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https://www.realclearpolicy.com/articles/2022/08/09/a_history_lesson_for_president_joe_biden_846901.html

A History Lesson For President Joe Biden



A nation emerging from a significant pandemic and an economic downturn
awaited President Joe Biden in early 2021. President Warren G. Harding
inherited a similar situation after winning the 1920 election in a
landslide. But Harding overcame it by getting government out of the
way. The economy recovered quickly—whereas Biden enacted bad
progressive policies that have resulted in a double-dip recession with
40-year high inflation.
AP Photo/File

Biden should learn from Harding and his successor President Calvin
Coolidge to correct government failures and allow markets to heal so
that we can enjoy abundant economic prosperity again.

In the aftermath of the Great War, the U.S. suffered a severe economic
downturn. The late economist Milton Friedman described this as one of
the most “severe on record.” The depression of 1920-1921 is often
forgotten because it was short-lived, but it offers policy lessons
that can be applied to our current situation.

Prior to and during the Great War, President Woodrow Wilson led a
massive expansion of the federal government, which included the
creation of the Federal Reserve and personal income tax system. After
the war, markets corrected from those government failures throughout
the economy triggering a steep economic downturn.

The business and agriculture sectors were hit particularly hard by the
depression of 1920-1921, which led to bankruptcies and farm
foreclosures. Unemployment was estimated to be about 12% and the
nation was hit buffered from deflation. Americans were hurting.

During the presidential campaign of 1920, then-Sen. Warren G. Harding
pledged a “return to normalcy” against Wilson’s progressivism. During
the campaign, Harding argued that the nation needed to return to sound
money, less spending, lower taxes, less debt, and limited government.

This was the fiscal policy blueprint of the “normalcy” agenda. Harding
understood that to revive business confidence and lower high income
tax burdens, the federal government must get its fiscal house in
order.

In 1921, Congress passed the Budget and Accounting Act, which under
the leadership of Bureau of the Budget Director Charles Dawes and
later his successor, Herbert Lord, worked to reduce federal spending.
Dawes would compare the task of cutting spending to having a
“toothpick with which to tunnel Pike’s Peak.”

Harding also understood that to lower the high tax rate, spending had
to be addressed first. “The present administration is committed to a
period of economy in government…There is not a menace in the world
today like that of growing public indebtedness and mounting public
expenditures…We want to reverse things,” explained Harding.

Reducing spending was not easy.

As an example, Harding vetoed a popular bonus for veterans of the
Great War. Overall, Harding’s commitment to economy in government
resulted in an estimated 50% reduction in federal spending. Harding
also relied on Secretary of the Treasury Andrew Mellon, who also
shared his views regarding limiting spending.

Mellon would serve as the lead architect for Harding’s tax reform
policies. The top income tax rate was over 70% and Mellon’s goal was
to lower the rate. Through a series of tax reforms, the high rate
would eventually be cut to 25% during the Coolidge administration.

Harding and Coolidge’s fiscal conservatism of lowering spending and
tax rates and paying down the national debt resulted in a quick
economic recovery. The Federal Reserve also tightened the money
supply. The late historian Paul Johnson wrote “Harding had done
nothing except cut government expenditure, the last time a major
industrial power treated a recession by classic laissez-faire
methods…”

After the death of Harding in August 1923, Coolidge continued and
strengthened the economic policies of Harding. President Coolidge,
along with Secretary Mellon, continued to lower spending and tax
rates. The federal budget was $3.14 billion in 1923. By 1928, when
Coolidge left, the budget was $2.96 billion.

Altogether, spending and taxes were cut in about half during the
1920s, leading to faster real economic growth and productivity that
contributed to budget surpluses throughout the decade. The decade had
started in depression and by 1923 the national economy was booming
with low unemployment.

And that continued throughout much of the decade. This would have
continued but government expanded again. In particular, the Hoover
administration ran deficits and raised taxes and the Federal Reserve
had too loose and then too tight money supply. This led to the Great
Depression—a phenomenon that was avoidable and was exacerbated by
President Roosevelt’s large expansion of government.

It’s unlikely that President Biden will follow the pro-growth economic
policies of Harding and Coolidge, nor will the Fed tighten the money
supply enough to reduce inflation.

President Biden’s philosophy of woke progressivism is bankrupting our
country. The latest example is the recently passed “Inflation
Reduction Act” that will lead to higher taxes, more inflation, and a
deeper recession.

Congress instead should have adopted more of the pro-growth policies
practiced by Harding and Coolidge.