James Grant: The Unsung Warren Harding

James Grant, editor of Grant’s Interest Rate Observer, is writing a history of modern American business cycles. His most recent book is Mr. Speaker! The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster.

Our Great Recession ended 2½ years ago, according to the official cyclical timekeepers, but you wouldn’t know it by a glance at the news. Zero percent interest rates and $1 trillion in "stimulus" notwithstanding, the U.S. economy can hardly seem to heave itself out of bed in the morning. Now compare this with the first full year of recovery from the ugly depression of 1920-21. In 1922, under the unsung stewardship of the president best remembered for his underlings’ scandals and his own early death in office, the unemployment rate fell from 15.6 percent to 9 percent (on its way to 3.2 percent in 1923), while constant-dollar output leapt by 16 percent. After which the 1920s proverbially roared.

And how did the administration of Warren G. Harding, in conjunction with the Federal Reserve, produce these astonishing results? Why, by raising interest rates, reducing the public debt and balancing the federal budget. Let 21st-century economists rub their eyes in disbelief. Eighteen months after the depression started, it ended.

When he wasn’t presiding over a macroeconomic miracle cure, Harding convened a world disarmament conference and overhauled the creaky machinery of federal budget-making. For his trouble, historians customarily place him last, or next to last, in their rankings of U.S. presidents. Incredibly, they consign him near the bottom even in the subcategory of economic management, about 40 places behind Franklin D. Roosevelt, who inherited a depression that he didn’t actually fix. This year’s GOP aspirants are tussling over the mantle of "Reagan Republican." A forward-thinking politician might lay claim to the Harding legacy instead...