Has Economic “Stimulus” Been Counter-Productive in Restoring Growth…?

In a recent WSJ article, Alan Blinder opines that” “When you suffer through the worst recession since the 1930s, healing takes a long time.”

Among his comments is a quote from John Adams, sic, ‘Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”

Indeed, he should have examined the facts. There are many examples in history where deep recessions have been followed by rapid recoveries. Had he reviewed the historical record, he might have been able to understand why the current recovery, that supposedly began in June 2009, has dragged on for so long.

For example, a deep recession began in last half of 1920 when commodity prices fell from an index value of 248 in May 1920 to 141 by next August. Consumer price deflation was highest ever & industrial production fell by 30% & unemployment rate went from under 2% to nearly 12%.

By August 1921, an economic recovery was beginning.

How did this happen?

In those halcyon days before Keynesian theory promoted governments spending their way out of recession, there was NO deficit spending or “stimulus” packages.

The Harding administration CUT federal spending, exclusive of repayments of debt, from just over $6 billion in fiscal 1920 to just over $3 billion in fiscal 1923, a decline of 45%. As such, federal outlays fell from just over 7% of GNP to less than 4% (even as tax revenues declined over the same period).

Perhaps the cause of the sluggish restoration of trend-line growth for the US economy is that “stimulative” economic policies since 2008 have been worse than ineffective, Indeed, it appears that they have been counter-productive.

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Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.

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