San Francisco Sees More Overdose Deaths Than Covid Deaths in 2020

Data show alarming trends in drug overdoses and suicide as people—especially young people who are least at risk from COVID-19—are forcibly cut off from friends, families, and communities.

It’s quite likely that wherever you are reading this, you are currently subjected to lockdowns, restrictions, regulations, or executive orders to one degree or another, as government officials respond to the coronavirus pandemic with increasing coercion and control. Indeed, The Wall Street Journal reported on Wednesday that US states and cities have “imposed the most extensive restrictions on business and social gatherings” since the spring.

Many argue that these new restrictions are essential for slowing the current surge in coronavirus cases in certain areas, but some public health researchers have pointed out that lockdowns and related government orders that focus entirely on containing COVID-19 cases lead to worse public health outcomes in other areas. This collateral damage from lockdowns is already glaringly apparent. In particular, data show an alarming trend toward drug overdoses and suicide in 2020, as people—especially young people who are least at risk from COVID-19—are forcibly cut off from their friends, families, and communities.

The desperation is revealed in startling new statistics. According to the Associated Press, a total of 621 people have died of drug overdoses this year in San Francisco, compared to 173 deaths in the city from COVID-19. The number of San Francisco drug overdose deaths is up from 441 in 2019. California has enacted some of the strictest public health orders in the country this year, and is still seeing its cases rise.

One survey by YouGov found that 39 percent of respondents who were recovering from an addiction prior to lockdowns have relapsed. Other research shows increasing rates of drug and alcohol abuse in 2020, and the CDC reports that overdose deaths are accelerating during COVID-19.

Federal surveys show that 40 percent of Americans are now grappling with at least one mental health or drug-related problem.

Martin Kulldorff, a biostatistician and epidemiologist at Harvard Medical School, has been critical of widespread lockdowns since the beginning of the pandemic, warning that these coercive strategies would lead to other serious public health harms and increased mortality.

“The current lockdown strategy has led to many excess deaths, both from COVID-19 and from the collateral damage on other health outcomes,” Kulldorff recently told Newsweek. “A focused protection strategy, as outlined in the Great Barrington Declaration, would minimize disease and mortality by better protecting older and other high risk people while letting the young live near normal lives.”

Kulldorff also suggests that new data showing US excess deaths in 2020 for people ages 25-44 are mostly due to the collateral damage caused by lockdown policies.

In addition to rising drug and alcohol abuse and overdose deaths, suicidal thoughts and attempts are also increasing this year. The Washington Post reports that depression and anxiety have surged since the arrival of the coronavirus.

“Federal surveys show that 40 percent of Americans are now grappling with at least one mental health or drug-related problem. But young adults have been hit harder than any other age group, with 75 percent struggling,” the Post reports. “Even more alarming, when the Centers for Disease Control and Prevention recently asked young adults if they had thought about killing themselves in the past 30 days, 1 in 4 said they had.”

The Post explains that we won’t have accurate data on suicide rates for 2020 until another couple of years, due to slow reporting mechanisms. But state and city data for some areas suggest disturbing suicide numbers this year, including in Oregon’s Columbia County where suicides by summertime had already exceeded the area’s 2019 total, and DuPage County near Chicago reports a 23 percent increase in suicides over last year. Other large counties in the US have seen similarly ominous trends, and in Japan, more people died of suicide in the month of October alone than have died from COVID-19 this entire year.

As families weigh the trade-offs this holiday season between social isolation to slow the spread of coronavirus and the harms that this separation can cause, many of them are choosing to ignore public health warnings to avoid travel and holiday gatherings. The New York Times reports that millions of people have passed through airport security checkpoints this week, while The Wall Street Journal indicates that nearly 85 million Americans are expected to travel between Dec. 23 and Jan. 3, a decline of just under 30 percent from last year.

More families may be seeing the damage these lockdowns and related policies are causing their loved ones and are no longer willing to comply with draconian orders to stay away from others. Their decision may be made easier when they see public health officials and politicians personally violating the holiday travel and gathering warnings and rules they thrust on others.

