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Not-So-Great Depression
How Warren G. Harding got us out of it.


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Which U.S. president ranks as America’s greatest depression fighter?

Not the fabled Franklin Delano Roosevelt, since unemployment averaged 17 percent through the New Deal period (1933–1940). What banished high unemployment was the conscription of 12 million men into the armed forces during World War II. FDR actually prolonged high unemployment: he tripled taxes; he signed laws that made it more expensive for employers to hire people, made discounting illegal, and authorized the destruction of food; and he launched costly infrastructure projects like the Tennessee Valley Authority that became a drag on states receiving TVA-subsidized electricity.

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America’s greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed the much praised Woodrow Wilson — who had brought America into World War I, built up huge federal bureaucracies, imprisoned dissenters, and incurred $25 billion of debt.

Harding inherited Wilson’s mess — in particular, a post–World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross national product plunged 24 percent from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million to 4.9 million.

Harding had a much better understanding of how an economy works than FDR. As historian Robert K. Murray wrote in The Harding Era, the man who would become our 29th president “always decried high taxes, government waste, and excessive governmental interference in the private sector of the economy. In February 1920, shortly after announcing his candidacy, he advocated a cut in government expenditures and stated that government ought to ‘strike the shackles from industry. . . . We need vastly more freedom than we do regulation.’ ”

One of Harding’s campaign slogans was “less government in business,” and it served him well. 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.

Powerful senators, however, favored giving bonuses to veterans, as 38 states had done. But such spending increases would have put upward pressure on taxes. On July 12, 1921, Harding went to the Senate and urged tax and spending cuts. He noted that a half-billion dollars in compensation and insurance claims were already being paid to 813,442 veterans, and 107,824 veterans were enrolled in government-sponsored vocational training programs.

In 1922, the House passed a veterans’ bonus bill 333-70, without saying how the bonuses would be funded. The senate passed it 35-17. Despite intense lobbying from the American Legion, Harding vetoed the bill on September 19 — just six weeks before congressional elections, when presidents generally throw goodies at voters. Harding said it was unfair to add to the burdens of 110 million taxpayers.

Harding’s Secretary of Commerce Herbert Hoover wanted government intervention in the economy — which as president he was to pursue when he faced the Great Depression a decade later — but Harding would have none of it. He insisted that relief measures were a local responsibility.

Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding’s policies started a trend. The low point for federal taxes was reached in 1924; for federal spending, in1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930.

Conspicuously absent was the business-bashing that became a hallmark of FDR’s speeches. Absent, too, were New Deal-type big government programs to make it more expensive for employers to hire people, to force prices above market levels, or to promote cartels and monopolies.



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