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The Lesson of Warren Harding Revisited

February 10, 2010 Leave a comment

Though I have written extensively about the Recession of 1920, it is worth revisiting it per Glenn Beck’s show last night.  Beck rightly pointed out that the policies of decreased taxes and decreased government spending implemented by both Harding and Coolidge paved the way for the dramatic economic growth of the roaring 20s. What Beck didn’t mention was that prior to this period of unprecedented economic expansion, President Warren Harding had inherited one of the worst recessions in American history.   This Recession of 1920-21 is another one of the dirty secrets glossed over in the Progressive history books.

By late 1919, America was facing inflation in prices as measured by CPI of 20%.  Between 1920 and 1921, unemployment doubled from 5.2 to 11.7%.  During this same period, from their peak in June of 1920, prices declined by 15.8% on a year-over-year basis, a 50% greater deflation in prices than during ANY 12-month period during the Great Depression.  So what was Harding’s proposal to deal with this mess? To understand how to get out of recession, Harding looked towards how we got into it in the first place.

For America was coming out of World War I.  Government was controlling huge swaths of the economy, as it had mobilized land, labor and capital towards war production and away from normal commerce as dictated by consumer demand.  In addition to the mass of resources that needed to be reallocated according to market forces, the economy had been further distorted due to the policies of the Federal Reserve which had inflated the money supply by 71% from 1913-1919 (while the physical volume of business had only increased by 9.6%), and whose policies had led to an increase in prices of a staggering 234% between 1914 and 1920.  Prices needed to readjust according to the reallocation of resources.  In addition, not surprisingly, due to the costs of war, the federal budget had grown to $18.5bn.

One will note the parallels to our economic situation today.  Just as war led resources to be allocated away from where an unfettered economy would have directed them, so too did the artificial boom fueled by the Federal Reserve and various government policies lead resources to be misallocated towards assets such as houses and stocks during our most recent boom and bust cycle.  While unsustainable businesses and concomitant rises in prices developed in the private sector, the government too drastically increased.

Harding understood the root cause of recession.  As he noted in his inaugural address:

The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, the relations of labor and management have been strained. We must seek the readjustment with care and courage…All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization.

And so what was his big Keynesian stimulus plan to bring the economy back from the abyss?  He argued during his Republican nomination speech:

Gross expansion of currency and credit have depreciated the dollar just as expansion and inflation have discredited the coins of the world. We inflated in haste, we must deflate in deliberation. We debased the dollar in reckless finance, we must restore in honesty. Deflation on the one hand and restoration of the 100-cent dollar on the other ought to have begun on the day after the armistice, but plans were lacking or courage failed. The unpreparedness for peace was little less costly than unpreparedness for war. We can promise no one remedy which will cure an ill of such wide proportions, but we do pledge that earnest and consistent attack which the party platform covenants. 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.

And so, shockingly Harding practiced what he preached.  Regarding deflation, the Federal Reserve jacked up interest rates from 4.75% in January 1920 to 7% in June 1920, and held this rate through the aforementioned major drop in prices through May of 1921.  Harding slashed the federal budget from $18.5bn in 1919 to $6.4bn in 1920 all the way down to $5.1bn in 1921.  Meanwhile, the government actually ran surpluses during these years, allowing them to pay down the debt by $300mm from 1920-21.  The Chief Economist of Chase National Bank of the era, Benjamin Anderson summed Harding’s philosophy and his attack on the recession as follows:

The idea that a balanced budget with vast pump-priming government expenditure is a necessary means of getting out of a depression received no consideration at all. It was not regarded as the function of the government to provide money to make business activity. It was rather the business of the US Treasury to look after the solvency of the government, and the most important relief that the government felt that it could afford to business was to reduce as much as possible the amount of government expenditure, which had risen to great heights during the war; to reduce taxes—but not much; and to reduce public debt.

Nor did the government increase public employment with a view to taking up idle labor. There was a reduction in the army and navy in the course of these years, and there was a steady decline in the number of civilian employees of the federal government. This policy on the part of the government generated, of course, a great confidence in the credit of the government, and the strength of the gold dollar was taken for granted. The credit of the government and confidence in the currency are basic foundations for general business confidence. The relief to business through reduced taxes was extremely helpful.