COVID-19 should be taken seriously as a public health threat, but so too should the harms of lockdowns and government orders that are leading to record numbers of drug overdose deaths and suicides, along with other types of collateral damage such as rising global poverty and declining cancer screenings.

While public health and elected officials remain singularly focused on COVID-19, families gathering this holiday season recognize that ensuring the overall health and well-being of their loved ones extends beyond one virus.


Kerry McDonald

Kerry McDonald is a Senior Education Fellow at FEE and author of Unschooled: Raising Curious, Well-Educated Children Outside the Conventional Classroom (Chicago Review Press, 2019). She is also an adjunct scholar at The Cato Institute and a regular Forbes contributor. Kerry has a B.A. in economics from Bowdoin College and an M.Ed. in education policy from Harvard University. She lives in Cambridge, Massachusetts with her husband and four children. You can sign up for her weekly newsletter on parenting and education here.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

What Greek “Austerity”? by Steve H. Hanke

greek president

Greek Prime Minister Alexis Tsipras

It’s hard to find anything written or spoken about Greece that doesn’t contain a great deal of hand-wringing about the alleged austerity — brutal fiscal austerity — that the Greek government has been forced to endure at the hands of the so-called troika (the European Central Bank, the European Commission, and the International Monetary Fund).

This is Alice in Wonderland economics. It supports my 95% rule: 95% of what you read about economics and finance is either wrong or irrelevant.

The following chart contains the facts courtesy of Eurostat.

Social security spending as a percentage of GDP in Greece is clearly bloated relative to the average European Union country — even more so if you only consider the 16 countries that joined the EU after the Maastricht Treaty was signed in 1993.*

To bring the government in Athens into line with Europe, a serious diet would be necessary — much more serious than anything prescribed by the troika.

* Ed. note: The treaty created the EU and the euro and also obligated EU members to keep “sound fiscal policies, with debt limited to 60% of GDP and annual deficits no greater than 3% of GDP.” Ha!

Steve H. Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore.

What Can the Government Steal? Anything It Pays For! by Daniel Bier

“…Nor shall private property be taken for public use, without just compensation.” – Fifth Amendment to the U.S. Constitution 

On Monday, I wrote about the Supreme Court’s decision in the case of Horne v. USDA, in which the Court ruled almost unanimously against the government’s attempt to confiscate a third of California raisin farmers’ crops without paying them a dime for it.

The confiscation was part of an absurd FDR-era program meant to increase the price of food crops by restricting the supply; the government would then sell or give away the raisins to foreign countries or other groups.

Overall, this ruling was a big win for property rights (or, at least, not the huge loss it could have been).

But there’s one issue that’s been overlooked here, and it relates to the Court’s previous decision in Kelo v. City of New London, the eminent domain case that also just turned 10 horrible years old yesterday.

In Horne, eight justices concluded that physically taking the farmers’ raisins and carting them away in trucks was, in fact, a “taking” under the Fifth Amendment that requires “just compensation.”

That sounds like common sense, but the Ninth Circuit Court of Appeals had ruled that the seizure wasn’t a taking that required compensation because, in their view, the Fifth Amendment gives less protection to “personal property” (i.e., stuff, like raisins or cars) than to “real property” (i.e., land).

The Court thankfully rejected this dangerous and illogical premise.

But while eight justices agreed on the basic question of the taking, only five agreed on the matter of just compensation.

The majority concluded that the government had to pay the farmers the current market value of the crops they wanted to take, which is standard procedure in a takings case (like when the government wants to take your home to build a road).

Justices Breyer (joined by Ginsburg and Kagan) wrote a partial dissent, arguing the federal government’s claim that the question of how much the farmers were owed should be sent back to the lower court to calculate what the farmers were owed.

Their curious reasoning was that, since the government was distorting the market and pushing up the market price of raisins, they should be able to subtract the value the farmers were getting from the artificially inflated price from the value of the raisins that were taken. The government argued that the farmers would actually end up getting more value than was taken from them, under this calculation.

Chief Justice Roberts, writing for the majority, derided this argument: “The best defense may be a good offense, but the Government cites no support for its hypothetical-based approach.”

