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1920: The Great Depression That Wasn't (How Warren Harding avoided it and what we can learn)
RealClearMarkets ^ | 09/22/2010 | CJ Maloney

Posted on 09/22/2010 6:31:25 AM PDT by SeekAndFind

The Panic of 1920 started out as a contender for the greatest depression of all time, with a drop in prices and production during its first twelve months that dwarfed those of any other economic crash, and she piled on an unemployment rate that skyrocketed from invisible to 12% in a flash. Ignoring calls to do something, anything, to "help", Washington, DC simply allowed the economy to adjust wherever it chose to go. In tandem, Federal Reserve officials looked upon the rapid deflation in prices not with horror but with a declaration of its necessity. Yet, despite the lack of government intervention and monetary "pump-priming", the economy corrected itself within two years. As a modern day American, I can hardly imagine.

Prior to the denouement, the Fed money spigot had been on full blast for seven years; an index of wholesale prices had surged from a base of 100 in 1913 to 226 in early 1920. One economist from the time noted a concurrent "outbreak of speculation in business and stock market circles that for recklessness has had few parallels".

The storm broke in May of 1920 and arrived as these things usually do - almost everyone at the opera was caught napping when the lights suddenly came on. Bank failures, which numbered 63 in 1919, spiked to 506 by 1921. By June of the latter year, the money supply had dropped 9%, GNP 17%, and the index of wholesale prices collapsed from 247 in May of 1920 to 141 by July of 1921. To this day, the index has yet to show a more precipitous drop in such a short time.

Across America, the suffering began

The prevailing opinion on the proper response was summed up in Warren G. Harding's speech as he accepted the 1920 Republican presidential nomination. He pledged an "intelligent and courageous deflation, and (to) strike at the government borrowing which enlarges the evil". He was a man of his word. Between 1920 and 1922, the federal budget fell by almost one half, tax receipts by 38%, and outstanding debt by 5%. Meanwhile, Federal Reserve officials made no attempt to maintain prices at any level.

With prices allowed to adjust, the recovery was already underway by August of 1921.

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TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: 1920; dsj; forgottendepression; greatdepression; warrenharding

1 posted on 09/22/2010 6:31:28 AM PDT by SeekAndFind
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To: SeekAndFind

Interesting, especially in light of the fact that Harding generally tops most prominent historians’ lists of Worst U.S. Presidents (at least until George W. passes him up in their next edition). No doubt it’s why the guy is buried across the street from a shopping mall in Marion, Ohio.


2 posted on 09/22/2010 6:55:43 AM PDT by Buckeye McFrog
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To: SeekAndFind

Harding and Congress cut spending by 50% in 2 years. It is a stronger case for conservativism than the article implies.


3 posted on 09/22/2010 6:58:57 AM PDT by November 2010
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To: November 2010

Too bad Warren Harding was brought down by corruption within his party...

Not sure if he would have won a second term as he suffered from a Heart Attack in 1923, paving the way for Calvin Coolidge, who presided over the roaring 20’s.

Traditionally, polls of historians and scholars have ranked Harding as one of the worst Presidents (nonetheless the nation’s unemployment rate dropped by half during Harding’s administration); primarily due to the multiple scandals in his administration caused by the “Ohio Gang”. These were Harding’s cabinet and appointees who warranted federal corruption investigations, charges, and convictions.

His presidency has always been evaluated in terms of presidential record and accomplishments in addition to the administration scandals and very few considered his accomplishment in leading America out of the panic of 1920.

The most recent Presidential rankings have had various lower results for President Harding.

A 2008 study for The Times placed Harding at number 34, and a 2009 C-SPAN survey ranked Harding at 38.

In 2010, a Siena College poll of Presidential scholars placed Harding at a very low 41 ( almost the worst ).


4 posted on 09/22/2010 7:05:03 AM PDT by SeekAndFind
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To: Buckeye McFrog

Too bad Warren Harding was brought down by corruption within his party...

Not sure if he would have won a second term as he suffered from a Heart Attack in 1923, paving the way for Calvin Coolidge, who presided over the roaring 20’s.

Traditionally, polls of historians and scholars have ranked Harding as one of the worst Presidents (nonetheless the nation’s unemployment rate dropped by half during Harding’s administration); primarily due to the multiple scandals in his administration caused by the “Ohio Gang”. These were Harding’s cabinet and appointees who warranted federal corruption investigations, charges, and convictions.

His presidency has always been evaluated in terms of presidential record and accomplishments in addition to the administration scandals and very few considered his accomplishment in leading America out of the panic of 1920.

The most recent Presidential rankings have had various lower results for President Harding.

A 2008 study for The Times placed Harding at number 34, and a 2009 C-SPAN survey ranked Harding at 38.

In 2010, a Siena College poll of Presidential scholars placed Harding at a very low 41 ( almost the worst ).


5 posted on 09/22/2010 7:05:32 AM PDT by SeekAndFind
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To: SeekAndFind

Great:

Reagan
Coolidge
Harding

Good:
Eisenhower
Kennedy

The rest of the Presidents in the 20th and 21st centuries were disasters.


