The Depression of 1920. Government spending enabled swift recovery.

The depression of 1920-21 was a very sharp downturn with a rapid, robust recovery that started the roaring twenties. You see and hear very little about this recession. However, it has some received some attention on the internet, usually from subscribers of the Austrian school of economics, as well as some general libertarians and conservatives, who have cited this recession as proof their theories work.

I was walking through Barnes & Noble recently when I saw a book on the topic: “The Forgotten Depression: 1921: The Crash That Cured Itself” by James Grant. The first mention I’ve personally seen of this recession outside the internet, and it rekindled my interest in the topic.

The story goes like this: During this recession the government cut taxes, cut spending, then did nothing else. Without government interference, the recession bottomed out and rapidly recovered. Due to it’s short nature and/or the fact it was resolved without government action, it’s been called the “forgotten depression”, and “the depression you’ve never heard of.” [1][2]

The Austrian take is best summed up in “America’s Great Depression” by Murray Rothbard. “There is one thing the government can do positively, however: It can drastically lower its relative role in the economy, slashing its own expenditures and taxes, particularly taxes that interfere with savings and investment.” “Any reduction in taxes, or of any regulations interfering with the free market, will stimulate healthy economic activity.” “In sum, the proper governmental policy in a depression is strict laissez-faire including stringent budget slashing, and couple perhaps with positive encouragement for credit contraction.” (Rothbard) He quotes a Benjamin M. Anderson as having said this was “our last natural recovery to full employment.” (Rothabrd. p 186)

So, according to the Austrians during the recession the government cut taxes, spending, kept their hands off after that and we had rapid, robust recovery. There’s a few issues with this story however:

1: The tax cut was passed on Nov 23, 1921 [3] while the  recession ended in July 1921[4]. So the tax cut could not have helped end the recession, since it was already over by then.

2: Most of the spending cuts occurred before the recession ever started, (January 1920) as seen in the graph below. [5] So, this could not have ended the recession.

wwi gov scale down

3: While there was no fiscal stimulus the government did intervene in a couple of ways: A tariff was passed, (The Emergency Tariff of 1921) and the Fed cut interest rates.

All this and other issues have been largely discussed already however. Here is a link to a wonderful collection of posts about the topic, and also a paper by Daniel Kuehn who first discussed how it was Woodrow Wilson who is responsible for most of the cuts to government expenditure, before the recession ever started, as well as some other points of critique. I encourage everyone to read these works, but for now  I instead want to look at a new aspect:

Private spending 

From 1920 – 1922 there was a surge in private spending. Using data compiled by Steve Keen, I estimate the private debt level rose from 53 to 69% of GDP in that span. This is an estimation, but as seen in the graph below clearly there was a big spike in private spending from 1920-22.

US private debt 1920-22

After the horror of WWI there was a want to return to “normalcy” and given the fact wages soared during the war, thanks to full employment and strong union positions, there would’ve been plenty of money to spend spend spend. This is strengthened when we look at the period right before.

From about 1915 – 1919 private debt falls from 75 to 51% of GDP  a 24% drop. This put the private debt level the lowest it’s been in nearly 20 years. As seen in the graph below.

US private debt 1915-19

It appears there really was “pent up demand” after WWI. Years of less spending lead to a boom in spending, aided by a high savings rate and high wages. This is what fueled rapid, robust recovery. This is not shocking in any way. Consumption is the major driver of our economy. People spending on air flights to take vacations, appliances, cars, houses all boost the economy. In economic terms: Y= C + I + G+ NX. With most else stable, the massive increase in C will lead to a large increase in Y.

However, it’s not enough to simply say the private sector spent its way out of the recession. There’s another piece to the story.