But the most interesting part of this subplot came from Justice Thomas. Thomas fully agreed with Roberts’ majority opinion, but he wrote his own a one-page concurrence on the question of how to calculate “just compensation,” and it went right at the heart of Kelo.

In Kelo, a bare majority of the Court ruled that the government could seize people’s homes and give them to private developers, on the grounds that the government expected more taxes from the new development.

Marc Scribner explains how the Court managed to dilute the Fifth Amendment’s “public use” requirement into a “public purpose” excuse that allows the government to take property for almost any reason it can dream up.

Thomas’s concurrence disputes Breyer’s argument about calculating “just compensation” by pointing out that, had Kelo had been correctly decided, the government wouldn’t be allowed to take the farmers’ crops at all — even if it paid for them.

Thomas wrote (emphasis mine),

The Takings Clause prohibits the government from taking private property except “for public use,” even when it offers “just compensation.”

And quoting his dissent in Kelo:

That requirement, as originally understood, imposes a meaningful constraint on the power of the state — ”the government may take property only if it actually uses or gives the public a legal right to use the property.”

It is far from clear that the Raisin Administrative Committee’s conduct meets that standard. It takes the raisins of citizens and, among other things, gives them away or sells them to exporters, foreign importers, and foreign governments.

To the extent that the Committee is not taking the raisins “for public use,” having the Court of Appeals calculate “just compensation” in this case would be a fruitless exercise.

Unfortunately, Chief Justice Roberts is already writing as though the “public use” requirement was a dead letter, writing at one point in his opinion: “The Government correctly points out that a taking does not violate the Fifth Amendment unless there is no just compensation.”

But that isn’t true. A taking violates the Fifth Amendment, first and foremost, if it is not taken for “public use.” And confiscating raisins and giving them to foreign governments in order to keep the price of raisins in the United States artificially high does not, in any sane world, meet that standard.

What Thomas didn’t say, but clearly implied, was that the Court should have struck down the raisin-stealing scheme entirely, rather than just forcing the government pay for the crops it takes.

The Horne decision was good news, but it didn’t go far enough by actually imposing a meaningful limit on what counts as “public use.” The Court could have done that in this case, by overturning Kelo or at least adding somelimitations about what governments can lawfully take private property for.

Happily, Justice Thomas isn’t throwing in the towel on Kelo, and Justice Scalia has predicted that the decision will eventually be overturned.

So can the government still take your property for no good reason? Yes, for now. But at least they have to pay for it.

That’s not nothing. And for raisin farmers in California, it’s a whole lot.

Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Paul Krugman: Three Wrongs Don’t Make a Right by ROBERT P. MURPHY

One of the running themes throughout Paul Krugman’s public commentary since 2009 is that his Keynesian model — specifically, the old IS-LM framework — has done “spectacularly well” in predicting the major trends in the economy. Krugman actually claimed at one point that he and his allies had been “right about everything.” In contrast, Krugman claims, his opponents have been “wrong about everything.”

As I’ll show, Krugman’s macro predictions have been wrong in three key areas. So, by his own criterion of academic truth, Krugman’s framework has been a failure, and he should consider it a shame that people still seek out his opinion.

Modeling interest rates: the zero lower bound

Krugman’s entire case for fiscal stimulus rests on the premise that central banks can get stuck in a “liquidity trap” when interest rates hit the “zero lower bound” (ZLB). As long as nominal interest rates are positive, Krugman argued, the central bank could always stimulate more spending by loosening monetary policy and cutting rates further. These actions would boost aggregate demand and help restore full employment. In such a situation, there was no case for Keynesian deficit spending as a means to create jobs.

However, Krugman said that this conventional monetary policy lost traction early in the Great Recession once nominal short-term rates hit (basically) 0 percent. At that point, central banks couldn’t stimulate demand through open-market operations, and thus the government had to step in with a large fiscal stimulus in the form of huge budget deficits.

As is par for the course, Krugman didn’t express his views in a tone of civility or with humility. No, Krugman wrote things like this in response to Gary Becker:

Urp. Gack. Glug. If even Nobel laureates misunderstand the issue this badly, what hope is there for the general public? It’s not about the size of the multiplier; it’s about the zero lower bound….