6 posted on 09/22/2010 7:10:49 AM PDT by November 2010
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To: Buckeye McFrog

No doubt it’s why the guy is buried across the street from a shopping mall in Marion, Ohio.
___________________________________________________________

We should make a shrine of it then to make people realize that there is an American and successful option to Keynsian economics.


7 posted on 09/22/2010 7:13:30 AM PDT by November 2010
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To: SeekAndFind

Article somehow manages to not mention that a world war had ended shortly before all this happened. Would seem to be a relevant point in comparing it to 1929, which occurred in a time of peace.


8 posted on 09/22/2010 7:20:33 AM PDT by Sherman Logan
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To: November 2010

You don’t like Teddy Roosevelt (1901-1909) I gather...

If he was a disaster, why is his face up there on Mt. Rushmore?


9 posted on 09/22/2010 7:26:12 AM PDT by SeekAndFind
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To: Buckeye McFrog

Uhhhh. He’s buried across the street from a cemetery and a hospital and park area.


10 posted on 09/22/2010 7:27:40 AM PDT by Pure Country (“I’ve noticed that every person that is for abortion has already been born.” -Ronald Reagan)
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To: SeekAndFind
What will future generations say of us?

With all the debt we have saddled them with, not much nice, I'm sure.

11 posted on 09/22/2010 7:29:04 AM PDT by Ditto (Nov 2, 2010 -- Time to Clean House.)
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To: SeekAndFind
If he was a disaster, why is his face up there on Mt. Rushmore?

Because the guy who carved Mt. Rushmore was a big TR fan.

12 posted on 09/22/2010 7:31:14 AM PDT by Ditto (Nov 2, 2010 -- Time to Clean House.)
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To: SeekAndFind

I don’t like Teddy Roosevelt at all. His Bull Moose fiasco led to Wilson’s election which then led directly or indirectly to Lenin’s train into Moscow, the Treaty of Versailles, hyperinflation in Germany, Hitler . . .

Roosevelt’s progressive policies started the train down the tracks that lead to our ruin.


13 posted on 09/22/2010 7:34:38 AM PDT by November 2010
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To: November 2010
Harding ran an "America first" campaign that encouraged industrialization and a strong economy independent of foreign influence.
He didn't unercut domestic business interests with cheap, imported crap.
14 posted on 09/22/2010 7:35:58 AM PDT by Willie Green (Some people march to a different drummer – and some people polka.)
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To: SeekAndFind

It’s a shame we didn’t get a good or great President following Reagan. What a difference that would have made for the country. I hope the next Republican nominee if they are conservative considers how important the VP is for carrying on thier ideas and values and stops this geographic/idealogical calculation crappola (I’m conservative as Reagan so I’ll get a moderate Veep like Bush) . . .


15 posted on 09/22/2010 9:27:31 AM PDT by November 2010
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To: November 2010

Not sure Harding was great, but he did get the 20s going. Coolidge was definitely great, and is underappreciated. I didn’t know how well he had done because nothing he did is taught, even in college US History classes. They provide a few quotes and sum him up as “Silent Cal” without explaining how his pro-business policies created the boom, and Hoover’s policies helped kill it. I learned about Coolidge in greater detail when researching the history of the 20s and the Great Depression that followed. He was a supply sider and free market, limited government advocate long before Reagan made it a movement.


16 posted on 09/22/2010 10:02:12 AM PDT by Defiant (Liberals care more about the Koran than they did about Terri Schiavo.)
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To: November 2010

I have always wondered which recession had the greater intial ferocity -— the one that Harding had or the one in 1929 that Hoover had.

This article claims that Harding’s recession was far greater than the one Hoover had in 1929.


17 posted on 09/22/2010 10:05:05 AM PDT by SeekAndFind
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To: Defiant

Yah, just because of the scandals, I might move him into the good category. The reality is though that Harding ALONE of all the Presidents in the last century ended a depression successfully and quickly. I don’t know how much greater you can get than that other than winning the cold war without a shot being fired.


18 posted on 09/22/2010 10:06:00 AM PDT by November 2010
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To: Defiant

I have always wondered which recession had the greater intial ferocity -— the one that Harding had or the one in 1929 that Hoover had.

This article claims that Harding’s recession was far greater than the one Hoover had in 1929.


19 posted on 09/22/2010 10:06:13 AM PDT by SeekAndFind
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To: November 2010
I like Coolidge because he had a complete understanding of free market economics before Milton Friedman had explained it so well, and he articulated it on many occasions. One of the tragedies of the liberal propaganda that spread during and after the Roosevelt era was that people completely forgot what the man said and did.

Harding did end that threat very well and quickly. I don't know whether his actions were grounded on the same principles as Coolidge, or whether he just had good advice. Whichever, he did a great job there, hurt his legacy later. Where you put him on the spectrum doesn't matter much, the fact is he did well in his response to a crisis.

