Lessons from the 1920-1921 Depression
About nine years before the onset of the Great Depression, a short, but severe depression struck the US around 1920. For example:
The one-year drop in the GNP price deflator was the steepest ever in US history.
The one-year plunge in wholesale prices was the worst in recorded history.
The ratio in percentage decline of the GNP price deflator compared to real GNP was the worst ever.
Unemployment more than doubled.
So, how did the US recover so quickly?
President Warren Harding, who actually inherited a $25 billion debt from the previous administration, implemented spending cuts, tax cuts, and free market capitalism. He cut federal spending by 21%, began to pay off national debt, and cut taxes on corporate revenues and “excess” profits. He allowed prices to plummet, and he refused to bail out failed banking & business institutions.
As a result, by 1922, GNP rebounded 6% and unemployment dropped 43% to 6.7% overall. This astonishingly quick rebound from a severe, one-year depression served as a springboard to the “Roaring ’20s”.
Now, compare this recovery to that of FDR’s “New Deal”. From 1933-1940, unemployment averaged 17%. Unlike Harding, FDR significantly raised taxes, increased government debt, bailed out a number of banks & businesses, and launched massive, public works projects. The nation did not commence a full-fledged economic recovery until a year after World War II in 1946.
Our leaders, both Democrat and Republican, would do well to study and implement many of the successful strategies which stopped the 1920-1921 Depression in its tracks. Limited government, spending cuts, tax cuts, and free market capitalism work.
Read the articles here, here, and here.
The UnReal Marketer » Blog Archive » HOW TO SOLVE A RECESSION/DEPRESSION IN 4 EASY STEPS…(Thanks to Matt Bacak!) said:
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April 6th, 2009 at 1:14 pm
Dez Futak said:
Just a thought though - I wonder if the drastic measures of Warren Harding made things worse for the Geat Depression that came later??
Could some economists give their thoughts on this idea?
April 6th, 2009 at 1:27 pm
BigJim716 said:
Here Here. Of course Obama will follow FDR plan and the Democratic Congress will obey.
April 6th, 2009 at 1:29 pm
Nordraak said:
I think the the thing to look at is not so much what path Obama will take to help us recover but rather what path took us to where we're at. We went from a budget surplus in the late 90's to a massive deficit. Bush tried to follow Harding's economic by giving back the surplus in tax cuts to everyone (measly $300 then $600 to Joe Regular, huge $$ to the elite rich). Most people spent their $300 on little things, then the $600 towards gas ($4 a gallon at the time), The rich gambled it all on rising home and stocks that recently plummeted due to the greed of a few (this due to free market capitalism and limited government intervention). In the end while I don't agree with the path that Obama is on, I don't see how following Harding's economics would lead us to a long-term stable country. I feel it would only lead us to another boom with yet another crash. In fact the only thing that I can get behind would be paying off the national debt and having America buy back America instead of selling us off to the Chinese. We tried that with the Japanese in the 80's and look where that took us (Stock market crash late 80's)
April 6th, 2009 at 4:53 pm
Crude Oil Trader said:
Believe me they [our leaders] know history and know exactly what they are doing to us. It is going according to plan.
August 7th, 2009 at 8:30 pm