In 1920–21, the United States faced a grave economic crisis, worse than the first year of the Great Depression. Double-digit unemployment and a 21 percent decline in production over the previous twelve months greeted the new president.
That president, the now-despised Warren G. Harding, told Americans that the bust following the artificial, credit-induced boom of the war years had to be faced up to, and that no government, however wise, could make it disappear:
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…. We must seek the readjustment with care and courage. Our people must give and take. Prices must reflect the receding fever of war activities…. 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.… Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.
Government actually cut its budget during the crisis. There was no fiscal "stimulus." The Fed looked on passively. And by the summer, recovery had already begun. According to today’s textbooks, that wasn’t supposed to happen. But it did.
President Barack Obama’s approach to the present crisis couldn’t be more different.
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