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The Lesson of a Crash that Cured Itself

The Lesson of a Crash that Cured Itself

If a government wishes to alleviate, rather than aggravate, a depression, its only valid course is laissez-faire—to leave the economy alone. Only if there is no interference, direct or threatened, with prices, wage rates and business liquidation, will the necessary adjustment proceed with smooth dispatch. — Murray Rothbard

The economic disruption caused by the government’s coronavirus clamp-down may lead to a deep recession or depression; arguably, it already has. President Trump’s $2.2 trillion relief package indicates what his answer to such an economic disaster will be: mega-spending on hand-outs and social projects. Trump is setting himself up as a modern version of Franklin D. Roosevelt (FDR) whose New Deal programs defined 20th century America by diverting it from a largely free-market path down a largely statist one. Trump wants to be an activist president — the type that history books applaud. Congress’s near-unanimous support of the relief bill means that no real brake will be applied on the speed or depth of federal spending. Few voices even question the need for government to lift up the economy by its bootstraps.

The Great Depression of the 1930s is often viewed as the gold standard for a federal response to an economic crisis. And, yet, FDR’s strong-man policies ushered in a decade of economic misery that did not end until the jolt of a world war in which over 400,000 Americans were killed. Happily, a less bloody “success” story exists.

The financial analyst and historian James Grant offers the do-nothing alternative in his path-breaking book The Forgotten Depression. 1921: The Crash That Cured Itself. The crash of 1920-21 is called “the forgotten depression” because it has almost vanished from history books.

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