America’s Great Depression, a period that haunted the lives of parents of the Baby Boom Generation for years after it had ended, is generally thought to have begun with the Stock Market Crash of 1929. In reality, the seeds of this economic meltdown began to sprout as early as 1920.
During World War I, US Government spending was three times income tax revenue. When this spending was cut back in 1920, to balance the budget, it triggered a severe recession. Between 1920 and 1929, the value of US farmland fell 30 to 40 percent, and labor union membership dropped dramatically as companies cut jobs.
While individual worker productivity was up (43 percent from 1919 to 1929) the benefits did not trickle down to the middle and lower classes. The richest one percent of Americans owned 40 percent of the nation’s wealth.
It is commonly believed that the Depression was caused by excessive government intervention and deficit spending, especially among conservatives. A look at the figures, though, paints a dramatically different picture.
Prior to 1929, the federal government actually had a budget surplus. The administration of Warren Harding, who died in office in 1923, was one of America’s most corrupt. It spawned a number of political and economic scandals, and oversaw the transfer of much of America’s wealth into the hands of a few venal rich men. Calvin Coolidge, who succeeded Harding, was more honest, but nonetheless believed in laissez faire economics and felt that “the business of America was business.”
Coolidge was replaced in 1929 by Herbert Hoover, who was not as committed to laissez faire economics. The market crash, in October following his inauguration, forced him to begin running a budget deficit in an effort to put money into an economy that had seen its net worth almost evaporate overnight.
Coolidge’s efforts were, however, too little, too late. It was only with Franklin Roosevelt’s election in 1933, and institution of his New Deal program, that the American economy began to rebound. What many don’t realize is that deficit spending actually went against Roosevelt’s nature; preferring a balanced budget to the Keynesian theory of heavy deficit spending to energize the economy.
By 1937, despite massive deficits, unemployment began to decline and GNP growth rose 5 percent. The greatest gains in GNP growth were in fact in the years of greatest deficit spending; years that also posted declines in unemployment.
The facts, for anyone who cares to research them, speak for themselves. Deficits, rather than the harbingers of economic doom that conservatives constantly trot out to scare voters, have in fact been engines of growth of the American economy.
Published by Charles Ray