Government spending and tax policies caused the dot-com bubble. Government intervention papered over that bust, but set up the housing bubble. More government intervention masked the housing bubble, but is creating a new housing bubble and a bond bubble. It’s time to quit doing things that have repeatedly failed and try what has worked. Cut taxes and spending.
We entered a recession in 1920. Unemployment jumped from 4 percent to 20 percent in 1921. Gross national product declined 17 percent. In response, President Warren Harding cut spending by half by 1922, reduced tax rates and reduced the national debt by one-third. Unemployment dropped to 6.7 percent in 1922 and 2.4 percent in 1923. President Calvin Coolidge continued these programs and unemployment averaged 3.3 percent for the rest of the decade.
At the end of World War II, Keynesians (paleo-Obamanoids) claimed cutting government spending would bring back the Great Depression. Instead, government spending was cut from $106.9 billion in 1945 (over 45 percent of GDP) to $44.8 billion in 1950 (15 percent of GDP). GDP grew from $223 billion to $293.8 billion, the annual federal deficit fell from $53.7 billion to $1.3 billion, and unemployment averaged 4.5 percent from 1945 to 1950.