A wonderful piece from The Daily Reckoning, about former U.S. President Warren G. Harding. Our current leaders could learn a thing or two from him. My favourite passage:
Warren Harding may never have been the brightest bulb on the White House porch, but intuitively he understood that proper macro-economic policies were more the product of virtue than of genius. Debt led to trouble; thats all he needed to know.
Keynes came along a few years later. Keynes was a genius; everybody said so. And he had an answer for everything. Nature? Government could do better. Debt? Dont worry about it, he said. Why not just let capitalism sort itself out? Without government intervention, it will only get worse, said Keynes.
…does that not sound exactly like our own Kevin Rudd – who, being a complete control freak, thinks he can solve every problem through his own over inflated sense of genius? RuddBank, RuddTel, $300 billion dollar pink batt and portable classroom spending spree, now he thinks he can improve the architecture and planning of our own homes! Read on…
But Harding had already proved him wrong. Harding did the very opposite of what Keynes recommended. Instead of increasing government spending, he reduced it. He cut the budget almost in half. He slashed taxes too…and cut the national debt by a third.
Japan at the time struggled with the same downturn. But it had no Harding at the helm. Instead, its masters prefigured Keynes, trying to stay the correction using price controls and other interventions. The result was a long-drawn-out affair that lasted until 1927 and ended in a bank crisis. In America, meanwhile, by 1922 unemployment was back down to 6.7%. By 1923 it was down further – to 2.4%.
This lesson was entirely lost on the worlds economists. When the next crisis hit a decade later, they turned to Keynes. Of course, it turned out to be a moral world after all. They got what they deserved.
Read more here: Harding the Last American President to Deal Honestly With a Major Financial Crisis.
FREEDOM: Economics, Politics and Business daily reckoning, global financial crisis, kevin rudd, keynes, stimulus
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