Recovering Without Washington

Did you know we had a major recession in 1920? Did you also know that the Government did virtually nothing in response and that we recovered quickly and stronger than ever? Amity

Shlaes reminds us in this column that markets are usually best left to sort themselves out. Her widely acclaimed book, The Forgotten Man also describes in great detail how government meddling actually prolonged the Great Depression by several years.

"In 1919, as in 2007, the country was on a roll. Unemployment was 1.4
percent. The Dow Jones Industrial Average hit 119, almost double what it had
been in 1917. The young Fed and the Treasury had been inflating the money supply
in order to pay off World War I debt.
Then the Fed began raising the
discount rate. Also, gold was leaving the U.S., another contractionary
force...

The recession was sharp. Unemployment moved up to 5.2 percent in 1920
and 11 percent in 1921. The Dow lost almost half its value. Political anxiety
was part of the story. A wave of strikes was hitting the country...

Washington, for its part, didn't do much bailing. Nor did it attack Wall
Street, as Democratic House Speaker Nancy Pelosi and, for
that matter, Republican presidential candidate John McCain, are
doing...

Recovery arrived as suddenly as recession had. By 1923,
unemployment was down again, to 2.4 percent. The Dow climbed back, although
taking longer to do so. The economy spent the rest of the decade growing in
exemplary fashion. "