And the reason we’re all turning to fiscal policy is that the standard rule, which is that monetary policy plus automatic stabilizers should do the work of smoothing the business cycle, can’t be applied when we’re hard up against the zero lower bound.

I really don’t know why this is so hard to understand. (emphasis added)

But then, in 2015, things changed: various bonds in Europe began exhibiting negative nominal yields. Here’s how liberal writer Matt Yglesias — no right-wing ideologue — described this development in late February:

Indeed, the interest rate situation in Europe is so strange that until quite recently, it was thought to be entirely impossible. There was a lot of economic theory built around the problem of the Zero Lower Bound — the impossibility of sustained negative interest rates…. Paul Krugman wrote a lot of columns about it. One of them said “the zero lower bound isn’t a theory, it’s a fact, and it’s a fact that we’ve been facing for five years now.”

And yet it seems the impossible has happened. (emphasis added)

Now this is quite astonishing, the macroeconomic analog of physicists accelerating particles beyond the speed of light. If it turns out that the central banks of the world had more “ammunition” in terms of conventional monetary policy, then even on its own terms, the case for Keynesian fiscal stimulus becomes weaker.

So what happened with this revelation? Once he realized he had been wrong to declare so confidently that 0 percent was a lower bound on rates, did Krugman come out and profusely apologize for putting so much of his efforts into pushing fiscal stimulus rather than further rate cuts, since the former were a harder sell politically?

Of course not. This is how Krugman first dealt with the subject in early March when it became apparent that the “ZLB” was a misnomer:

We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it. But how low?

Then, after running through other people’s estimates, Krugman wrapped up his post by saying, “And I am pinching myself at the realization that this seemingly whimsical and arcane discussion is turning out to have real policy significance.”

Isn’t that cute? The foundation for the Keynesian case for fiscal stimulus rests on an assumption that interest rates can’t go negative. Then they do go negative, and Krugman is pinching himself that he gets to live in such exciting times. I wonder, is that the reaction Krugman wanted from conservative economists when interest rates failed to spike despite massive deficits — namely, that they would just pinch themselves to see that their wrong statements about interest rates were actually relevant to policy?

I realize some readers may think I’m nitpicking here, because (thus far) it seems that maybe central banks can push interest rates only 50 basis points or so beneath the zero bound. Yet, in practice, that result would still be quite significant, if we are operating in the Keynesian framework. It’s hard to come up with a precise estimate, but using the Taylor Principle in reverse, and then invoking Okun’s Law, a typical Keynesian might agree that the Fed pushing rates down to –0.5 percent, rather than stopping at 0 percent, would have reduced unemployment during the height of the recession by 0.5 percentage points.

That might not sound like a lot, but it corresponds to about 780,000 workers. For some perspective, in February 2013, Krugman estimated that the budget sequester would cost about 700,000 jobs, and classified it as a “fiscal doomsday machine” and “one of the worst policy ideas in our nation’s history.” So if my estimate is in the right ballpark, then on his own terms, Krugman should admit that his blunder — in thinking the Fed couldn’t push nominal interest rates below 0 percent — is one of the worst mistakes by an economist in US history. If he believes his own model and rhetoric, Krugman should be doing a lot more than pinching himself.

Modeling growth: fiscal stimulus and budget austerity

Talk of the so-called “sequester” leads into the next sorry episode in Krugman’s track record: he totally botched his forecasts of US economic growth (and employment) after the turn to (relative) US fiscal restraint. Specifically, in April 2013, Krugman threw down the gauntlet, arguing that we were being treated to a test between the Keynesian emphasis on fiscal policy and the market monetarist emphasis on monetary policy. Guys like Mercatus Center monetary economist Scott Sumner had been arguing that the Fed could offset Congress’s spending cuts, while Krugman — since he was still locked into the “zero lower bound” and “liquidity trap” mentality — said that this was wishful thinking. That’s why Krugman had labeled the sequester a “fiscal doomsday machine,” after all.