According to Anderson, how did the recession end?

…we took our losses, we readjusted our financial structure, we endured our depression and in August 1921 we started up again. The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.  (See Benjamin Anderson’s Economics and the Public Welfare or his gratisThe Return to Normal“)

Now we can debate fiscal and economic policy all day, but across the spectrum, it should be clear to all that a government that intervened and created the conditions for economic crisis will not be able to solve it.  If government’s can create prosperity when the private sector is imperiled, then why would Americans be against government central planning when all is rosy?  Do the rules of economics not apply during downturns?

If we can agree that recessions are the result of resources being improperly allocated, then we can also agree that the only way to return to economic health is to allow for their reallocation according to the market.  This involves allowing nonproductive business ventures to go belly-up, prices to naturally fall where they have unjustifiably risen and reduction in the size of government allowing resources to be released to entrepreneurs to reverse the ills of the artificial boom and spur growth.  All measures that impede the natural cleansing of an economy will only ensure pain and suffering like that witnessed over the last few decades in Japan.  Harding had things right and it would do our lawmakers good to follow his lesson: central planning and government control creates problems; innovative Americans are the only ones who can solve them.

Socialists, Russians and Islamists

January 28, 2010 2 comments

Recently at the urging of a reader, I watched the above video from the 80s in which Yuri Bezmenov, a former KGB agent outlines the use of Russian ideological subversion outlined well in this American Thinker piece.  The whole series of fascinating videos that make up the interview can be found beginning here and all seem quite prescient when put in context of contemporary America.  Islamists have used the same tactics that the ex-KGB agent outlines in terms of working to demoralize us by inculcating academia and the media with pro-Islamofascist views (and having them propagate this message to the last generation of elites amongst others), and furthering this message with groups like CAIR and useful idiots in the ACLU, while also working to destabilize us with terrorist attacks to drive us towards crisis.

That Islamists have both stealthily and overtly brainwashed Americans into paralysis when it comes to realizing the threat of Islam dovetails well with Bezmenov’s description of ideological subversion.  Bezmenov characterizes it as “[An] overt…slow process…[to] change the perception of reality of every American to such an extent that despite the abundance of information, no one is able to come to sensible conclusions in the interest of defending themselves, their families, their community and their country.”

Given the parallels between the Russian communists and the Islamists, I delved a bit deeper into their ties, and there seems to be definitive evidence that the KGB schooled Muslims for decades, and that even in modern day Russia, Islamic terrorists including perhaps even AQ#2 Ayman Al-Zawahiri were trained by Russian intelligence.  Yasser Arafat is perhaps the very embodiment of this tie, as he was a master of ideological subversion, trained as an agent of the KGB.  Litvinenko argued before he was assassinated that Putin and the Russians may have been in on 9/11 himself.  It would make sense that Putin would publicly take a “hard line” stance against the Islamic terrorists in his country as a means of misdirection when he in fact is supporting them against the West (hence the cozy ties with Iran amongst others).  And of course even if this support wasn’t merely on political and ideological grounds, if nothing else the chaos brought on by terrorists would help the Russians economically by driving up the price of oil.

In my view, Russia and the Marxists generally never ended their war against the West.  That Putin, a former KGB bigwig effectively still runs the country is a testament to this.  The Marxists were smart — while fiscally they may have collapsed, I believe they falsely surrendered at the end of the Cold War, reorganizing and “reforming” only to the extent that they would look more tame to the Western world.  The socialists were never militarily routed, so it is not as if everyone in Russia, Eastern Europe, Asia and the moles and propagandists they planted in other countries was suddenly forced to repudiate communism.  The changes in their governmental system and rhetoric are akin to those made by socialist shell organizations that have evolved over time in the US, altering organization and name, and hiding their nefarious agenda behind a visage of moderation.

Thus, I’d like to proffer the ultimate hypothesis that the Marxists are aiding and abetting Islam as part of their strategy to bring the West to its knees.  I believe however that they will underestimate the strength of the force they have raised in Islam.  While the socialists and Islamists have a common enemy in the West now, I am sure that Muslims would just as soon turn on the Russians, Chinese and others if the West were destroyed.  G-d forbid we get to that point.

