Hoover leads decline of economy

There are many people who continue to blame the stock market crash of 1929, and the Great Depression that followed, on the economic policies set forth by Warren G. Harding and Calvin Coolidge (supply-side economics). Yet a better place to find blame would be in the economic policies of Herbert Hoover. 

It is true that the economic miracle that took place during the 1920s was a direct result of Warren G. Harding cutting federal spending by 40 percent, and the tax cuts of both Harding and Calvin Coolidge. 

These events in and of  themselves resulted in good economic times, and when similar events have occurred in later years -- John F. Kennedy, Ronald Reagan, and George W. Bush all cut taxes, although never reined in spending -- similar results were observed, where federal revenue increased and the economy grew. It is quite clear that federal spending and taxes must be kept below a certain level for optimal economic prosperity, as the Laffer Curve suggests.

So, then, what caused the events leading up to the Great Depression?

One theory is that Americans were so indulged in their own happiness during the 1920s that they failed to notice inflation and unemployment were increasing.  There were also not enough regulations in place to monitor business activity, meaning that no one was monitoring to assure workers were getting fair pay and treatment.  There was also little insurance on invested monies to assure it would not become lost in the case of an economic collapse.

To go along with this, you also have to consider beliefs that were prevalent at this time.  During WWI Woodrow Wilson proclaimed that it was the war to end all wars. So there weren't supposed to be any more wars, meaning the world was in a state of world peace.

It was also believed that alcohol was the cause of all crime, so when prohibition was passed there was supposed to be no more crime.  Since there was no crime and no more wars, that meant no more bad people, and therefore there was no pressing need for rules and regulations.  So this also could explain the self absorption without monitors. 

In other words, with the Roaring 20s in full bloom, people believed they had created a euphoric nation, and they figured it would last forever. Evidently they were wrong, but this is what they believed.  So to blame the collapse of the economy solely on the economic policies of Harding and Coolidge is poppycock. 

But something did go wrong, obviously.  Only seven months into his term of Herbert Hoover as president the stock market crashed on Thursday, October 24, 1929.  This resulted in an immediate economic downturn, or recession. Despite what some claim, the economy did not immediately fall into a depression.  Yet poor decisions that followed the crash would lead it into one.

Before the recession people readily invested their money in banks and the stock market, both for safe keeping and to make more money off interest and capital gains.  This system had worked so well during the 1920s that people had no reason to suspect it would ever end.  

Due to the euphoric state of the nation prior to the collapse, Americans were completely caught off guard. Their utter despair at what happened caused them to lose all confidence in the American economic system, particularly the stock market and banking system.  The general consensus now was that these were no places to put your hard earned dollars.  

Now, in lieu of taking risks and investing, people starting tucking their hard earned dollars under their beds, or inside their pillow cases.  The last thing they wanted to do was put it in banks that were not insured, or businesses that were not regulated.  Such lack of trust, and lack of confidence, is what lead to the recession.

What transpired next would have an immediate impact on whether the economy would turn around, whether it would remain in a recession, or whether it would turn into a depression. Since so many people blamed tax and spending cuts on the recession, it only made senses (or so it was suspected) that exactly the opposite was necessary to pull the country out of recession.  

So Hoover did have an opportunity to pull the country out of this downward economic spiral, he just didn't know that all he had to do was create insurance programs to protect invested money, and regulations to assure that people did not cheat, in order to regain the trust of the people. 

Either Hoover was unaware of this, or he simply refused to heed the advice of economic experts who advised such.  However, in Hoover's defense, this was, after all, the first recession of a new kind of economy  -- post 16th amendment, and in a modern, global world.  

Hoover sided with the experts who championed for tax increases, and so instead of cutting taxes, he raised the top marginal income tax from 24 percent to 63 percent by signing the Revenue Act of 1932. 

This was coupled with a rise in tariffs that resulted when Hoover agreed to sign into law the Smoot-Hawley Tariff in 1930.  This "throttled trade."

