The Forgotten Depression, 1920-21
Progressivism emerged in the late 1800s in the United States and led to the first major depression in the twentieth century from 1920-1921. Prosperity was restored in 1922 by doing exactly the opposite of what we are doing today. So why haven’t we heard of it?
Progressives believe in big government, big social programs, heavy taxation, and especially government control of as much as possible. The depression of 1920 was the result of this ideology. Known as the Forgotten Depression of 1920, it resulted from the progressive policies implemented by President Woodrow Wilson from 1913 to 1921. The $14.5 trillion debt today is the result of progressive control of Congress, the White House and the Judiciary since the days of ultra-progressive Franklin D. Roosevelt.
Keynesian economics does not deliver what it promises. Just like President Obama today, President Wilson attempted to spend his way out of the depression by dramatically increasing federal spending and taxing the rich. Like Obama, he failed. The whiplash effect of Wilson’s wild increase in non-defense spending and tax increases resulted in the 1920-1921 depression.
Warren Harding was elected President in 1921. His very anti-Keynesian methods took the boot off the throat of the American people by slashing taxes from 73% to 25% by 1925. Taxes were cut for lower income brackets starting in 1923. Harding also cut the government’s budget nearly in half between 1920 and 1922. The results? The national debt was reduced by one-third. By 1922 unemployment was down to 6.7 percent and by 1923 it had dropped to 2.4 percent. The depression had vanished and The Roaring Twenties were launched.
Free market economist Murray Rothbard, in his America’s Great Depression, provides compelling evidence the stock market crash of 1929 was the inevitable outcome of the easy credit policies by U.S. Federal Reserve (Fed) during the latter 1920s that fueled over-speculation. It is also exactly what the Fed did from October of 2008 to June of 2011 with nearly two trillion dollars of Quantitative Easing 1 & 2 (QE1 and QE2).
The Fed reacted to the stock market crash in 1929 caused by its easy money policy by immediately contracting the money supply. This led to runs on banks and a catastrophic cascading bank failure, turning a depression into the Great Depression. The money supply shrunk by one-third from 1929-1933. The Fed-caused-the-Great Depression argument is now accepted by most economists, including the Fed’s current chairman, Ben Bernanke.
In one of the ironies of history, Hoover’s opponent during the 1932 presidential race, Franklin D. Roosevelt attacked Hoover for taxing and spending too much, increasing the national debt, raising tariffs that blocked trade, and placing millions of American’s on the government dole. He even attacked Hoover for trying to “center control of everything in Washington.” Roosevelt’s running mate, John Nance Garner, even accused Hoover of leading the country into socialism.
The irony is in the fact that Roosevelt’s New Deal actually did everything he accused Hoover of doing, thereby prolonging the depression for years longer than was necessary – just like today. The lesson learned is that this seems to be a hallmark of progressivism; accusing those who oppose them of doing exactly what the progressive is guilty of doing.
It is clear the progressive Democrats and Republicans in Congress have put us into this hole. Our economic history shows there’s a way out of a depression, but Congress refuses to do it (conspiracy indeed).