Saturday, June 9, 2012
James Grant on why nobody remembers the not-great depression of 1920-21.
Between January 1920 and August 1921, the unemployment rate in the United States jumped to 14% or so from about 2% (as it was then inexactly measured); wholesale prices plunged by more than 40%; and industrial production fell by 23%. The farm economy reeled, and there were waves of business failures...
The administration of Warren G. Harding responded to this macroeconomic disaster by running a budgetary surplus. The Fed didn't lower interest rates but raised them. In response to this bitter medicine, or perhaps despite it, the economy staged the kind of bounce-back that the Obama administration can only pine for. In 1922, the first full year of recovery, industrial production leapt by 27.3%. By 1923, joblessness was back to 3%.