The Other Great Depression

By John in Oregon

I keep hearing about that other depression. The catastrophe only the government can save us from. So being of the Rocky and Bullwinkle generation, I got to wondering what it must have been like back then. I remembered the phrase return with us now to the thrilling days of yesteryear as Mr. Peabody turned the dial of the Wayback machine. POOF

I stepped out on the street filled with horses, Tin Lizzies, milk wagons and the pall of coal smoke, cough, cough. On the corner, EXTRA EXTRA, READ ALL ABOUT IT. COMMERCE SECRETARY DENOUNCES PRESIDENT, EXTRA. Having no “old money” I wondered into the library to read up from the local yellow newspapers.

It’s a few years after the war and things are dire indeed. US farm export sales crashed as European farms returned to production after WW1. The beginning of depression was extraordinarily sharp: the U.S. price level declined by over 40% in 6 months and 56% for the year. The highest decline ever in the whole history of the United States. The gross national product plunged 24 percent.

As the depression grew the President began to dismantle the huge federal bureaucracies built up during WW1. The Presidents slogan was “less government in business” as he opposed excessive governmental interference in the private sector of the economy and worked to control $25 billion of Federal debt. After taking office the President had said that government ought to “strike the shackles from industry .. We need vastly more freedom than we do regulation.”

Cities and church charities opened soup kitchens. As industrial output fell unemployment rocketed to 12%. The States passed bonus bills as the President did nothing while the unemployed wondered the streets looking for work. Any work.

The relationship with congress deteriorated as the President asked the Senate to cut spending. Congress wanted government intervention and the President said no, insisting that relief measures were a local responsibility. While the President pushed through tax and spending cuts his relationship with Congress became severely strained.

But the complete break with Congress came after a group of powerful Senators passed a bonus bill. When the President vetoed that bill in an election year, both Republicans and Democrats were enraged. As the President lost the support of Congress, the Secretary of Commerce spoke out against the President in support of the people on main street.

Then in 1923 the great depression ended when unemployment fell from the 1921 high of 11.9% to the pre 1920 levels of 3.2%. About now you are thinking I don’t remember the depression of 1920. Well neither did I, and now I know why.

The 1921 loss of half the value and price of all goods was horrendous. For comparison the loss of housing value in the last year is around 18%, lower in many areas and a bit higher in others. Even though it was worse than 1930 we don’t remember the 1920 depression because the President didn’t tinker with the economy and built the groundwork to allow quick recovery without wide spread damage.

That President? That was Warren G Harding. Harding “embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress on April 12, 1921. The highest taxes, on corporate revenues and “excess” profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8 percent of incomes above $4,000. Harding recognized the crucial importance of encouraging the investment that is essential for growth and jobs, something that FDR never did.”

Under Harding, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million, s reported 6.7 percent in 1922. Then fell again in 1923. So, just a year and a half after Harding became president, the Roaring Twenties were underway.

The Secretary of Commerce? That was Herbert Hoover who wanted government intervention in the economy “¦ which as president he was to pursue a decade later when he transformed the second Great Depression into the beginning of a disaster.

Like all good TV shows this tale requires a moral of the story:
When any politician says only Government can fix a problem ask your self? With all due respect Mr(s) Politician, is it not better to do nothing that it is to do the wrong thing?

Footnote: Harding never repaired relations with Congress which excoriated Harding with teapot dome after his death in 1923.
Apologies to Clayton Moore, Rocky, Bullwinkle, and Mr. Peabody.