Monitor:

“As we wait to see how the politicians in Washington will alter the stimulus package the Obama administration is pushing, many questions are being raised about the measure’s contents and efficacy. Should it include money for the National Endowment for the Arts, Amtrak, and child care? Is it big enough to get the economy moving again? Does it spend money fast enough? Hardly anyone, however, is asking the most important question: Should the federal government be doing any of this?

In raising this question, one risks immediate dismissal as someone hopelessly out of touch with the modern realities of economics and government. Yet the United States managed to navigate the first century and a half of its past – a time of phenomenal growth – without any substantial federal intervention to moderate economic booms and busts. Indeed, when the government did intervene actively, under Herbert Hoover and Franklin D. Roosevelt, the result was the Great Depression.

Until the 1930s, the Constitution served as a major constraint on federal economic interventionism. The government’s powers were understood to be just as the framers intended: few and explicitly enumerated in our founding document and its amendments. Search the Constitution as long as you like, and you will find no specific authority conveyed for the government to spend money on global-warming research, urban mass transit, food stamps, unemployment insurance, Medicaid, or countless other items in the stimulus package and, even without it, in the regular federal budget.”

I couldn’t say this enough.

The rest is here.