The Republicans keep wanting to cut the federal budget and increase defense spending. Conservatives often point to President Warren G. Harding (1921-23) as a president who cut taxes and got a large economic boost out of it. Their basic argument is that President Harding cut taxes and government spending thereby turning a recession (the Recession of 1920-21) into the roaring 20’s.
Let’s, as they say, unpack this a bit.
Yes, Harding reduced the highest marginal income tax rates from 65% to 58% and then later to 25%, so, he did indeed cut taxe rates. And, yes, he cut government spending. But between 1920 and 1923, major national defense outlays dropped from $4 billion down to about $680 million while total government outlays dropped from $6.4 billion down to $3.1 billion. It was because of the military budget being slashed by 83% that the total budget diminished, the remaining civilian budget grew slightly.
This is hardly what today’s conservatives are recommending.
Listen, the situation was entirely different. The “Panic” of 1893 was still in memory and similar recessions (as we call them now) occurred in 1910-12, 1913-14, and 1920-21 (following the end of WWI, the demobilization allowing for the big defense cuts) and, of course, The Great Depression was coming in 1929 so, so much for the “success” of the “Roaring 20’s.”
Also, in the early 1920’s the United States was running a significant trade surplus as opposed to today’s massive trade deficit. And, Paul Krugman points out the recession that Harding “licked” was an inflationary one (unlike the current recession) which was addressed by the Federal Reserve by raising interest rates from 4.75% to 5% to 6% and then to 7% in June of 1920. When these interest rates were dropped (the standard procedure—raise rates to cool off the economy, lower them to stimulate it) shortly after Harding was elected the economy took off again. Harding also expanded the tax base, something today’s Republicans are adamantly opposed to. (Just Say “No” to Revenue Enhancement!)
So, the Repubs are right, their tactics have been tried before, but they can’t seem to come up with an example that is comparable. In fact, all of the examples one can come up with oppose what they are claiming.
So why is there so much support for their austerity tactics? Well, let me break it to you—there isn’t any real support, not from the general population, not from the majority of economists, and certainly not from the history books. The Republicans are able to do what they are doing for the simple reason that their wealthy paymasters want them to do it. The only “support” outside of the Republican Party for their policy ideas is from some in the media, primarily media companies owned lock, stock, and barrel by wealthy people or wealthy corporations, all of which are heavy donors to the Republican Party, because it is carrying their agenda for them.
The question always remains as to why ordinary Republican voters support the “all benefits for the rich” agenda of their party? Is it the sops they are thrown over social issues? Or are they old people operating on inertia (We’ve always voted the Republican ticket.), or . . . ? The shocking thing is that those ordinary Republican voters are voting against their own economic well-being and against what the Founding Fathers wanted in the way of our own self-government. They certainly didn’t want the country to be run only for the rich (although they were in favor of it being run by an elite). Possibly this is the meme still driving ordinary Republicans—cut welfare because all of those folks, the unwashed masses, are shiftless and lazy and unworthy, you know, black and brown.