That fall in private debt, 24%, is a massive number, you can see how large it is on the graph above. Usually, falls in private debt correlate with recessions/stagnation. This makes sense, it’s the reverse of the process described above. Just to verify this, I checked the list of US recessions and compared it to the graph, which yielded this result:


Most of the very large drops in private debt correlate with recessions, some of them are our longest and worst ones: The depression of 1839-43, 1873-79, the Great Depression, the Great Recession. Even the  early 90s recession, while not terrible, was followed by low growth and lingering unemployment lasting until around 1995, which correlates with a drop in private debt.

So, why did the 24% fall in private debt from 1915-19 not have similar results and in fact saw an economic boom? Government debt rose from 2.7% to 30%[6], a 27.3% increase. This spike in government spending boosted the economy, allowing people to save without feeling an economic crunch. So when the scale back came the population had plenty of savings ready to be spent, buoying the economy.

Some say the slashing of government quickly ended the 1920 recession and fueled robust growth, but it was actually the previous build up of government spending, that laid the foundation for recovery!







Rothbard, Murray. America’s Great Depression. 1963. The Ludwig von Mises Institute. Auburn, AL.   Daniel Kuehn paper    Private debt data and chart Info on 1920-21 recession








Trade bills have cost the US 6 million jobs, and TPP will make it worse

In mid 2015 TPP, (the Trans-Pacific Partnership) became a major issue. There was widespread concern about the potential trade bill, specifically it’s impact on American jobs, the back door nature in which it was drafted, environmental concerns, and people from both parties and various sources calling the bill “Crony Capitalism” and “managed trade”. Then TPP seemed to disappear from the news, and the deal was signed, though it still needs to pass the US Congress. What can we expect from TPP?

This report by EPI shows that trade with the TPP countries cost the US 2 million jobs in 2015 alone, with every state seeing losses. The hardest hit state was Michigan, with over 5% job loss, others badly hit being Indiana, Kentucky, Ohio, Tennessee, Alabama as well as Oklahoma and Wyoming. The report notes 52% of jobs lost were in manufacturing, the biggest chunk of that, (36.4%) being in motor vehicles.[1] While all states and many sectors were impacted, clearly the worst pain was dealt to US manufacturing, which continues to leave not just it’s traditional upper mid west base, but now the south.


The above graph shows jobs loss per state by % of jobs lost. It struck me that a state could lose far more jobs than another, but have a larger population thus lose a lesser percentage. With this in mind I used the EPI data to make the map below, showing the 10 hardest hit states by TPP country trade by the number of jobs lost, while also taking population into account.

tpp jobs

All this was before TPP was even implemented! This has just been the impact due to current trade with the 11 TPP countries, imagine how much worse it will be if the bill is actually implemented. The US will continue to see a net loss of jobs, particularly hurting manufacturing, and overall putting more downward pressure on wages, (due to both job replacement being lower wage and having to compete with low wage labor in other countries). The erosion of the American middle class, and thus increasing inequality and worsening social mobility, will continue if TPP is implemented.

This is nothing new however. TPP is just the latest in a series of trade bills, which have had a negative impact on the US economy.


Passed by Congress and signed by Bill Clinton in 1993, NAFTA was a trade agreement between the US, Canada and Mexico. NAFTA has cost the US 682,900 jobs. All 50 states and DC saw a net loss of jobs. Nearly 61% of jobs lost were in manufacturing, and nearly 38% of these jobs lost were in computer, electronics and automobiles.[2] The 10 worst hit states in terms of number of jobs lost, and as a percentage of their workforce were Michigan, Illinois, Indiana, Kentucky, Ohio, Pennsylvania, New York, Texas, Florida and California as seen in the map below, made using EPI data.

nafta jobs


In 2000 permanent normal trade relations with China was passed by Congress and signed by Bill Clinton. Since 2001 trade with China has cost the US 3.2 million jobs, with all 50 states and DC seeing a net loss. 75% of jobs lost were in manufacturing. Jobs displaced due to trade with China, for those who were able to find one, paid 17% less, and trade with China cost the US $37 billion in wages per year.[3]

china trade


In 2011 a US-South Korean trade bill was passed by Congress, signed by Barack Obama, (and supported by Secretary Hillary Clinton) which cost the US 75,000 jobs between 2011 and 2014. Over 79% of the growth in trade deficit with South Korea came in manufacturing, with 75% of that coming in auto vehicles and parts. The EPI report notes the deal isn’t fully implemented, with some protection of the US auto industry still in place. However, these expire in 2021, meaning the loss of auto vehicle/part manufacturing will only accelerate after that. [4] It is also noted the agreement with Korea opened up access to American auto markets but without guaranteeing equal access to Korea’s.[5] This virtually ensures a loss of American auto manufacturing jobs.

