In an effort to support their budget cut and tax cut nostrums, our establishment has dug up President Warren G. Harding.  The basic pitch is that President Harding cut taxes and government spending thereby turning a depression into the roaring 20′s.  What they avoid is the fact that these were purely military budget cuts.  They also avoid many of President Harding’s policies and certainly don’t give a full view of how economic conditions in 1920 were far different than they are today.

Rather than dwelling on the various fictional accounts,  lets take a look at President Harding’s budget cuts.  Based on government census data (PDF Series Y 466-471): between 1920 and 1923,  major national security outlays dropped from 3,997 Million down to 680 Million while total government outlays dropped from 6,357 Million down to 3,137 Million.  In other words,  the military budget was slashed by 83% while the remaining civilian budget grew slightly.
 
Some of this military budget cutting may have been due to the post WWI demobilization but there is one well documented example of the Harding administration actively changing policy in order to cut military spending.  Namely,  the 1921 Washington Naval Conference and resulting Washington Naval Treaty.  Historian Manley Irwin estimates that this treaty slashed the naval budget from 1,000 Million dollars per year,  down to 300 Million dollars per year.

Why did the naval treaty save so much money?  It ended an arms race and halted battleship construction.  Starting with President Woodrow Wilson’s 1916 Naval Act,  the United states had entered into a battleship construction race against the then allied British and Japanese empires. What was the purpose of the naval arms race?  To quote President Woodrow Wilson advisor Edward M. House:

“Let us build a Navy bigger than hers and do what we please.”

But didn’t this 70% budget cut weaken our navy?  No, according to historian Manley Irwin, the Harding administration did much to modernize and strengthen our navy.  They just didn’t do so by endlessly pouring the nations steel and oil resources into the rat hole of battleship construction.

Anyway, moving from budget cuts to economic conditions in the early 1920′s….  In the early 1920′s the United States was running a significant trade surplus as opposed to today’s massive trade deficit.  European nations,  especially the British Empire, were in the process of paying the United States back the roughly 12 Billion in war debts.  In terms of civilian economy,  the nation was undergoing a broad technical revolution with radio, film, aviation, automotive, and household electronics leading the way.  Also, the private sector was loaded with war bonds and thus far more credit worthy than today’s underwater homeowners. 

So why did a steep recession/depression and massive unemployment occur in 1920/1921?  It was probably mostly due to the sudden adjustment to a peacetime economy but it’s worth pointing out that the Federal Reserve jacked up rates to 7% in 1920 and then lowered them back to 4.5% in 1921.

Did the Harding administration take a laissez-faire approach to the high unemployment?  No, in May of 1921 the Harding administration pushed thru laws to reduce immigration(Emergency Quota Act) and increase the tariff rates(Emergency Tariff Act of 1921).

Did the Harding tax cuts revive the economy?  I see no evidence that they did.  The tax cuts took effect on November 23, 1921 but the economy had already bottomed in July of 1921 and started a path toward recovery before the tax cuts kicked in.  On a side note,  this might have been one of President Harding’s worst decisions but still it only dropped the top marginal rate to 58% and was matched with defense spending cuts.

Did the Harding admin apply any fiscal stimulous to the economy and/or provide relief?  Yes,  the Phipps Act and Sheppard Towner Act would be examples.

Was President Harding’s ‘return to normalcy’ about preserving the status-quo and opposing change?  Some establishment fiction writers like to make that claim.  But based on his speeches and actions once in office,  ‘a return to normalcy’ seems to have been more about restoration and healing.  Perhaps a few quotes from his speeches would help define what President Harding meant when he referred to ‘normalcy’.

From President Hardings ‘Back To Normal’ speech:

“America’s present need is not heroics, but healing; not nostrums, but normalcy; not revolution, but restoration; not agitation, but adjustment; not surgery, but serenity; not the dramatic, but the dispassionate; not experiment, but equipoise; not submergence in internationality but sustainment in triumphant nationality.”

From President Harding’s inaugural address:

“patriotic adherence to the things which made us what we are”

“Our supreme task is the resumption of our onward, normal way. Reconstruction, readjustment, restoration all these must follow.”

In order to understand why the nation was in need of healing and ‘normalcy’,  it’s useful to look back at the some of the events of the Wilson years:

KKK Revival,  Hindu German Conspiracy,  Kingsland Explosion,  Black Tom Explosion,  Zimmermann Telegram,  Naval Arms Race,  The Great War,  The Draft,  Patriotism Lessons In The Classroom,  Espionage Act of 1917,  Sedition Act of 1918,  Treaty of Versailles,  Sykes Picot Agreement,  League of Nations,  War Reparations,  War Plan Red-Orange,  Worldwide Revolution,  Easter Rising,  Flu Pandemic,  Red Scare,  Anarhcist Bombings,  Wall Street  Bombing,  Palmer Raids,  1919 Chicago White Sox Scandal,  Charles Ponzi,  1920-1921 Economic Depression

Some unfortunate examples of our establishment’s new take on the Harding years:

Amity Shlaes and Ryan Cole
Thomas E. Woods Jr.
Jim Powell
Glenn Beck
(youtube)

Sigh. 

Amoungst other things,  it would appear that President Warren G. Harding largely killed ‘Military Industrial Complex 1.0′.  Why won’t our establishment give him credit for that achievement?   Or maybe they do… thus his extremely low ranking.