As it turned out, the rest of 2013 delivered much better economic news than Krugman had been expecting. Naturally, the market monetarists were running victory laps by the end of the year. Then, in a move that would embarrass anybody else, in January 2014 Krugman had the audacity to wag his finger at Sumner for thinking that the previous year’s economy was somehow a test of Keynesian fiscal stimulus versus market monetarist monetary stimulus. Yes, you read that right: back in April 2013 when the economy was doing poorly, Krugman said 2013 would be a good test of the two viewpoints. Then, when he failed the test he himself had set up, Krugman complained that it obviously wasn’t a fair test, because all sorts of other things can occur to offset the theoretical impacts. (I found the episode so inspiring that I wrote a play about it.)

Things became even more comical by the end of 2014, when it was clear that the US economy — at least according to conventional metrics like the official unemployment rate and GDP growth — was doing much better than Krugman’s doomsday rhetoric would have anticipated. At this point, rather than acknowledging how wrong his warnings about US “austerity” had been, Krugman inconceivably tried to claim victory — by arguing that all of the conservative Republican warnings about Obamacare had been wrong.

This rhetorical move was so shameless that not just anti-Keynesians like Sumner but even progressives had to cry foul. Specifically, Jeffrey Sachs wrote a scathing article showcasing Krugman’s revisionism:

For several years…Paul Krugman has delivered one main message to his loyal readers: deficit-cutting “austerians” (as he calls advocates of fiscal austerity) are deluded. Fiscal retrenchment amid weak private demand would lead to chronically high unemployment. Indeed, deficit cuts would court a reprise of 1937, when Franklin D. Roosevelt prematurely reduced the New Deal stimulus and thereby threw the United States back into recession.

Well, Congress and the White House did indeed play the austerian card from mid-2011 onward. The federal budget deficit has declined from 8.4% of GDP in 2011 to a predicted 2.9% of GDP for all of 2014.…

Krugman has vigorously protested that deficit reduction has prolonged and even intensified what he repeatedly calls a “depression” (or sometimes a “low-grade depression”). Only fools like the United Kingdom’s leaders (who reminded him of the Three Stooges) could believe otherwise.

Yet, rather than a new recession, or an ongoing depression, the US unemployment rate has fallen from 8.6% in November 2011 to 5.8% in November 2014. Real economic growth in 2011 stood at 1.6%, and theIMF expects it to be 2.2% for 2014 as a whole. GDP in the third quarter of 2014 grew at a vigorous 5% annual rate, suggesting that aggregate growth for all of 2015 will be above 3%.

So much for Krugman’s predictions. Not one of his New York Timescommentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates. On the contrary, “the disastrous turn toward austerity has destroyed millions of jobs and ruined many lives,”he argued, with the US Congress exposing Americans to “the imminent threat of severe economic damage from short-term spending cuts.” As a result, “Full recovery still looks a very long way off,” he warned. “And I’m beginning to worry that it may never happen.”

I raise all of this because Krugman took a victory lap in his end-of-2014 column on “The Obama Recovery.” The recovery, according to Krugman, has come not despite the austerity he railed against for years, but because we “seem to have stopped tightening the screws….”

That is an incredible claim. The budget deficit has been brought down sharply, and unemployment has declined. Yet Krugman now says that everything has turned out just as he predicted. (emphasis added)

In the face of such withering and irrefutable criticism, Krugman retreated to the position that his wonderful model had been vindicated by the bulk of the sample, with scatterplots of European countries and their respective fiscal stance and growth rates. He went so far as to say that Sachs “really should know better” than to have expected Krugman’s predictions about austerity to actually hold for any given country (such as the United States).

Besides the audacity of downplaying the confidence with which he had warned of the “fiscal doomsday machine” that would strike the United States, Krugman’s response to Sachs also drips with hypocrisy. Krugman has been merciless in pointing to specific economists (including yours truly) who were wrong in their predictions about consumer price inflation in the United States. When we botched a specific call about the US economy for a specific time period, that was enough in Krugman’s book for us to quit our day jobs and start delivering pizza. There was no question that getting things wrong about one specific country was enough to discredit our model of the economy. The fact that guys like me clung to our policy views after being wrong about our predictions on the United States showed that not only were we bad economists, but we were evil (and possibly racist), too.