I grant that proving this point will require a significantly greater amount of research, but I put forth this view because it strikes me at first blush as a major revelation, that I believe may prove essential in understanding the war on America.  That the Progressives (socialists) and Islamists have followed the same tactics in my view is not coincidental, and in context of the events of the last handful of decades has much explanatory value.  The only difference between the Progressives and Islamists of today is that Islamists serve as both a psychological and military arm of the socialists in their war on civilization.

The Recession of 1920 – Causes, Responses and Insights

January 11, 2010 Leave a comment

In my study of political economy, one of the most overlooked yet fascinating historical episodes I have come across is the Recession of 1920-21. A handful of free-market economists have tackled this crisis, and I decided to throw in my lot with them and pursue the subject further myself.

Below is the abstract for my critique of the acutely sharp downturn (so you know what you’re getting into) and the embedded paper in Scribd format. Scribd however is a bit screwy in its formatting of the paper, failing to capture various diagrams for example, so I strongly suggest instead reading the Word doc downloadable HERE.

Enjoy!

Abstract: Many attribute our current recession to the evils of unbridled capitalism. In response, our leaders have embarked on the typical Keynesian recession prescriptions in order to stimulate the economy and lead the nation out of the economic doldrums. Unbeknownst to most Americans however, prior to the Great Depression, policymakers used different tools to help guide the country out of recessions. Herein we examine the causes, responses and insights gleaned from the Recession of 1920-21, the last downturn in which leaders relied on the age-old policy of laissez-faire, combined with massive reduction in government and encouragement of deflation.

Stossel Does Atlas Shrugged, Asks "Who is Wesley Mouch?"

January 7, 2010 4 comments

In tomorrow’s episode of John Stossel’s new show on Fox Business, he will address the question, “Who is Wesley Mouch?” in speaking to the parallels between Atlas Shrugged and contemporary America.  As one might expect, in my view it seems as if almost all businessmen (given their predilection towards using government to destroy markets to their own advantage) in one way or another embody the qualities of Wesley Mouch.

One exception who will be on Stossel’s program is John Allison, an executive at BB&T Bank, who staunchly opposed TARP, has repeatedly refused to use the law to plunder the property of others and as one might guess is an ardent Austrian-school libertarian.  In a scene reminiscent of the smoke-filled rooms of Atlas Shrugged, Allison divulged at an NYU lecture this past fall that the Feds threatened to go in and audit any bank that wouldn’t take government funds, forcing healthy banks to comply so as to cover for the fact that the government was only propping up a select few sick ones (at the expense of the solvent I might add).

In response to Stossel’s call in the aforehyperlinked column for suggestions for a follow-up show on “crony capitalism,” I posted:

John,

If you want to talk about crony capitalism, it may pay to have Burton Fulsom who wrote “The Myth of the Robber Barons” on the program.  I think the key is to delineate between political entrepreneurs and market entrepreneurs, something which he does astutely in that book.

Political entrepreneurs seek to use government decrees to profit, largely by cartelization, monopoly advantages and other barriers to entry, while market entrepreneurs generally seek to win profits in the market by merit – by producing the best product at the cheapest price.

More generally, the Mouch problem lies in the fact that while initially businessmen extol the virtues of little regulation, low barriers to entry and minimal governmental interference generally, once they become successful, out of self-interest they support any and all legislation that will cement their position in the market.  They support all of those things anathema to the free market that they had used to their advantage in the first place. 

This is akin to the economic plight of America as a whole.  While up until the early 20th century (though some libertarians will argue that it was really only up until the time of Lincoln), America functioned under a largely laissez-faire economy, with the wealth and progress generated by this economy, we forgot about the virtues that led to our success and rewarded those tending towards failure.  We created a welfare state from the riches of a relatively free state, throwing under the bus the very principles that elevated to us to our position as a great nation.

