For most of the history of this country, there was no Federal Reserve System, which was established in 1914 to prevent bank failures and the bad effects of large expansions or contractions of the supply of money and credit. But bank failures in the 1930s exceeded anything ever seen before the Fed was established. So did the contraction of money and credit during the Great Depression.
The seductive notion that some Big Daddy in Washington can solve our problems for us-- whether healing the sick, preventing poverty or "growing the economy"-- is encouraged by politicians for obvious reasons, and the media echo the idea.
Both in Washington and in the media, there is virtually zero interest in comparing what actually happens when the federal government intervenes in the economy and when it does not.
More than a century and a half of ignoring downturns in the economy never produced a depression as deep or as long as the 1930s depression, with its many federal interventions, first under Herbert Hoover and then under Franklin D. Roosevelt.
The unemployment rate was 6.3 percent when the first big intervention took place, during the Hoover administration. It later peaked at 25 percent, but its fluctuations were always in double digits throughout the 1930s, as FDR tried one thing after another. As late as the spring of 1939, nearly a decade after the stock market crash of 1929, unemployment hit 20 percent again.
It is not a matter of faith that a market economy can recover on its own. It is a matter of faith that politicians speed recovery. But there is no way that Barack Obama is going to stop intervening in the economy unless he gets stopped. Only gridlock can do that.