There have been numerous other trade agreements signed. Ones with the US and Jordan, Bahrain, Morocco, Oman, Panama, Colombia, as well as CAFTA a multi lateral deal with the US and Central America and the Dominican Republic. While I can’t find any analysis on most of these bills, EPI notes that each of these trade agreements is with low wage labor countries. Also, these agreements put US labor in competition while protecting US skilled professions.[5] This is not only managed trade, deciding who gets protected from competition and who doesn’t, but worsens inequality. To make matters worse, EPI also finds that trade with low wage countries puts downward pressure on wages even in jobs not lost. On average yearly wages were $1,800 lower for Americans without college degrees, due to competition with low wage labor, and with roughly 100 million non college educated workers in the US, this is a roughly $180 billion yearly loss in wages.[6]

This is what we do know:

Trade agreement – Loss of jobs – % lost in manufacturing

NAFTA – 682,900 – 61%

CHINA – 3.2 million – 75%

KOREA – 75,000 – 79%

TPP counties- 2 million – 52%

TOTAL: 5.96 million  – 66.75%

These 4 trade agreements, our largest, have cost the US 6 million jobs. While all sectors and states have been impacted, two thirds of these jobs lost have come from manufacturing, hitting particularly hard the rust belt from New York to Illinois, the upper south, (Kentucky and Tennessee), Texas and California. These trade bills have directly or indirectly lowered the wages for tens of millions of working Americans, and thus has been a major factor in the erosion/weakening of the US middle and working classes.

We need to renegotiate our trade bills, not put up tariffs, to ensure trade works for American workers, not against us, including stopping TPP before it can be implemented.










Yes, Bernie Sanders can win the nomination, and the election.

Bernie Sanders was a surprise in 2015 to say the least. The obscure, New Deal style Senator from Vermont announced he was running for President and had very little name recognition, no money and no party support…going against a candidate who had all those in abundance. He shocked everyone with the strength of his polling, crowd sizes and fundraising ability. More importantly, he shocked everyone (Republican and Democrat) with the popularity of ideas written off by most as extinct since Reagan, and too out there for the US.

Despite dedicating a huge amount of resources in Iowa, Clinton won by just .2% taking 23 delegates to Sanders’ 21. Sanders then won New Hampshire by 22% the largest, non incumbent, NH victory in the Democratic Primaries since JFK in 1960. Nevada, which was supposed to be Clinton’s firewall, turned out to be a 6 point victory, with the delegate split being 20-15. Polls have shown Sanders closing the gap nationally, and that he has the support of voters under 45, and especially under 30 (which he wins consistently by over 80%). While acknowledging all this, most dismissed Sanders simply because he had no chance anyway.

Indeed, after Clinton’s big win in South Carolina it was declared over. People, pundits, and articles all spoke about how Clinton had it in the bag, noting constantly her large lead with African American voters, and the dominance of African American heavy states on Super Tuesday would seal the deal.

Sure enough, Clinton won Super Tuesday 7 states, (and American Samoa) to Sanders’ 4 with massive leads in the southern states. It has been declared over, or at least unofficially over and we just need to wait for the inevitable. She also has a massive lead in Super Delegates, which basically gives her a 400 delegate cushion.

While Sanders faces an uphill battle, it is far from over. I think he has a realistic chance to take his fight all the way to the convention, and have a very strong showing while doing so. A path to the nomination may be slim, but it does exist. Here’s how.

