The Economic Depression of 1920

What? Never heard of that depression? It only lasted one year. Certainly not a great depression. What more info? Read on. From Wikipedia.com:

The recession lasted from January 1920 to July 1921, or 18 months, according to the National Bureau of Economic Research. Estimates for the decline in Gross National Product also vary. The U.S. Department of Commerce estimates GNP declined 6.9%, Nathan Balke and Robert J. Gordon estimate a decline of 3.5%, and Christina Romer estimates a decline of 2.4%

The recession of 1920–21 was characterized by extreme deflation — the largest one-year percentage decline in around 140 years of data. The Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13% deflation, and Romer estimates 14.8% deflation.

Unemployment rose sharply during the recession. Romer estimates a rise to 8.7% from 5.2% and an older estimate from Stanley Lebergott says unemployment rose from 5.2% to 11.7%. [read more]

Why was this depression so short? Because a Republican named Warren G. Harding was elected. As Cato writer Jim Powell says in his article:

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.

Wow! I like this guy. He sounds sort of like Ronald Reagan. But there is more from the same article:

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. [my emphasis]

I definitely like this guy. But Andy, you might say, what about the Teapot Dome scandal? Yea, that wasn't too good. But if the land was privatized this bribery wouldn't have happened. The scandal doesn't change how well President Harding's economic policy worked though.