Robert Spencer Gets Attacked…by American Citizens

November 18, 2009 6 comments


This evening at NYU I witnessed an act which was both disturbing and appalling. Robert Spencer of Jihad Watch, an erudite scholar on Islam and patriotic defender of our freedom was giving a talk on the ever-growing threat to the West of Islamists. In the midst of describing the ends of Jihad as promulgated by one of the foremost radical Islamic scholars of the 1970s, a grungy looking fellow stood up and yelled at Spencer “Should we just go bomb all the Muslims!?” and attacking him with other vitriolic and hysterical words. In creating this diversion, a couple members of the audience ran up and threw pies at Mr. Spencer and another panelist. The campus authorities quickly intervened, and as the officers dragged the cowards away from the stage, another (presumably accomplice) student filmed the the officers on his phone. Luckily, Spencer and his fellow panelist Elan Journo ended up largely unscathed.

This whole scene characterizes where we are in America today. A man gets attacked for merely repeating the words of a Muslim radical. Worse, American students are planted in auditoriums all across this country ready to quash any free speech that is not to their liking. This is especially dangerous when it comes to matters of Islam, because as Spencer later argued in his speech, by not allowing criticism of the religion, and worse censoring free speech, we are elevating Islam above our own culture. This plays right into the hands of the people who wish to impose Sharia law over us. How ironic that the leftists in this country are the useful idiots for a Jihad movement that wishes to crush all tolerance. Finally of course, it is most likely the police who will be in trouble because of a video probably bound for YouTube as we speak which will show the officers violently hauling out the innocent and naive college hippies.

Most disheartening is the fact that it is people like Spencer who are literally risking their lives to try to wake Americans up to the grave fact that our enemies both abroad and within are getting stronger, and that it is our own politically correct culture which is allowing them to do so both through violent and democratic means. Where do we stand as a nation when we have to be afraid to merely shed light on the beliefs of our enemies? Where do we stand as a nation when our own people quell free speech? Where do we stand as a nation when we cannot criticize an ideology that has been used to justify the killing of 3,000 innocents on our soil, and countless other innocents abroad? We are headed down a suicidal path if the lovers of liberty do not stand up and fight.

A Call to Arms

November 2, 2009 5 comments


American populist angst has been rising for some time now. The optimist in me hopes that the Tea Party movement, and with it the rekindling within Americans of the vision of the founders and the defense of our Constitution can “fundamentally transform the United States of America” to coin a phrase from our old socialist pal in the Oval Office.

Yet while my heart tells me that there is a chance to turn this ship around, the overwhelming evidence that I have documented in my more sober if not brutally honest moments speaks to just the opposite. The progressives have been hammering away at our freedoms for well over a century, aggressively indoctrinating the citizenry with their perspicacious propaganda campaign. While our ideas are better, we have not adequately defended them.

Today it occurred to me that the perturbed conservatives I saw on Ailes’ evil news network harping on the blasphemous spendthrift blowhards in Washington were missing the point in blaming our politicians for their actions. Sure I am just as outraged as the next fellow at the spending of taxpayer money on projects fraught with waste and corruption, the sheer arrogance of our leaders in running roughshod over our economic liberty and in general the out of control growth of the nanny state.

But just as it was these political leaders who were the great enablers for the bankers in the financial crisis, through the gobs of cheap government credit provided by the head of the banking cartel – the government’s Federal Reserve, through their implicit guarantees of too-big-too-fail taxpayer protection and through their push along with the ACORN thugs for providing housing for even the least creditworthy among us, so too was it the American people that have enabled this government.

James Madison said of democracies that they “have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.” Perhaps more prescient, Marx posited that “Democracy is the road to socialism.” But alas, this is the system that we allowed to take hold though the Constitution never once mentions it, and we the people, who were supposed to vigilantly defend our liberty, have allowed our government to devolve into an instrument whereby each group plunders each and every other group. And what is this instrument of plunder of government but a representation of the people?

Herein lies the problem with blaming the politicians. It is we that have elected these scallywags. Their sole goal is retaining power in office, future of the nation-be-damned. Like for the bankers, though they know the system to be unsustainable in the long run, what matters to politicians is reaping the rewards before the storm. It is the American public that has let them continue to be irresponsible, leaving us with over $100 trillion in unfunded liabilities. We have condoned the profligacy and pillaging of our rights.

Throughout history in this country there has been a constant battle waged between those who espouse liberty and those who would sooner trade liberty for tyranny than live in a society based on self-reliance, merit and morality. Even if we have voted against the bad apples, we are complicit in having not convinced our fellow citizens to do so. Instead, we allowed the so-called elites, the political entrepreneurs to take over Washington, D.C., promising the people healthcare, housing and the rest of the hogwash spelled out in the Second Bill of Rights. They debauched our great nation by our sanction.