First, let’s note Super Delegates are “soft” meaning they are not locked in. They can change their vote whenever they want, and vote for whoever they want want the convention. As has been widely reported, Clinton and Howard Dean held super delegate leads in 2008 and 2004, just to have them all move to Barack Obama and John Kerry.

In terms of “hard” delegates, those won in the state primaries and are locked in to their candidate, Clinton leads 608-413. Large, but far from the 1000-400 picture that is often painted by including super delegates, and there are still 35 states to go. In fact, now that Super Tuesday has passed, the map gets a lot more favorable for Sanders. The map becomes a lot more white, liberal and rural/blue collar.

Super Tuesday proved Sanders can win big in both these types of states. While he did poorly in the south, as expected, it wasn’t reported that he did better than expected in the other states. Vermont was no surprise, but he won quite handily in Minnesota, Colorado and Oklahoma, by 23, 18 and 10 points respectively. Oklahoma’s result, at least the size of victory, was particularly surprising, and shows Sanders can do well even in very conservative states.

Also of note from Super Tuesday. It seems Sanders did very well with Hispanic voters in Colorado. Courtesy of the New York Times:


This syncs up with a poll that had Sanders lead among Hispanics[1], and also Nevada where it seems he also performed well with that demographic. Also evident from this picture: Sanders did well in places that favored Obama over Clinton in 2008, which also syncs up with results from Iowa, NH and Nevada.

Keeping all this in mind, let’s look ahead. March 5 & 6 has 4 states: Nebraska, Kansas, Louisiana and Maine. It’s very possible Sanders can win 3 of these states, Nebraska, Kansas and Maine, and by solid margins. This would chip into Clinton’s delegate lead a bit, and give Sanders some momentum going ahead, which could be helpful for March 8. Mississippi is likely to be a large Clinton win, but Michigan has 130 delegates, and is more favorable to Sanders. His message about creating jobs, boosting wages and railing against trade bills that send our jobs overseas, could play very well in the state. While a win would be spectacular, a strong result would at least be very beneficial both for delegates and chipping away at Clinton’s “inevitability” image.

March 15 is another critical day with 5 states voting, all delegate heavy. The day doesn’t look favorable to Sanders at the moment, so the key will be picking up as many delegates as possible. He can have a good day delegate wise, Florida has a solid amount of white liberals, Illinois, Missouri and Ohio all have solid to large numbers of white working class voters. A win, Ohio and possibly Missouri are likely candidates, will be spectacular for Sanders’ media image, but more importantly he will need to win as many delegates as he can on this day to keep Clinton within realistic striking distance, and to pad his numbers because the map becomes very favorable after this.

Arizona, Idaho, Utah, Alaska, Hawaii and Wyoming are all states either Obama won in 2008 or look favorable to Sanders’ demographics, especially if he continues to do well with Hispanics in the west and working class whites. During this time are two states with a lot of delegates, Wisconsin and Washington, that look very good for Sanders. Winning these states by large margins, which is very possible, would give Sanders some good delegates, capping a span where he can win most of the states.

Then comes New York. A state that is favorable for Clinton, (not only her home state but the New York City area is a base of strong support) but it does also have a high number of white liberals, as well as working class voters. Sanders will need to win as many delegates as possible, possibly by doing very well in upstate NY taking working class voters.

April 26 has 5 northeast states, 3 of which Obama won in 08: Delaware, Connecticut, Maryland while Clinton took Rhode Island and Pennsylvania. Sanders can compete in all of these states, with a strong chance to win some. Pennsylvania will be particularly important, given it’s large amount of delegates and it’s very large white, working class population. Outside of Philly and it’s suburban area, much of the state is rural and blue collar, Pittsburgh still has a strong labor tradition, and lots of the state has been hard hit by loss of jobs where Sanders’ message can resonate. This is a state Sanders should focus on, a strong result or even win would be huge.

