NCPA - National Center for Policy Analysis


January 8, 2009

Which U.S. president ranks as America's greatest depression fighter?  Not the fabled Franklin Delano Roosevelt, since unemployment averaged 17 percent through the New Deal Period (1933-1940). 

America's greatest depression fighter was Warren Gamaliel Harding, says the Cato's Institute's Jim Powell.  He was elected president in 1920 and 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, a post-World War I depression that was almost as severe as the Great Contraction from 1929 to 1933 that FDR would later inherit:

  • The estimated gross national product (GNP) plunged 24 percent fro $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.

Harding's Secretary of Commerce Herbert Hoover wanted government intervention, but Harding would have none of it.  He insisted that relief measures were a local responsibility.  Under Harding:

  • Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and to $3.2 billion in 1922.
  • Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922.
  • The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline in 1930.

With Harding's tax and spending cuts and relatively non-interventionist economic policy:

  • GNP rebounded to $74.1 billion in 1922.
  • The number of unemployed fell to 2.8 million -- a reported 6.7 percent of the labor force -- in 1922.
  • And just a year and a half after Harding became president, the Roaring 20s were underway; the unemployment rate declined to a low of 1.8 percent in 1926.

While Harding can hardly be considered a champion of laissez-faire economics, his pro-growth policies are directly responsible for the growth in prosperity America enjoyed through the Roaring 20s, says Powell.

Source: Jim Powell, "Not-So-Great Depression," National Review, January 7, 2009.


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