Escaping Recession

" Hello and welcome to freedom watch your daily dose of raw liberty. Streaming online a foxnews.com. I'm your host judge Andrew and -- here. Defending freedom defending your natural rights and defending your right to have a government that stays within the confines of the constitution. During the twentieth century we suffered not only the Great Depression of 1929. Which Hoover and FDR extended right up to 1946. We also suffered a horrific depression in 1920. And a serious recession in 1987. In the early twenties president Harding was implored. To borrow and spend in order to jump start an economy that was battered -- over 12% unemployment. And after black Tuesday. In October 1987. When the stock market lost over 15% of its value in just a few hours. President Reagan was urged to use the federal treasury to get things back on even keel. Both presidents rejected the advice given by their big government advisers yet both got us out of -- crisis. How did they do it. Here to explain as my next guest Thomas woods author of nine books. Including two -- to New York Times best sellers the most recent of which is called meltdown. A free market look at why the stock market collapsed and the economy tanked and government bailouts will make things worse Tom welcome back to freedom watch. -- right thank you what happens in 1920. And 21 that was such are horrific depression. That most of us don't even learn about from the public schools today."

" Well to make a long story short it followed the same sort of pattern that we've observed. In the all the -- throughout American history in the nineteenth century to today there you you have a long. Boom that's fueled by easy credit pumped -- by the Federal Reserve and eventually. The economy catches up to this trickery you wind up with a bust and so we had big money growth in the years leading up to 1920 you know we have the -- we had. Very suddenly double digit unemployment. Double digit percentage drop since. Output and it to just everything just look terrible at this is this is the deflationary spiral that -- all told to fear. And so of course the conventional wisdom today would be to -- said that what we need is fiscal stimulus and monetary stimulus pump up."

" And -- let me stop you this is 1920s that Federal Reserve is only seven years old. This is the first crisis. That the mismanagement. The unconstitutional and illegal I think you'd agree with me. Mismanagement of the federal banking system -- the central -- banking system by the Federal Reserve has caused so the president as Warren Harding. What what -- the pressures on him and what are -- advisers. Saying to him and who is one of those advisers."

" Well interestingly one of those advisers is Herbert Hoover the commerce secretary. And this is the guy overall told the during the Great Depression nine years later was the one who supported the free market and was just sort of -- issue. You know moron who sat -- and did nothing during the Great Depression."

" We were told his middle name was laissez --"

" He was calling for government intervention he was he was urging Hoover a -- crew was urging Harding. To engage in what we would today called fiscal stimulus public works project put people work. He urged this strenuously. And Harding more -- ignored. And so what we instead had. Is. The government cut its budget cut the budget from 1920 -- 42 by about a half. The Federal Reserve System. Didn't actually do anything to turn the money supply -- that they didn't engage an open market operations. And tax rates were cut marginal tax rates for all income groups the national debt the national debt was cut by 13. And so what value would think again according to the conventional wisdom we apparently we never recovered from this right you can't ever he can't solve a depression."

" way Tommy -- how long did the depression of 192021. Last."

" Well Benjamin Anderson who was a Columbia professor sir and a real expert finance -- this is something of a contemporary. -- break about this later. Said that by the end of the summer of 1921 you can already see -- things turning around. That we cleared out all the all the bad debt all the bad investment and we restarted turn things around so we have very rapid recovery. At the very time interestingly enough the Japan was doing sort of the opposite. Propping everything up government intervention. The same way they did that. Nineties and they had -- at stake -- it's a week a lot of this quickly. By doing the opposite of what we're told to do today and is an interesting no -- hears about the depression ninety."

" chatting with Tom woods author of the New York Times best seller meltdown. Let's skip over the Great Depression because welcome back to it and let's go to October 1987. When we suffer a catastrophic loss in the equity value. In the stock market that is so bad that they stopped the closing this is before they stop the trading this is before the days where the computers would automatically. Cut it off and Ronald Reagan. Is president it's -- the third year of his second term. He's under pressure to do something. With -- the federal treasury what happens in October of 1987. How bad is it what are they wanted to do and what does he do."

" Well it is a serious stock market correction. And and we we already start -- stock prices had sort of heading -- by the summer. But then by October this is severe. Downturn -- and it's true that the federal government. More or -- stayed out of this at the same time the Federal Reserve did come to the rescue this is right very early on in Greenspan's tenure. And this is one of the events that gave Greenspan a reputation for being the guy who if things turn sour don't worry Greenspan will come to the rescue them to. Exactly so there was. There was an attempt by the Federal Reserve System to pump liquidity into the system of course means you know printed money."

" But the president. Decided he would not -- anything he wouldn't ask for more borrowing he wouldn't increase spending he wouldn't create make work jobs Friday he would either let the free market deal with it. Or allow the Federal Reserve which is virtually powerless to stop right to do it."

" Right from his discretionary point of view. He by and large stayed out of bed at -- they did intervene. And my friend -- Salerno at Pace University actually links the -- the flooding of the economy with credit 1987. To -- 199091. Recession that came later so as usual what the Fed does is in the short run. It papered things over but inevitably. You get you get bit but but you're right it is an example of on the fiscal side. As. Reagan had often done just saying don't you know -- there's there's no way we can improve on. What how the market is gonna sort this out on -- we can't live in a fantasy world try to. And try to prop up -- prices of -- all market has to -- price."

" What without getting into the weeds because we -- talk about this all day. The depression that first struck in 1929. That was at its worst in 1933. When did that end."

" Well some people would say it ended at the beginning. World War II. But for reasons that. We wouldn't be able to discuss -- simply because of the time constraint. There are -- quite a few people especially Robert -- of the independent. Institute movement overwhelming argument that in fact world -- was not that the that the numbers that seem to indicate that worlds were too that have prosperity. Are not believable. And that in fact prosperity properly understood. Which really involved prosperity for consumers an actual people record as opposed to government government spending -- prosperous but the private economy. Covered after World War II in 1940."

" Okay so we could safely make an argument that whatever Hoover did in 29. And everything that FDR did right up to during and through. World War II did not rid us of the depression why don't the people in government learn those historical lessons and follow them. Today."

" Well number one is they have no incentive to the mean they they don't really want to learn about a theory. That will take power away from them -- they like to portray themselves as the indispensable saviors. And that's not. Certainly -- argument and so they want to hear that but secondly. Simple statistics and numbers can't always prove anything because if I say you for instance in the 1990s Japan at eight stimulus packages and did nothing for them. Our side with say that shows stimulus packages are a waste of time and their side -- say it shows they didn't spend enough to you have to understand that. Economics that theory so you can make sense for the statistics -- these guys looking at the depression would say well it just goes to show we didn't spend enough. -- you what I would -- it just goes to show they did too much. So we have to understand how the economy works before we can make up for the number."

" Parts Tom woods thanks for joining us on freedom watch my pleasure church."