Warren G Harding and the 1920 Depression - Learning the Right Lesson
By David Singhiser
Thomas E. Woods, author of the best selling book, Meltdown, wrote in a recent article about another depression in the early part of the Twentieth Century, the 1920-1921 Depression, and how President Warren G. Harding and his administration handled it. The situation was dire after World War I. Unemployment jumped from 4 percent to almost 12 percent and the Gross National Product fell 17 percent.
The common myth taught in government schools is that laissez-faire capitalism caused the Great Depression, and only the massive government programs of President Roosevelt's New Deal ended it. It continues by condemning President Hoover for doing little to help and making things worse. If some more knowledgeable or honest historians admit that the New Deal policies did not actually lift the nation out of the depression, the other explanation is that World War II ended it. That too is bad economics. They ignore the cuts in government spending and taxes that finally sparked the recovery after the war.
The facts, however, do not support the common interpretation. Hoover did indeed begin massive government intervention in the economy, and to such an extent that FDR during the 1932 election actually criticized him for his extravagance. Herbert Hoover, despite the conventional wisdom, was not a laissez-faire capitalist and believed in government intervention in the economy.
As a member of the Harding administration, he recommend government stimulation of the economy to stop the 1920 depression, but Harding ignored his advice and let the recovery take place naturally without bailouts or government spending. Instead, Harding cut taxes on all income groups, cut the budget nearly in half between 1920 and 1922 and cut the national debt, not deficit, but debt by one-third! The recovery was swift, with evidence of it beginning in the late summer of 1921. Unemployment fell to 6.7 percent and in 1923 finally to 2.4 percent.
The 1920 Depression is forgotten as is President Harding's sound handling of the crisis. Politicians of today are learning the wrong lessons, once again, copying the strategies that led to more than fifteen years of economic stagnation during FDR's reign.
Wouldn't it be better if the politicians and media of today learned the right lesson, from the wiser, forgotten, and much maligned President Harding?