Quote:
Originally Posted by Loveshiscountry
We cut taxes and government spending by 40 percent over a two year period starting from 1920. Unemployment went from 12 percent to under 4.
You were saying?
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First, where did you get you unemployment figures, because there were no official figures back then?
According to
wiki, two different economists estimate as follows:
Unemployment rate
Year Lebergott Romer
1919 1.4% 3.0%
1920 5.2% 5.2%
1921 11.7% 8.7%
1922 6.7 6.9%
1923 2.4 4.8%
Instead of unemployment going from 12% to 4%, unemployment soared, from 1.4% - 11.7% or 3% - 8.7%, depending upon the economist's estimate.
Second, according to the
NBER, the 1920 recession started in January 1920 and ended in July 1921. The tax-cuts you mentioned didn't happen until 1922 (for upper-brackets) and 1923 (for lower brackets.) Those tax-cuts were after the recession already ended. You are misrepresenting cause and effect. How could the tax cuts be responsible for ending the recession when the cuts happened after the recession ended?
Third, let's look at government spending:
You claim that cutting government spending helped unemployment. I already showed that your basic facts were false but let's see the spending picture anyway. According to
Government Spending Details: Federal State Local for 1919 - Charts the following was the federal spending in the marked years:
Total/Defense Only $bil.)
1919 18.9/11.3
1920 6.6/2.6
1921 5.5/2.1
1922 3.8/1.3
1923 3.7/1.3
As one can see, World War I was over and government spending dropped from $18.9 bil. to $6.6 bil. from 1919 to 1920. That's what caused the recession and high unemployment. But it sure doesn't show that cutting government spending improved the economy; it shows the exact opposite. Yet, the Harding Admin. continued to cut spending and taxes. If your theory, namely, tax-cuts and government spending cuts are good, then why did another recession occur within three years? If your theory was correct, there should have been a long run of prosperity. But what we find is that from the end of the 1920 recession until the start of the Great Depression, a third of the time were recessionary -- and usually followed tax-cuts. That's hardly a ringing endorsement of their policies.
If anything, a revue of this period supports the Keynesian models -- cutting spending hurt jobs and the economy.