Please name a recession we got out of without massive government spending.
Don't worry. You can't.
Since you asked. Instead of a Recession, how about a huge Depression instead?
ECONOMICS,
HISTORY,
REVIEWS
The Forgotten Depression—1921, by James Grant
Michael A. LaFerrara September 4, 2015
The Forgotten Depression—1921: The Crash That Cured Itself, by James Grant. New York: Simon & Schuster, 2014. 281 pp., $28 (hardcover).
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The 1920–21 depression, Grant shows, was a severe one. As he notes in chapter 5, “A Depression in Fact” (pp. 67–79), unemployment soared as wages fell sharply, business income plunged, commercial failures tripled, farm income—which then comprised nearly a fifth of the economy—fell by more than half, and stock prices plummeted by nearly half. Wholesale prices, consumer prices, and farm prices plunged by 36.8 percent, 10.8 percent, and 41.3 percent, respectively, exceeding “for speed of decline . . . even the Great Depression” (p. 68). “The perpendicular plunge in commodity prices was something new in post-Napoleonic history,” Grant observes. “Never before had they fallen so far and so fast” (p. 182).
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“So depression it was,” Grant concludes. “What would the government do about it?”
It would implement settled doctrine, as governments usually do. In 1920–21, this meant balancing the federal budget, raising interest rates to protect the Federal Reserve’s gold position and allowing prices and wages to find a new, lower level. Critically, what it would not do was what the Hoover administration so energetically attempted to do a decade later: There would be no federally led drive to maintain nominal wage rates and no governmentally orchestrated work sharing. For this reason, not least, no one would wind up affixing the label “great” on the depression of 1920–21. (pp. 71–72)
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The depression of 1920–21 was terrible in its own way. In comparison to what was to follow, it was also, in its own way, a triumph. (p. 218)
A “triumph,” that is, for “the hero of my narrative, . . . the price mechanism, Adam Smith’s invisible hand” (p. 2). Grant, according to the front inside jacket of the book, wrote “
The Forgotten Depression” as “a free-market rejoinder to Bush’s and Obama’s Keynesian stimulus applied to the 2007–9 recession.”
By Michael A. LaFerrara
www.theobjectivestandard.com
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When it comes to diagnosing the causes of the Great Depression and prescribing cures for our present recession, the pundits and economists from the biggest
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