The Long Shadow Of The Progressives
There can be no equality or opportunity if men and women and children be not shielded in their lives from the consequences of great industrial and social processes which they cannot alter, control, or singly cope with.
Woodrow Wilson
Earlier today, Glen Beck touched on the "Forgotten Depression Of 1920" and I thought it would be interesting to dive into the subject a bit deeper.
Woodrow Wilson, the ultimate progressive Democrat President, was in office from 1913 until 1921 and while in office, Wilson eneacted a series of progressive economic policies that dragged the United States in to an economic depression:
Wilson wasted no time. He immediately called a special session of Congress to act on Democratic campaign promises to reduce import taxes, or tariffs. Wilson felt strongly about the need to reform these taxes. He broke tradition by leaving the White House to appear before Congress, in person, to appeal for his tariff proposals.
Many members of Congress opposed Wilson's plans. But the new president used the results of a Senate investigation to win the fight. The investigation showed that a number of senators owned companies that depended on high tariffs for their profits. The votes of these senators were influenced by their property holdings.
Public knowledge of the situation forced many of them to give up their holdings and stop resisting tariff reform. Congress finally approved Wilson's proposals.
Lower tariffs reduced the amount of money taken in by the federal government. So the Senate also approved a tax on income, or earnings. A constitutional amendment had been passed earlier to permit such a tax.
President Wilson and the Democratic Party were pleased with the new tariff and income tax bills. But they were far from finished. Next they turned their efforts to reform of the banking industry.
For several years, many people had recognized the need for changes in the banking system. The old system of uncontrolled private banks had developed years earlier, before the United States became a major industrial nation. Many people agreed that a more modern system was needed. But they could not agree on details.
President Wilson said control of the nation's wealth was held by too few men. He noted a report that said just two men controlled ten percent of the total wealth of the United States.
Wilson said the nation needed a money supply that could be increased or reduced, when necessary, to correct economic conditions. He said a method was needed to let banks help each other during economic emergencies. And he said laws were needed to prevent a few wealthy men from using the economic resources of the country for their own purposes.
Finally, Wilson said, "The control of this system of banking must be public, not private. It must belong to the government itself."
Sounds really familiar...
Predictably, the United States economy suffered heavily under Wilson's agenda until the Warren G. Harding was elected in 1920:
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.
How did Warren G. Harding turn Woodrow Wilson's economic disaster around?
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.
Harding's program worked so well, that our economy went from an economic depression in 1920 that rivaled the Great Depression, to the "Roaring 20's" in 1 1/2 years.
The Roaring Twenties were a time of unprecedented prosperity. GNP expanded year after year without inflation. Productivity improved, and real wages increased. The stock market tripled. There was a dramatic expansion of the middle class. The Great Migration occurred during the 1920s, with some 7 million African-Americans moving north for better schools and job opportunities. Women had the vote. Millions of Americans began to buy cars, originally a luxury of the rich. People bought radios that enabled ordinary people to hear the finest entertainers in their own homes. Movies became popular. Frozen food made possible a more varied diet year-round. Doctors developed new medicines to fight deadly diseases like diphtheria and tuberculosis.
Many of the New Dealers, including FDR himself (as assistant secretary of the navy), had been active in the wartime administration of Woodrow Wilson. Ruminating on how to deal with the depression, they seized on an analogy: the war was a national emergency, and we dealt with it by creating government agencies to control and mobilize the private economy; the depression is a national emergency, and therefore we can deal with it by creating similar agencies. Hence arose a succession of government organizations modeled on wartime precedents. The Agricultural Adjustment Administration resembled the Food Administration; the National Recovery Administration resembled the War Industries Board; the Reconstruction Finance Corporation (created under Hoover but greatly expanded under Roosevelt) resembled the War Finance Corporation; the National Labor Relations Board resembled the War Labor Board; the Tennessee Valley Authority resembled the Muscle Shoals project; the Civilian Conservation Corps resembled the army itself. The list went on and on. In his first inaugural speech, Roosevelt declared, “we must move as a trained and loyal army willing to sacrifice for the good of a common discipline.” He warned that should Congress fail to act to his satisfaction, he would seek “broad executive power to wage a war against the emergency as great as the power that would be given me if we were in fact invaded by a foreign foe.” However stirring the rhetoric, this approach to dealing with the depression rested on a complete misapprehension. The requisites of successfully prosecuting a war had virtually nothing in common with the requisites of getting the economy out of a depression. (Moreover, the President and his supporters greatly overestimated how successful their wartime measures had been—the war had ended before the many defects of those measures became widely understood.)