Modeling consumer price inflation

I’ve saved the best for last. The casual reader of Krugman’s columns would think that the one area where he surely wiped the deck with his foes was on predictions of consumer price inflation. After all, plenty of anti-Keynesians like me predicted that the consumer price index (among other prices) would rise rapidly, and we were wrong. So Krugman’s model did great on this criterion, right?

Actually, no, it didn’t; his model was totally wrong as well. You see, coming into the Great Recession, Krugman’s framework of “the inflation-adjusted Phillips curve predict[ed] not just deflation, but accelerating deflation in the face of a really prolonged economic slump” (emphasis Krugman’s). And it wasn’t merely the academic model predicting (price) deflation; Krugman himself warned in February 2010 that the United States could experience price deflation in the near future. He ended with, “Japan, here we come” — a reference to that country’s long bout with actual consumer price deflation.

Well, that’s not what happened. About seven months after he warned of continuing price disinflation and the possibility of outright deflation, Krugman’s preferred measures of CPI turned around sharply, more than doubling in a short period, returning almost to pre-recession levels.


Krugman, armed with his Keynesian model, came into the Great Recession thinking that (a) nominal interest rates can’t go below 0 percent, (b) total government spending reductions in the United States amid a weak recovery would lead to a double dip, and (c) persistently high unemployment would go hand in hand with accelerating price deflation. Because of these macroeconomic views, Krugman recommended aggressive federal deficit spending.

As things turned out, Krugman was wrong on each of the above points: we learned (and this surprised me, too) that nominal rates could go persistently negative, that the US budget “austerity” from 2011 onward coincided with a strengthening recovery, and that consumer prices rose modestly even as unemployment remained high. Krugman was wrong on all of these points, and yet his policy recommendations didn’t budge an iota over the years.

Far from changing his policy conclusions in light of his model’s botched predictions, Krugman kept running victory laps, claiming his model had been “right about everything.” He further speculated that the only explanation for his opponents’ unwillingness to concede defeat was that they were evil or stupid.

What a guy. What a scientist.

Robert P. Murphy

Robert P. Murphy is senior economist with the Institute for Energy Research. He is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

What Economic Elites Don’t Want You to Know about Crashes

A 1921 event will change your understanding of depressions by Douglas French:

The Great Recession drags on everywhere except for Wall Street, Washington, DC, and Ben Bernanke’s consciousness. “By stabilizing the financial system, we avoided much, much worse, persistently bad consequences for our economies,” Bernanke said in an interview with his old friend Mervyn King (former head of the Bank of England) on the BBC.

Bernanke says he was stimulated by the opportunity to open up his monetary bag of tricks. “I feel that the work I did as an academic paid off and that I was able to use that to help solve these problems,” he said. “That’s very satisfying, though it’s not an experience I would voluntarily repeat.”

Maybe it’s paying off for Bernanke as he makes $200,000 per speech, but for the rest of us, not so much. The former Fed chair famously told Milton Friedman the central bank wouldn’t make the same mistakes as the 1930s Fed. From his analysis, Bernanke thinks the central bank tightened the money supply in the ‘30s to cause the Great Depression. That lesson prompted him after the 2008 crash to unleash a barrage of rounds of quantitative easing and an Operation Twist while quadrupling the central bank’s balance sheet to “stabilize the financial system.”

Jim Grant sees it differently, thinking Bernanke and company should have kept their hands off the money supply and interest rates. Grant, the financial world’s foremost wordsmith, provides the depression of 1920–21 as his evidence.

His book The Forgotten Depression: 1921: The Crash That Cured Itself chronicles how the market works marvels if left alone. Grant tells the reader right away, “The hero of my narrative is the price mechanism, Adam Smith’s invisible hand.”

Yes, there was a Treasury and a still-new Federal Reserve. But Lord Keynes had not yet published his General Theory, the bible of today’s meddling monetary bureaucrats. Presidents Woodrow Wilson and Warren G. Harding ignored the downturn at best, “or [implemented] policies that an average 21st century economist would judge disastrous,” Grant writes.

The nation’s money was backed by gold, and the monetary mandarins had actual business experience to draw upon rather than just theories and equations running through their heads. The man who headed the central bank was William P.G. Harding (no relation to the president), who was born in tiny Boligee, Alabama, and was a career commercial banker. The Treasury secretaries during the period were David F. Huston, who had been secretary of agriculture, and industrialist, businessman, and banker Andrew W. Mellon.