Sadly, a similar response in September 2008 could have worked. The Bush progressives never even considered not using the government to respond--it's not in their playbook. I wrote at the time (not having studied Harding and Coolidge, but Reagan and Friedman) that we should not do anything except continue to insure bank deposits to stop the run on the banks, drop capital gains taxes to zero for one year, and allow oil drilling without restriction (remember, oil was $150/barrel that summer). Housing was toast but unleashing economic activity would make up for the prior government interference.

McCain flying to DC to vote for TARP completely encapsulates what is wrong with Republicans these days.

20 posted on 09/22/2010 10:19:54 AM PDT by Defiant (Liberals care more about the Koran than they did about Terri Schiavo.)
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To: SeekAndFind
Yes, Hoover the technocrat thought he could manage a recession and instead turned it into a full-blown depression. Just like Obama is doing now.

Amazing the parallels between then and now.

21 posted on 09/22/2010 10:22:51 AM PDT by Defiant (Liberals care more about the Koran than they did about Terri Schiavo.)
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To: Defiant

I’m a history teacher and I try to talk about “Silent Cal” every time I get.


22 posted on 09/22/2010 11:04:25 AM PDT by BenKenobi ("Henceforth I will call nothing else fair unless it be her gift to me")
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To: Defiant

I have to study Harding and Coolidge. My father always believed Coolidge was one of the great Presidents. I didn’t know about the Harding depression and his successful response until well after college! And I was an economics and poly sci grad. Completely blacked out of the schools and economics study. Stunning ommission because it doesn’t match their theories.


23 posted on 09/22/2010 11:08:45 AM PDT by November 2010
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To: Defiant
They provide a few quotes and sum him up as “Silent Cal” without explaining how his pro-business policies created the boom, and Hoover’s policies helped kill it.

Not quite.

Market trading during the 20s was built on the sand of borrowed money, under the assumption that the markets would always go up. (Same logic, and almost the same mechanism, that fueled the market disaster in 2008.) A collapse was inevitable.

Hoover's policies had little to do with the cause of the crash. His policies after the crash, however, certainly made things worse.

On the upside, it turns out that one Winston Churchill had bought into the hype and invested heavily in the US stock market. He was wiped out in the crash.

As a result, he had to forego the luxurious retirement he had planned, and instead had to go back to work writing and speaking about the issues of the day.

Were it not for the stock market crash, it is likely that Churchill would not have risen to Prime Minister of Britain in the world's time of need....

24 posted on 09/22/2010 11:18:23 AM PDT by r9etb
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To: November 2010

I traveled the same route to finding out about these guys.


25 posted on 09/22/2010 11:31:30 AM PDT by Defiant (Liberals care more about the Koran than they did about Terri Schiavo.)
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To: r9etb
Silent Cal and his policies did not cause the depression. His policies fueled a boom that led people to invest and business practice of the day let them invest with borrowed money. The US government has no legitimate role in preventing bad business decisions, and when a bubble bursts, government needs to stay out of the way of that, too, and let it burst, the way that Harding did when Wilson's government spending led to economic problems. Had Coolidge been in power in 1929, I believe we wouldn't even remember the stock market crash of 1929, except as one of about 8 such "panics" that we have had in our history.

The economic growth and production during the 20s were real. Valuations on Wall Street outpaced reality. There was a radio bubble, just like the internet bubble of 1999. The crash was not that severe initially. I've looked at the charts from 1929; it was bad, sure. We've seen similar in 2000 and in 2008, and we recovered. Nasdaq went from a bubble high of 5200 to something like 1800, and then was recovering a little when 9-11 hit and it went to something like 1500. Now THAT is a crash. Dow went down from 14 to what, 7, in 2008. Now THAT is a crash. It took years of grinding for the market to reach its lows in the 1930s, but initially, in October 1929, it was not that horrendous, and it was not impacting the economy at large.

Hoover, being a technocrat, new age man, couldn't resist trying to fix it. Instead, he made it worse, and his policies turned a stock market crash and short term recession into a full blown depression that got worse over the remainder of his administration. So, in that sense, I do believe that Hoover's policies helped killthe pro-business policies that created the boom of the 1920s.

Hoover, like his successor Roosevelt, was a Progressive. He was the Mitt Romney of his day. Government is always the solution for those guys. We need to return to Silent Cal.

26 posted on 09/22/2010 11:56:01 AM PDT by Defiant (Liberals care more about the Koran than they did about Terri Schiavo.)
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To: Defiant
Silent Cal and his policies did not cause the depression. His policies fueled a boom that led people to invest and business practice of the day let them invest with borrowed money.

We agree... thanks for filling in details.

Had Coolidge been in power in 1929, I believe we wouldn't even remember the stock market crash of 1929, except as one of about 8 such "panics" that we have had in our history.

Probably true. Reagan's response to the Crash of 1987 was to let the markets recover on their own, and they came back pretty quickly.

27 posted on 09/22/2010 12:05:46 PM PDT by r9etb
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