After this are several states that could be favorable for Sanders: Oregon, North & South Dakota, and West Virginia. Oregon is clearly a strong fit, a white liberal state that went for Obama in 08, and even in July 2015 a poll showed Sanders within striking distance…while polling out of West Virginia shows Sanders very much alive if not leading. A very white, working class state that has been badly hammered by job loss, could be a big win for Sanders. Montana is a white rural state, with a populist streak that Obama won in 08 and the last poll from there indicated a strong support for Elizabeth Warren. Kentucky and Indiana are very conservative states, but white and rural, not far off from Oklahoma. New Mexico is a fairly liberal state, and if Sanders can continue to do well with Hispanics in the west this could be another big win.

Much of these states are small however. There is one state that could be essential, if Sanders was to build momentum in this way described above:


The state has 475 delegates up for grabs, and has large numbers of liberals, college students and Hispanics. In 2008 Clinton won the state 51.5% to 43 and results show Obama did well in the coastal areas, as well as some inland counties, while Clinton took the rest of the state, and won the Hispanic vote with 65%. The liberal vote, (51% of the state in 2008) was split 48-48% between them.[2]

It’s very possible Sanders can win Obama’s support in 2008, and by bigger margins. It’s also possible liberals comprise a bigger number, as has been the case in much of the US. The liberal coastal area alone makes the state tighter for Sanders, and if he can maintain and ideally expand this support among Hispanics, get strong youth turnout, and continues to win Independent voters, California could be a big win for Sanders. If Sanders can make it all the way to California, perhaps even in a good position by successes in earlier states, this could be the state that decides the nomination.

So, after surviving Super Tuesday the map becomes a lot more favorable for Sanders going forward, with some large states that could be in play for him. He can win the majority of states starting tonight going forward, which would help his momentum and image. The biggest hurdle Sanders faces, is how widely it’s reported the nomination is over. As well as other discouraging tactics such as reports including super delegates to lessen the strength of his victories in places such as New Hampshire and Colorado. If Sanders can win states and keep doing so, it can help erode these media portraits, and bring more name recognition to his campaign, helping in bigger states where it will be critical he can win delegates. Voters in a state may like Sanders, but if they feel the campaign is already over, it of course doesn’t matter. This could be come a self sustaining cycle either way. If he finds continuing success, it will continue to strengthen his polling numbers, making him seem more likely, etc etc

Momentum, name recognition, turnout especially from youth and less general appearance of impossibility will be critical for Sanders taking advantage of the demographically favorable states coming up.

One quick note about super delegates. As mentioned earlier, they can change their vote at any time for whoever. Super delegates have never decided a primary, they always back the leading candidate. This is why Sanders must do well as possible going forward. If he has the delegate lead entering the convention, super delegates will back him. If Clinton has the lead, they will back her. Some worry the party may refuse to back Sanders, but I find this unlikely. It would be dangerous to go against the candidate with the lead, and if it was done could be even more dangerous given the unfair treatment and roadblocks many Sanders supporters feel the Democratic Party has given him, and their already voiced concerns about the super delegate itself. There are also over 230 super delegates left unpledged at the moment. If Sanders was to win the majority of states going forward, including some big wins, and continue to strengthen his polling both against Clinton and Republicans (which already look favorable) it’s possible more Super Delegates will pledge for Sanders, a few may even jump from Clinton to him.

Which leads me to a final point: Electability.

Many worry about Sanders’ electability, but this should not be a concern. Sanders can absolutely win the Presidential Election.

There are several factors to keep in mind.

1: Anyone can vote in the general election. This means Independents, who seem to strongly back Sanders.

2: Youth. Sanders has very strong support with the under 30 crowd, and while youth turnout is famously low, they did come out in record numbers for Obama in 2008, and given the fervent support Sanders enjoys, its possible that at lest a small bump in youth turnout will happen, which could be enough to ensure some states on the fence are tipped his way.

3: The blue states will vote blue. The red states will vote red. As always the election will be decided by the swing states. Can Sanders win these states? I think the answer is yes, and this leads to my next two points.

