In the first half of last century two presidents inherited recessionary economies from their predecessors. Both campaigned on smaller government, and both blamed the profligate ways of the previous president for their economic problems. One ended the recession in less than three years; the other lengthened it by seven. One responded with laissez-faire capitalism; the other with unprecedented government expansion. Scholars rank one among the worst presidents ever; the other they rank as one of the best. These two men are Warren Harding and Franklin D. Roosevelt.
Warren Harding was elected president in 1920 at the end of World War I, directly following the popular Woodrow Wilson. Harding inherited an economy transitioning away from wartime production as well as decreasing international demand for many American goods that had driven economic growth during the war. American factories were retooling and soldiers were coming home looking for work. The nation’s output, by some measures, fell as much as 24 percent and unemployment more than doubled between 1920 and 1921. Between 1919 and 1921, farm income had dropped by 40 percent. The country was falling deep into recession.
Instead of bailing out failing businesses, expanding government, and redistributing taxpayer money with a “stimulus” plan, Harding responded by cutting spending and removing burdensome regulations and taxes. During his campaign, he argued, “We need vastly more freedom than we do regulation.” In stark contrast with the Bush-Obama response of ever-more government spending and debt, Harding had federal spending cut in half between 1920 and 1922 and ultimately ran a surplus.
As a result, the recession that started in 1920 ended before 1923. Lower taxes and reduced regulation helped America’s economy quickly adjust after the war as entrepreneurs and capital were freed to create jobs and push the economy to recover. Harding’s free market policies lead to the Roaring Twenties, known for technological advances, women’s rights, the explosion of the middle class, and some of the most rapid economic growth in American history. Still, he is ranked as one of the worst presidents by many in academia’s ivory tower.
Franklin D. Roosevelt became president in 1933, following Herbert Hoover. Hoover raised taxes, increased government spending, regulated industry, and increased tariffs as the country went into recession. Despite this long list of big government, anti-market policies, Hoover is often mistakenly thought of as a laissez-faire capitalist. Government spending skyrocketed during Hoover’s term in office from just 11 percent of GDP in 1928 to over 20 percent before he was done. FDR simply followed in Hoover’s anti-market pro-spending footsteps and maintained the size of government around 19 percent of GDP until World War II, when it went much higher.
A recent study by UCLA economists Harold L. Cole and Lee E. Ohanian show that FDR lengthened the Great Depression by seven years with his anti-market “stimulus” policies. They write that prior to FDR’s interventions, “The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.” Somehow, though, FDR is considered one of the best presidents in the history of the country, despite the millions of people out of work and in the breadlines. Hoover is rightfully considered one of the worst, but perhaps FDR should be, too. As Rexford Guy Tugwell, one of Roosevelt’s top advisors commented, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
President Obama has taken office as our country stands at a crossroads where the laws enacted in the next few weeks could lead our country to prosperity or to ruin. Whose steps will he follow? Warren Harding got government out of the way of business in 1920 to unleash the market economy and launch the Roaring Twenties. FDR tripled taxes, regulated business, and massively expanded the role of government in our lives resulting in the longest and deepest recession this country has ever experienced.
President Obama has mentioned his fondness for FDR. Let’s hope he soon comes to prefer Harding.
FreedomWorks Letter to Congress in Support of Fiscal Commision Act (H.R. 5779)