Depression of 1920

{{economics}}
The '''Depression of 1920''' was a brief economic depression lasting from 1920-1921 during the latest days of the presidency of [[Woodrow Wilson]] and the beginning of the [[Warren G. Harding]] administration. This episode has recently been trumpeted by [[libertarians]], [[wingnut|wingnuts]], and [[free market]] fundamentalists as definitive proof that doing nothing and letting the market sort itself out is always, always preferable to 
[[socialism]]
 interventionist policy. The more historically illiterate often describe it as the "depression you've never heard of," "the forgotten depression," or "the often-overlooked depression." Usually, some comment about dirty [[liberals]] keeping it out of history textbooks follows, with an admonition to read some "real" history.<ref>This stupidity likely reached its zenith with [[Michele Bachmann]]'s "[http://www.youtube.com/watch?v=Jc1kvcf4w-M Hoot-Smalley speech]."</ref>

So why does this not prove the wingnuts' point in any way whatsoever?
* [[Milton Friedman]] and Anna Schwartz's ''Monetary History'' pins the blame on the Fed's overreaction to post-World War I inflation. It raised interest rates to new heights that put a massive deflationary pressure on the economy.<ref>"The Contraction of 1920-1921," Ch. 5 Pt. 3, pp. 231-240 in Friedman and Schwartz. [http://books.google.com/books?id=Q7J_EUM3RfoC&printsec=frontcover&dq=friedman+and+schwartz&hl=en&ei=VcckTsiyM9S_gQfn0M2-Cw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCkQ6AEwAA#v=onepage&q=friedman%20and%20schwartz&f=false]</ref> There was also a general glut of agricultural products at the time as rations were no longer being sent overseas to troops in Europe. This would have had a big deflationary effect as well.
* The [[tax cuts]] and lower tariffs never happened, at least not during the period of 1920-1921. Harding didn't cut taxes until after the Depression had blown over and never lowered tariffs — in fact, he signed the Fordney-McCumber act in 1922 which raised them.
* Harding wasn't 100% [[laissez-faire]]. While he did cut spending and maintained a balanced budget, he also passed the Farm Acts, a set of new regulations on agriculture. He also gave federal funding to states for public works projects.
* There were no widespread bank failures like there were in 1929 on.
* The depression let up when the [[Federal Reserve|Fed]] started running an expansionary policy.
* It's a completely [[cherry-picking|cherry-picked]] example ignorant of economic history. The government did little to nothing through many of the numerous bank panics and depressions of the previous century. The Long Depression included an economic contraction that lasted longer than the one during the Great Depression.<ref>[http://www.nber.org/cycles.html NBER business cycle data.]</ref>

So, no, the government didn't "do nothing," [[free market]] magic dust didn't cure the depression, and it does nothing to prove that the [[New Deal]] "made the Great Depression worse." Just more ignorant history from the [[Fox News|usual suspects]].

==See also==
*[[Roaring Twenties]]
*[[Roosevelt Recession]] - for another case of wingnuts [[bullshit]]ting
*[[Trickle down economics]]

==External links==
*[http://www.youtube.com/watch?v=zHXkFKyBU7M&feature=related Glenn Beck segment on the Depression]
*[http://econospeak.blogspot.com/2010/11/does-1920-21-recession-really-prove.html Econospeak - Does the 1920-21 Recession Really Prove that Laissez-Faire Saves us from Recessions?]
*[http://www.angrybearblog.com/2010/04/1920s-depression-glenn-beck-thomas.html Angry Bear - 1920s Depression Part I], [http://www.angrybearblog.com/2010/04/1920s-depression-glenn-beck-thomas_19.html Part II]
*Wicker, Elmus R. [http://www.jstor.org/pss/2116229 A Reconsideration of Federal Reserve Policy during the 1920-1921 Depression]. ''Journal of Economic History'' (1966) 26: 223-238. 
*Daniel Keuhn. [http://www.springerlink.com/content/5683j4v650187261/ A critique of Powell, Woods, and Murphy on the 1920–1921 depression]. ''The Review of Austrian Economics'' Volume 24, Number 3, 273-291. 

==References==
{{reflist}}
[[Category:Economics]]
[[Category:History]]

Categories: Economics, History