The coming great depression need not come
Will the coronavirus lead us to another Great Depression? To answer this question, we should look at previous recessions and their causes.
The original Great Depression started in 1929. An increase in the stock market price earnings ratio caused the market to be artificially high. When stockholders realized that they owned stock that was overpriced, they sold. This caused a recession. The same thing occurred in 1906, 1965, and 2000. You probably remember the last occurrence. Federal Reserve Board chairman Alan Greenspan expertly managed interest rates. We had a mild recession. So why was 1929 so different?
Republican president Herbert Hoover was not an economist. He depended on his advisers. They recommended an increase in government spending whether it accomplished anything or not. This damaged the economy even more. This is like picking at a scab and not giving it a chance to heal. By Election Day in 1932, the economy was no better, and Hoover lost to Democrat Franklin Roosevelt.
Roosevelt saw the Great Depression as an opportunity to acquire more power. He chose to micromanage the economy. For example, he paid farmers to destroy crops because he wanted crop prices to be higher. He thought this would improve the economy. Of course, paying more for food when you have little money is not an improvement. Roosevelt pushed for legislation that the Supreme Court found unconstitutional and overturned. His response was to attempt to put six more justices, whom he would select, onto the Supreme Court. The Court and the Congress made it clear that this would not be allowed. Roosevelt pursued other ways to increase his power. Soon came World War II, and the economy actually got better. It is said that Roosevelt saved us from Hitler. It can also be said that Hitler saved us from Roosevelt.
We have a situation similar to what led to the Great Depression. We have an attack from a virus that, although deadly, is not as devastating as we had anticipated. President Donald Trump has an economics degree, but his advice comes from doctors. The country has taken their advice, and we have done well in minimizing the epidemic. Unfortunately, we did so by distorting the economy. The April 2020 unemployment rate is 16.1%. The doctors can be regarded as angels on Trump's shoulder, but they are more like the devil because of the economic damage.
Trump's economic advisers recommend providing government handouts to anyone who was financially damaged by our response to the virus. This has cost trillions of dollars so far, and all of the legislation has not yet been passed. Trump's other angel is also a devil.
Trump needs an angel on his shoulder who really is an angel. The lesson from the Great Depression is to do the opposite of what Hoover and Roosevelt did. They spent money just to spend it, set wages and prices as they saw fit, started the Social Security Ponzi scheme, and set up a vast Executive Branch regulatory system. We still suffer from their efforts.
We can provide a better response in 2020 by looking at the response to the 1918–1919 Spanish Flu and its ensuing recession. President Warren Harding cut the federal budget in half and cut income tax rates for all brackets. President Calvin Coolidge continued the policy. The result was the Roaring '20s.
President Trump needs to dust those "angels" off his shoulders and remember his economics training. Make the economy great again.