The 1920 "Depression"- Another Conservative Fantasy

For my second historical clarification, I would like to talk about something most people have never heard of- the "depression" of 1920. If you do a google search for this, you will find dozens if not hundreds of right wing posts about this phenomenon, all basically agreeing with the following Glenn Beck claim, which led me to deal with this issue:

"Glenn then warns of the coming Economic Holocaust. The worst is far from over and warning bells are sounding. Beck returns to the blackboard and writes out numbers from the 1920 Depression. Caused by policies of the Wilson Administration, conditions were far worse that year than now, even worse than the first year of the Great Depression. But, it was short lived, thanks to Calvin Coolidge. Taxes were lowered from a top rate of 77% to 25%. Federal spending was slashed in half! By 1923, the economy was booming. The Roaring 20s saw an expanded middle class. Hoover, a Progressive, made the Crash of ‘29 worse with excessive spending, setting the stage for FDR to take advantage of an emergency."

"Caused by the policies of the Wilson Administration." What were they? Well, no information on that. Beck just assumes that, as Wilson was a Democrat, his policies must have been bad. And it was cured, of course, by Republican tax cuts for the rich! What an incredible vindication of conservative doctrine.

Now, let's look at the truth. First, here is a Wikipedia comment on the 1920's "depression:"

"The Depression of 1920–21 was an extremely sharp deflationary recession in the United States, shortly after the end of World War I. It lasted from January 1920 to July 1921."

That is, it was a recession (GDP decreasing) because of "deflation"- i.e. prices for commodities in the U.S. collapsed. Why did this happen?

During World War I, U.S. production, both of manufactured goods, and imprtantly of agricultural products increased drastically. This was because U.S. producers expanded to meet the needs of Europe, which was economically devastated during World War I. So, if this in any way resulted from Wilsonian policy, it was a policy to prevent mass starvation in Europe- another cynical left wing plot, I guess.

After the war, no one could figure a way to equitably ramp down this excess production. This was serious in manufactured products, but far more devastating in agriculture, where, instead of a relatively small number of producers who could decide themselves to cut output, we had millions of small farmers. This did produce a depression in agricultural prices. It is important to note that the steadfast refusal of three succeeding Republican administrations to do anything meaningful for these people resulted in an agricultural economy that remained in an essential state of depression right up until the big depression hit.

But, of course, the Republicans did have more than time to pass numerous tax cuts for the rich:

"After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929."

That is to say, Republicans cut the top tax bracket to one third of what it had been. Now, let us deal with the conservative claim, as made by Beck, that these tax cuts had anything to do with the recovery from the 1920 deflation. Here is a chart of the Dow Jones Average from the relevant period. I have added a red line in approximately April, 1922, when the first of the tax cuts would have taken effect:















Notice that, by that time, the Dow had already recovered 43% of the value that it reached in the late summer of 1919, at its absolute peak, and it was actually above its value at the beginning of 1919, all of this happening before any of the Republican tax cuts took effect. So much for that piece of conservative dishonesty.

Beck goes on to say:

"(the 1920 depression) was short lived, thanks to Calvin Coolidge. Taxes were lowered from a top rate of 77% to 25%. Federal spending was slashed in half! By 1923, the economy was booming. "

Unfortunately for Beck's argument, Coolidge did not take office until August, 1923, long after the economy had turned around, and after even he claims things had gotten better.

Now let us turn to the last of Beck's lies:

"Hoover, a Progressive, made the Crash of ‘29 worse with excessive spending, setting the stage for FDR to take advantage of an emergency."

Again, let's take a look at the facts. Here is an account of the economic policies of the Hoover Administration:

"...calls for more government action increased. Congress passed a law allocating a mere 116 million dollars for public works and 45 million for drought relief. Fundamentally the government was aiming at a balanced budget,

...the federal government could have pumped more money into the economy through relief to the unemployed. But none of these was done. There was fear that cheapening money (by increasing the money supply) would further weaken the economy. Also, (the Republican) Congress and President Hoover were opposed to creating an unbalanced budget. They believed that unbalanced budgets and rising government debt retarded business recovery and that unbalanced budgets were a threat to the credit of the federal government. "

And here is a contemporary account of Hoover's policies, from the Pittsburgh Press, on May 7, 1932:

"...the country reacted quickly today to President Hoover's two appeals for a balanced budget...The President is on solid ground in warning Congress that budget balancing is essential to restoring public confidence, and that delay is making a bad depression worse."

"President Hoover was encouraged today by hundreds of telegrams approving his sharp rebuke to Congress and his appeal to the people for support in his demand for speedy government economies and a balanced budget."

"A new tax bill...practically rewritten by Treasury secretary Mills...will be reported to the Senate early next week...Mills, apparently expressing the view of President Hoover, hailed the bill...It imposed heavier income taxes in lower brackets and lowered upper bracket rates...The bill will balance the budget for the fiscal year 1933..."

Some "progressive" policies, huh? Increasing the tax burden on ordinary people in a depression, but not forgetting to cut taxes on the rich.

Sad to say, it is true that Hoover was a progressive from World War I through his service in the Harding administration, where he emerged almost alone untouched by scandal. However, he was forced to give up all of that and follow Republican dogma in order to get the nomination for president- in a way very similar to the manner in which John McCain had to abandon any principle he ever claimed to believe in, to get the party's nomination.

One final addendum, from a Hoover comment from 1949:

"Former President Herbert Hoover said last night the "gigantic" increase in government spending could end only in socialism or fascism...A splendid storehouse of integrity and freedom has been bequeathed to us by our forefathers. In this day of confusion, of peril to liberty, our high duty is to see that this storehouse is not robbed of its contents."

Boy, things never change, huh? At least not with these guys.