The combination of these two, the rise in tariffs and tax hikes, meant that he was, in effect, taking more money out of the pockets of people and corporations that were already hurting for money. Employers had less money for hiring, and consumers had less money for spending.  It was this, more so than anything, that caused the economy to spiral into the Great Recession.

So the closest our nation ever came to complete euphoria came during the Roaring 20s, and it was all thanks to Harding and Coolidge.  Yet, perhaps due to lack of experience, neither Harding nor Coolidge had the foresight to create minimal regulations for guiding the economy, and insurance programs for protecting against loss of personal investments. 

Yet Hoover had the opportunity, if not prior to the crash, after it, to return the economy to prosperity. 

But he chose to cave in to the raise taxes and increase spending crowd.  He chose big government solutions as opposed to free market solutions.  And for that reason, he, perhaps justly so, is often blamed for turning the recession into what would become known as the Great Depression. 

Calvin Coolidge leads the Roaring 20s

Calvin Coolidge (1872-1933)
U.S. President (1923-1929)

Silent Calvin Coolidge became president in 1921 after the untimely death of Warren G. Harding. Calvin would see to it that the economic policies of his predecessor moved forward.  By doing so, he helped move the nation through the greatest period of economic prosperity in the history of the United States. 

John Calvin Coolidge was born in Plymouth Notch, Vermont, on July 4, to John and Victoria Coolidge.  He was painfully shy as a child, so much so that he had difficulty making friends. He was also afraid to talk to his teachers, and for this reason he struggled somewhat with his schooling.

While this was true, he proved to be a great public speaker, and perhaps for this reason he made a great lawyer and politician.  He learned about law by reading for a Northampton law firm, and in 1897 he earned a license to practice law.  He began his political career a year later when he was elected as Northampton city councilman.

In 1906 he was elected as a representative to the Massachusetts legislature, of which he served two terms.  While other republicans opposed the women's suffrage movement, Coolidge supported it. After taking a couple years off to spend time with his young family, in 1911 he was elected to the senate.  

As occurs many times in world history, what sets one person above another is being in the right place at the right time.  During his second year as senator, Coolidge was faced with the difficult task of dealing with the strike of textile workers from the mills in Lawrence, Massachusetts. 

The strikers marched toward the mills in 1912 claiming that they were underpaid. It became so concerning that law officials of Lawrence called in the state militia to protect the mills and keep the peace. 

Coolidge was able to convince the mill to give a wage increase instead of a cut, and the strike was thereby called off.  This was a huge success for the young politician, as it would help set up the stage for his future success as a politician.

The Massachusetts Militia tries to keep order in Boston, 1918.

A similar event occurred in 1918 after Coolidge had been elected governor of Massachusetts.  The war had left many workers in the U.S. with low wages, and the police force of Boston was no different. They formed a union and went on strike.

Coolidge sided with the police officers, saying they deserved fair wages.  On the other hand, he thought it was dangerous for them to be on strike, because no one was defending the people.  So he called in 4,800 National Guard troops to police the city. With Coolidge's approval, the commissioner refused to rehire the striking workers and trained new officers were hired and trained to replace them.

When Samuel Gompers, leader of the Federal Labor Union, complained to Coolidge about the harsh treatment of striking police officers, Coolidge said, "There is no right to strike against the public safety by anybody, anywhere, anytime."

The city of Boston agreed to provide its police force with large salary increases and improved working conditions.  Yet Coolidge's successful handling of the Boston Police Strike, and especially those 15 words to Gompers, gave Coolidge national recognition. 

Also setting the stage for his future success as a politician was the work of other politicians.  During the Great War the highest marginal income tax rate was increased to 74 percent in order to pay off the debt.  Although, after the country became embittered in a depression, there were calls by the public, media, nearly every republican, and some democrats to cut taxes in order to spur economic growth. 

Amid the depression of 1920-1921, republicans won both houses of Congress, and the executive -- Warren G. Harding was elected president -- in a landslide election. Cutting income taxes was at the top of the agenda.

