Wow! How did I miss this yesterday?
Yes, James Grant, founder and editor of the respected Interest Rate Observer, one of the first economists in the land to argue before the recession that lending policies were taking us towards a catastrophe, has said we need a president more like…Warren G. Harding. In addition to understanding the economy, Grant is a wonderful writer, which makes this iconoclastic piece a total pleasure.
Grant points out that the Great Recession officially ended 2 ½ years ago but that “zero percent interest rates and $1 trillion in stimulus' notwithstanding, the U.S. economy can hardly seem to heave itself out of bed in the morning.”
Things were quite different in the first full year of recovery after the terrible 1920-21 recession. The “unsung stewardship of the president best remembered for his underlings’ scandals” quickly transformed the bad economy Harding had inherited. The unemployment rate fell from 15.6 percent to 9 percent (it would be down to an astonishing 3.2 percent in 1923), while constant-dollar output grew by 16 percent. Because of this “the 1920s roared.”
And how did the administration of Warren G. Harding, in conjunction with the Federal Reserve, produce these astonishing results? Why, by raising interest rates, reducing the public debt and balancing the federal budget. Let 21st-century economists rub their eyes in disbelief. Eighteen months after the depression started, it ended.
Okay, I might quibble at Harding’s world disarmament conference. But this is amazing growth and you’ll notice that Harding achieved it: by doing the exact opposite of everything the current administration has done for three long years of economic stagnation.
As a candidate, Harding stood for “less government in business and more business in government.” In pursuit of the second, he created the Bureau of the Budget, forerunner of the Office of Management and Budget. Harding thought that there was no greater menace that public debt was increased spending.
The tight money policies of the Harding administration were painful to some, but ultimately such policies helped liquidate bad investments more quickly. This might give you insight into why preventing foreclosures on houses that the “owners” can’t afford only prolongs the suffering.
Alas,Paul Krugman would not have liked Harding:
As for Harding, he fostered recovery as much by what he didn’t do as by what he did. The Bureau of the Budget brought public spending to heel, but the president encouraged private spending by speaking up for business.
But Harding sounds like an amiable fellow:
Possibly no political figure in Washington bore less resemblance to the austere occupant of the White House than the convivial senator from Ohio. President Woodrow Wilson — moralist, reformer and intellectual — read books and wrote them. Harding made no pretense to living the life of the mind. He liked people better than books, anyway.
When Harding died in August of 1923, he was succeeded by Calvin Coolidge. Together these two presidents managed to create a booming economy without wasting hundreds of billions in government stimulus.
They freed business to create jobs and prosperity, which is always the best way to stimulate the economy.