Curing Recession


There have been 16 recessions and 2 depressions since WW I.  The most interesting things about six of them are how they were cured and how long the expansion period lasted afterword.

1920-21 Depression: Response – Harding Administration cut taxes and drastically reduced the size of government. The recovery became known as “The Roaring ‘20s”, continuing with only minor pullbacks until 1929.

1929-33 – The Great Depression: Response – The Hoover Administration raised taxes, reduced money supply, and signed the Smoot- Hawley Tariff Act. FDR raised taxes, borrowed heavily, and created millions of government jobs. This failed by 1937 creating the dreaded “double dip” depression. Unemployment peaked at 25% and never got below 14% for ten years. Mobilizing for WW II finally ended this unprecedented period of despair.

If you have any doubt about the true underlying strength and spirit of the American people; listen to this cut made in 1933 – the absolute depths of the great depression:

1945 Recession: War production ended and 12 million service members returned to the workforce. Ignoring “new New Deal” dreams of the late FDR and President Truman, Congress lowered taxes and refused to raise government benefits. The peacetime recovery lasted only about 3 years. Truman’s “Fair Deal” inserted government into housing, tightened the money supply and raised the minimum wage – choking off the recovery in 1949.

1960-61 Recession: Response – JFK lowered taxes which spurred recovery. This wonderful expansion lasted until 1969 – over 8 years.

1981-82 Recession: Response – Fed Chair Volker choked inflation and Reagan Administration cut taxes. It was 8 years of expansion until a mild pullback occurred.

1990-91 Recession: Response – Mild tax policies and the “peace dividend” at the end of the cold war energized this recovery. Welfare reform and balancing the budget under Clinton inserted workers into a growing economy while more money was available to finance private industry growth. The expansion lasted ten great years.

2001 Recession: Brought on by the Dot Com crash and followed by the 9/11 attack, this one was cured with two rounds of tax cuts by the G. W. Bush Administration. The following expansion lasted 6 years.

2007 – ? Recession: The crumpling housing market set this one off, followed by the collapse of financial, insurance, and auto industries. The Obama Administration took office as it deepened. This one has now lasted 3 years and is only showing very weak signs of recovery.

The question is: “Why is this recession hanging on?” Look at the Great Depression and the Hoover and Roosevelt responses to it. Huge government spending to create government jobs not a “cure”, but a canard. Tax increases are economic poison to a recovery. Massive borrowing raises the national debt and leads to higher interest rates, inflation, and scarcity of private funds to finance growth. Expansion of entitlements drains present and future treasury assets, further weakening the nation’s fiscal stability.

The discredited New Deal playbook has been used and failed miserably before. Government spending cuts and tax relief have been used at least six times. Each application resulted in quickly rebounding expansions at least twice as long as the average business cycle.

Perhaps President Obama should ditch the Teleprompters and take a hint from Sarah Palin. He should write on his palm:

“CUT SPENDING”
“CUT TAXES”
“CUT ENTITLEMENTS”
“CUT REGULATION”

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2 responses to this post.

  1. The White House noted Thursday that federal taxes were reduced by $173 billion in 2009 and said that the average tax refund is about 10 percent higher than last year. Perhaps tea partiers should not accept their tax refund, SS checks, medicare or travel on some of the improved infratructure that has been completed due to stimulus monies. Seems to me these are the exact people who would complain if they didn’t get the government support or if the AIG executives didn’t get their bonuses.
    Perhpas Sarah Palin should come up with something innovative and pro-active and write it on her hand…all she does is bash the Democrats. If i remember correctly she was voted into office (that she ran for) and quit to makee the almight buck. She is a TOTAL sham and embarassing to Americans.

    Reply

    • The problem with the lefties is that they do not understand the precise target of the anger. It is not the taxes themselves, but the spending. The unequal distribution of the tax burden is also an objection. 47% of Americans pay no tax at all and many of them get handouts instead called euphamistically the “Earned Income Tax Credit”. The other 53% pay anywhere from a little to millions. The “rich” are already paying their “fair share” and present policies are to squeeze yet more out of them while using the dough to pay an ever increasing number of government dependants of all sorts. Social Securuty went negative this year. Medicare is close behind. From here on out you and me will be taxed to make up for the shortfalls that were supposed to be covered by pre-payments by the recipients.

      Government is expanding at an alarming pace while private employment stagnates. The taxing and borrowing over that past 40 years is sucking all the oxygen out of the economy. If it does not reverse real soon, our kids will endure a life of serfdom.

      Reply

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