Harding's secretary of the treasury, Andrew Mellon, was a strong proponent of cutting taxes, even going as far to say that taxes had become so high that many people found ways to get around paying, resulting in loss of revenue. Plus he believed the high tax rate was a burden to economic recovery and growth.

In April 11, 1921, Harding called for an extraordinary session of Congress to revise the federal revenue and tariff laws. There were some who called for significant tax cuts, although others noted the ongoing expenses of paying off debt accrued during WW1. 

Ultimately, the bill that was signed by Harding cut the top marginal tax rate from 74 to 58 percent.

After Harding died, Silent Calvin Coolidge saw to it that the economic policies of Harding were continued.  He would sign the Revenue Act of 1924 that reduced the top marginal rate to 46 percent, and the Revenue Act of 1928 that reduced this rate to 25 percent.

On top of this, Harding, before he died, was able to cut federal spending by 40 percent, making him, and Coolidge, the only presidents ever to reign in both spending and taxes after passages of the 16th amendment allowing Congress to levy taxes on individuals and corporations.  

As a result of the Harding/ Coolidge spending and tax cuts, what occurred over the next several years was nothing short of amazing, and a quintessential example of what would ultimately be referred to as Supply-Side economics. 

Between 1921 and 1928 , revenue to the government rose from $719 million to $1164 million, or a whopping 61 percent.   So, through the hard work of both Harding and Coolidge, the 1920s was the greatest period of economic expansion in the history of the United States.  

The economy during the 1920s grew faster than any time in American history up to that time, and America became the richest country in the world. The stock market and land values soared, and there were more rich people than ever before.

Yet while the rich got richer, the middle class got richer and so to did the poor. The great part about this all was that it happened not by pushing forth progressive tax and spend programs, and not by robbing Peter to pay Paul, but by reducing the size and scope of the government, thus creating opportunities for all.  

People were happy during the 1920s, and this is best shown by songs such as "Happy Days are Here Again," by Richard Alger and Jack Yellen.

Without the burdens of government regulations and taxes, businesses had abundant resources to invent, create and produce. They were able to expand their inventories, build new buildings, and hire new workers.  The result was the lowest unemployment rate in the history of the United States.

Many corporations and individuals were raking in money like never before, and they obtained this money as a bi-product of the soaring economy. 

These excellent free market conditions lead to the Industrial Revolution, where entrepreneurs like Henry Ford were able to mass produce goods and services and make them abundantly available to the public at a decent price.  Skyscrapers were rising. Factories were becoming a common site,  and were hiring unskilled workers at a record pace. 

Electric appliances were making their way into homes, such as the dishwasher and washing machines, thus allowing women to finally get out of the homes and into the workplace.  This helped spawn the woman's movement which lead to women's suffrage.

It was during this time that luxuries such as the radio and telephone became common household objects, and vehicles such as the Model T were being purchased by people who never thought they'd ever be able to afford such a luxury.

In essence, this was the first time in American history where average Americans, even those who just a few years earlier were not very well off, were making enough money to not just to afford food and clothing, but material and luxury items to help them fully enjoy life (selfish things for selfish reasons).

Overall, there were plenty of jobs for everyone.  The rich got richer.  The middle class got richer.  The poor got richer.  And not only that, with the superfluous flow of money, people were happy too, hence the song: Happy Days Are Here Again.

Never before had there been a period of economic growth as what occurred during the Roaring 20s.  The gain in overall standard of living was unmatched by any historical period ever. 

This was called the roaring 20s. People were having fun, and it was the result of freeing society from the burdens of federal regulations and taxes.  It was an idea conceived by great men like Andrew Mellon and signed into law by great men such as Warren G. Harding and Calvin Coolidge.

Warren G. Harding creates the roaring 20s

Warren G. Harding (1865-1923)
U.S. President (1921-1923)

In 1920 Warren Gamaliel. Harding was elected President amid a sharp depression. To fire up the economy, he signed into law a big tax cut, and became almost instantly popular.