Now let me turn from criticizing us Americans (I am as complicit in this lack of vigilance as all my Libertarian brethren), lest I start to sound like Barack Obama. What we must do as the antidote to the growing Leviathan is to fight the intellectual fight for liberty on every street corner, in every classroom and through every other media possible. We must infiltrate corrupt and destructive institutions and reveal the truth to our fellow countrymen. We must seek out candidates with no interest in political power – no desire to cut deals but a sheer wish to restore America to its rightful place in the world; to serve as honest and capable stewards aiming to leave a better country for their children and children’s children. We must seek people willing to take unpopular positions with a firm and steadfast resolve, equipped with the knowledge of and confidence in the tenets of classical Liberalism. A good start would be to seek out those who have no desire to hold office.

Good government requires a populace that seeks good government. Further, it requires representatives with the courage to fight for prudent policy, not the petty politics of payoffs and plunder. Most importantly, it beckons those who wish to honor the vision of our Founders, in which the liberty of the most important minority, the individual is protected, in which free market capitalism is advanced through the protection of private property and contract rights and in which the defense of our citizenry and by extension the securing of our freedom is the highest priority of government.

Demoralizing as our situation as a nation may be as a result of a government that we have allowed to run amok, I should say that in some ways I am optimistic no matter what direction this country takes. Should we rally to fight the fight against the socialist sophists and begin to roll back the last hundred-plus years of disgraceful governance, we will succeed. On the other hand, if we continue to hurtle towards the day of reckoning of default and/or hyperinflation in von Mises’ “crackup boom,” the welfare state will collapse of its own weight, and those of us armed with the right ideas will be able to step out of the darkness and help lead the country back to peace and prosperity.

Either way, we must fight on every front to advance the ideals of liberty and engage the leftists (many Republicans included) in debate. We can no longer blame our politicians, but must heed our own advice and take the individual initiative and personal responsibility to ourselves battle to make this country once again a shining city upon a hill. Nothing less than the future of the nation depends on it.

This Isn’t About Democrat vs. Republican Anymore

April 20, 2009 5 comments


In light of the recent Tea Parties, Janet Napolitano and her cronies labelled many people like myself as right-wing extremists. Now, I’m kind of used to hearing this by now given that I grew up in New Jersey and go to a university where only global-warming-fear-mongering, jihadist-appeasing (largely anti-Semitic), Marxistsympathizing, military-hating, sovereigntysacrificing chaps are considered moderate, but the fact that the people that defend the rights of these vitriolic parasites to protest against our right to exhale carbon dioxide and eat trans fats were labelled as threats to the peace is downright offensive.

Sure, most of the folks that came out that day might be registered as Republicans, but the line as to what determines a Republican and a Democrat to me at this point no longer exists. Practically all politicians in these parties are the same, differing only by degree of pathetic-ness (not a word according to Google, but it should be).

Thus, I have been thinking about how to describe the split between the two sides of the debate in America right now. The words that I think best summarize the political divergence are individualism versus statism or collectivism. Jonathan Hoenig lays it out pretty well here:

If you find yourself identifying with the values of the former word or phrase below, then you fall into the camp of the individualist, while if you find yourself identifying with the ladder, then you probably identify as a statist. The dichotomies that I see are as follows:

merit vs. favoritism
liberty vs. tyranny
individuality vs. the mob
personal responsibility vs. collective irresponsibility
your happiness vs. the happiness of 50%+1
free speech vs. censorship
strength vs. weakness
long-term planning vs. short-term wishful thinking
national sovereignty vs. internationalism
prosperity vs. impoverishment
freedom vs. control
property protection vs. plunder
city on a hill vs. Gulag in Siberia

To be sure, in this society, labeling anyone is touchy. At this point I don’t know if I would consider myself a Lockean, a Constitutionalist, a Goldwater conservative, a fiscal and social libertarian but strong on defense dude, or just a lover of my nation. Nevertheless, the split that I see that encompasses the most fundamental of beliefs is individualism versus collectivism. You be the judge as to which ideology is superior.