4: The republican candidates. The one with the most broad appeal, John Kasich, has a near 0 chance of winning the nomination. Even if he did, his platform of increasing defense spending, cutting entitlements, and general support of Reaganomics may not play very well, especially against Sanders. His elimination of estate taxes while raising the cigarette tax in Ohio, pushing for increased military spending while cutting entitlements, writes the Sanders “working people paying for the rich” campaign line for him.

Trump and Cruz are intensely disliked outside the Republican Party. Even if every Republican came out to stop Sanders, moderates are no guarantee to support either, some Republicans may just not vote at all if they have Cruz or especially Trump as their nominee. An Independent Trump run would only help Sanders, as would be Republicans get siphoned off to him. Rubio pushes standard Republican economics which again may not fare well against Sanders’ campaign about the working and middle class, creating jobs and boosting wages. “Socialism” as a political attack is nothing to be worried about. It may strengthen Republican support, but it may do very little outside of the party. Recent polls have shown increasing numbers of Americans embracing the word socialism. [3][4] I feel perhaps the tactic is actually backfiring on conservatives. When a word is over used it loses its impact, and now that a candidate is no longer running away from the word, even embracing it, as people look at Sanders they may think “Hmmm this is Socialism? I kinda like this guy”. It’s looking very likely that socialism as an insult is losing its impact.

5: Sanders’ ideas. Bernie Sanders has run a campaign dedicated to the middle class. Specifically the erosion of it thanks to jobs sent overseas and stagnant wages. He’s attacked Wall Street excesses, and money in politics. He wants to create 13 million jobs rebuilding the US, boost wages, tax Wall Street speculation to fund tuition free public college and fund Social Security by asking the wealthy to pay into the system. He’s railed against the too big to fail banks which are now even bigger, and Citizen’s United which polls show 80% of Americans disapprove of. Many areas of the US, even conservative ones, do have a deeply populist and anti elitist streak in them.

Will this let Sanders win states like Oklahoma, Utah, Kansas and Alabama? No. However, it will play very well in more moderate, working class states, that will vote Democrat, especially ones that have seen jobs sent away. States like Ohio, Iowa even West Virginia which was a Democratic stronghold into the 90s though has gone increasingly Republican due to increased liberalism, and abandonment of labor, by the Democratic Party. States that some feel could be in play like Pennsylvania or Michigan will almost surely back Sanders and his strongly pro labor, union and working/middle class campaign. Can Sanders platform win in states like Ohio, Iowa, Colorado, Nevada, New Mexico, Virginia and Florida? Absolutely, and he wouldn’t need all. Certain combinations would do the trick, Ohio and Iowa could do it, Florida alone would be enough.

So, does Bernie Sanders have an uphill battle in the Democratic Primary? Yes. He needs to start winning states tonight, win the majority going forward and pick up some large ones. Is it impossible? No. The map favors him and name recognition/momentum could take him a long way. Some of the large states do have demographics in his favor. Bernie Sanders has an uphill road in front of him, but the nomination is not already over, and in fact he can take a legitimate fight all the way to the convention. If Sanders could force a 2008 type primary, perhaps even in a loss he (pushed by supporter campaigning) could be given a cabinet position, as happened in 2008. Sect of Labor Sanders could push his jobs program and wage hikes, perhaps bring in some more progressive economists such as Robert Reich and Joseph Stiglitz. At the very least, be a voice for the progressive movement in the cabinet to keep the Democrats honest. It would surely influence the Democratic Party, with a growing progressive movement and Elizabeth Warren in the waiting.

Sanders campaign was like that of Ron Paul in 2012: Hoping to influence the party, but probably understanding there was a slim chance of winning. Sanders has surpassed everyone’s expectations, perhaps even his own. He will go to the convention and try to leave a lasting imprint on the party, this I am sure of. However, he has the potential to go farther, and it starts this weekend with Maine, Nebraska and Kansas.