Caught Between a Barack and a Harding Place

By: Billy Alpert

George Santana once said, “Those who cannot learn from history are doomed to repeat it.” This concept may give us more economic insight than all the gray beards combined. In dealing with the current economic crisis, many figures, especially Obama, keep referring back to history, and the 1930s Depression citing how government should do X, Y and Z so we don’t repeat another Great Depression. However, we must be sure that we know what happened in the 1930s so we are not doomed to experience the pains of the depression. After the 1929 stock market bust, contrary to the common misunderstanding that plagues us all, President Hoover took an extremely interventionist approach by price fixing wages upward, bailing out failed companies, implementing protectionist tariffs, and increasing government spending. To add insult to injury, after elected in 1932, President Roosevelt upped the interventions through unprecedented stimulus programs and government “make-work” plans as part of the New Deal.

First, conventional wisdom portrays President Hoover as a Laissez-Faire capitalist, but his tremendous interventions in the free markets prove that statement false. Also, many instinctively refer to Roosevelt as “the president who got us out of the depression”, but in reality that is quite deceiving. The return to stable economic growth and ending of the great depression did not commence fully (ignoring the temporary recovery in the mid 1930s) until the 1940s. We suffered through a 10-year depression, so what did Roosevelt save us from?

Now if we flash to 1920, under President Harding, we experienced a massive downturn due to a return to a normal economy following the end of WWI. However, in the midst of the 1920 bust, Harding insisted on nonintervention as he pointed out that it would be foolish for the government to expand and interfere with market corrections. As a result, Harding decided to curb government spending, and cut taxes and after an immediate 21% in drop in production due to the markets re-balancing the economy, the brief economic depression ended by 1921, and the economy recovered with a vengeance. Also at this point, the Federal Reserve did not have as much authority to intervene in the economy as it did in 1929, so the markets were freer. The bust of 1921 was actually more severe than that of 1929 in terms of production declines and immediate job losses, yet Harding’s nonintervention (and trust in the free markets) allowed the markets to get us out in roughly a year.

If we look back in history to the often forgotten period in the early 1920s, then we realize that the government should not do XYZ, because the great depression of the 1920s that we were spared from was because of laissez-faire capitalism, not government interventions. We should apply this wisdom to the present and realize that only the Lasseiz-Faire policies seen by president Harding in 1920-21 can spare us from prolonged suffering in the form of a multi-year depression whereas the more interventionist, socialist policies reminiscent of Hoover and Roosevelt should not be repeated if we seek a swift, sustainable recovery. Therefore history suggests we should be giving less authority to the Fed, cut government spending and taxes, and obviously stop the “no one can fail” mentality of bailouts. Our economy has gotten out of whack in numerous ways over the last decade, and we should have faith in the over 300 million person democratic free market to provide solutions rather than government bureaucrats.

Laissez-Faire Capitalism should be desired policy not only because history tell us it is the only policy that can restore prosperity, but because it is the American way to go: it gives us freedom economically, and freedom is what America has always been about. Unfortunately, Obama is following the precedent set by Bush to interfere with the economy on a grand scale during this crisis. So as we look back on history’s lessons, we must hope there is a shift in policy from Washington.