The depression in question lasted 18 months, from January 1920 to July 1921, far shorter than the 43 months of the 1929–33 Great Depression and a fraction of the recent Great Recession. Government’s inaction proved the point Murray Rothbard made in his book America’s Great Depression (quoted by Grant): “If a government wishes to alleviate, rather than aggravate, a depression, its only valid course is laissez-faire — to leave the economy alone.”

The numbers in 1920–21 are jaw dropping. Producer prices fell 40.8 percent, industrial production dropped 31.6 percent, corporate profits plunged 92 percent, and stock prices fell by 46.6 percent. Joblessness was as high as 19 percent.

All of this pain after the Dow Jones Industrial Average nearly doubled from 1918 to the start of 1920. Speculative fever was such that those playing the market on margin were willing to pay 20 percent interest to bet on such a sure thing. “That much was evident to the miscellaneous company of lay investors who were knocking down Wall Street’s doors,” Grant writes. “Hotel chefs, undertakers, union officials and leisured ladies were among the latecomers to the frolic.”

The Federal Reserve raised its discount rate from 6 percent to 7 percent on June 1, 1920, and by Election Day of that year, the Dow was down 29 percent. Business owners demanded wages be reduced while American Federation of Labor president Samuel Gompers countered with, “We will tolerate no reduction of wages.” In the end, management won.

Herbert Hoover, who took over as secretary of commerce in 1921, sounded almost Rothbardian about the boom and bust, quoted by Grant as saying, “we speculate, overextend our liabilities, slacken down our effort, lower our efficiency, waste our surplus in riotous living instead of creation of new capital, drive our prices to vicious levels, lose our moral and business balance.” People would “have to come into the cold water in the end.”

Upon taking office in March 1921, Andrew Mellon said citizens should save the government’s money rather than spend it. Besides fiscal constraint, America benefited from the country’s high interest rates, which attracted a continuous inflow of gold. Grant explains that in the summer of 1920, gold covered 40 percent of the notes in circulation. By May 1921 that percentage doubled and the notes at the New York Fed were collateralized completely. Commodity prices collapsed and money (gold) flowed where it was most highly valued.

As quickly as it began, the depression was over. Benjamin Anderson, then an economist for Chase National Bank, wrote in his Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946, “In 1920–21, we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921, we started up again. By the spring of 1923, we had reached new highs in industrial production and we had labor shortages in many lines.”

Note to Drs. Bernanke and Yellen: this bounce was not fueled by an increased money supply. Grant makes clear in a footnote that the money supply fell 14.4 percent from March 1920 to January 22, 1921, and what the Fed had direct control of — the monetary base — fell 17 percent from October of 1920 to January 1922. From this tightness, the Roaring ‘20s was spawned.

But Lord Keynes believed the cure — instability of prices — was instead a thorn in society’s side. “The more troublous the times, the worse does a laissez-faire system work,” Keynes told the National Liberal Club in December 1923. He believed instability caused unemployment, profiteering, and precarious expectations. In the wake of laissez-faire’s great triumph, Keynes put forth the idea that has stayed with us ever since: “Mandarin rule was the new idea: governance by economists,” Grant writes.

In February 1936, Keynes’s General Theory was published and the price system was replaced by central bank stabilization forever, so far. “The General Theory is nothing less than an epic journey out of intellectual darkness,” Nobel Prize winner Paul Krugman gushed.

Grant’s Forgotten Depression makes an airtight case for a return to intellectual darkness. Keynesian enlightenment has brought us prolonged financial suffering and substandard economic growth. Bailing out big banks and failed entrepreneurs keeps capital in the hands of the inefficient, to be wasted. Remembering Hoover, we have lost our “moral and business balance.” The Fed and Treasury must get out of the way, allowing us “cold water in the end.”


Douglas French writes for Casey Research, Laissez Faire, and other publications. He is the author of three books: Early Speculative Bubbles and Increases in the Supply of MoneyWalk Away, and The Failure of Common Knowledge.