He appeared to be the perfect fit to be president, as he was very good at making friends, keeping the peace, and speaking in public.  He was a very successful newspaper man and senator, and so it was only fitting that he would be an equally successful president.

He was a conservative, meaning he was a proponent of preserving traditional American values, and limiting the size and scope of government in order to allow businesses the freedom to grow and prosper. Nominated in an era where voters were tired of progressives who kept passing bills in an effort to perfect the world, Harding seemed the perfect fit to be president.

Prior to the progressive movement presidents admired and respected the Constitution, and believed it did not give the executive the power to solve the problems of individuals and businesses.  Yet this changed with the Woodrow Wilson administration when he signed into law regulations to improve conditions for laborers, to make sure products sold were safe for consumers, and to assure fair market conditions.

Such regulations were needed for a long time.  The problem was that once the dam broke, once Congressmen realized they could impede upon constitutional restraint in order to move forth their agenda, they went overboard by creating a bunch of laws that impeded upon personal liberties, such as the 16th amendment  that allowed Congress to levy taxes on individuals and corporations, and the 18th amendment prohibiting the sale of alcohol in 1920.

These amendments now made it possible for a progressive Congress to push forth their, which was to create a complete euphoric society where there were no poor, no war, no crime. Yet there was a price to pay for all these new regulations, and it was that they had to pay fore them.  S

So nearly as as soon as the 16th amendment was signed in 1913 by Woodrow Wilson Congress swiftly acted by passing the Revenue Act of 1913, which lowered the basic tariff from 40-25%, and, to make up for lost revenue, re-instated the federal income tax.

By 1920 the top marginal income tax had risen 73 percent, and this was done mainly to pay off the war debt.  Following the Great War the economy spun into a sharp decline, resulting in the depression of 1920 and 1921.  During this time the gross domestic product plunged 24 percent, from $91.5 billion in 1920 to $69.6 billion in 1921.  Unemployment jumped from 2.1 percent in 1920 to 4.9 percent in 1921.

Yet this depression is often forgotten mainly because it was so short lived, and because of the Great Depression.  It was short lived because Warren G. Harding, lead by his brilliant secretary of treasury, former banker Andrew Mellon, had a vision that the tax rate was so high, and spending so out of control, that it was preventing the economy from growing.

Mellon and Harding wanted to return America to pre-progressive times when the president did not impede upon individual and business freedom.  They believed doing so greatly benefit the American economic system and American morale. 

The first thing they succeeded at doing was cutting spending by 50 percent. This made it so that government did not need to take as much money from individuals and corporations to pay for government run programs.  The next task for Harding and Mellon was to get a significant tax cut through Congress.  

On April 11, 1921, Harding called for an extraordinary session of Congress to revise the federal revenue and tariff laws. There were some who called for significant tax cuts, although others noted the ongoing expenses of paying off debt accrued during WW1. Ultimately, a bill was signed by Harding to cut the top marginal tax rate from 74 to 58 percent.

Unfortunately for Harding, he had hired some of his best friends to posts in his administration, and, as it turned out, they were wheeling and dealing behind his back. One of the great scandals that brought down the Harding Administration was the Teapot Dome Scandal, where his “friends” got rich selling oil that was supposed to be set aside for public use.

Half way through his second year in office he died of what was initially recorded as a stroke, although historians later determined that he probably had a heart attack.  He had been suffering from high blood pressure and chest pain for quite some time, and he failed to heed the advice of his physicians. However, there were also rumors swirling that he killed himself  because he couldn't face the fact that he had let the public down. There were also rumors that he may have been murdered.  Yet no evidence of foul play ever appears. 

Either way, he was still a very popular president at the time of his death.  Yet once word got out about all the scandals the populace became angered and his popularity plummeted.   Most historians, therefore, judge Harding as one of the worst presidents because he failed to hire good enough people to posts in his administration.  

Still, because of his economic vision to reboot the American economy, as he lay dying on August 2, 1923, voters were very happy with him.  In fact, the people loved Warren G. Harding.