Learn from history – how America escaped depression in 1921

Learn from history – how America escaped depression in 1921
May 20 16:50 2020 Print This Article

Most of us learned about The Great Depression that consumed 1930’s America, but how many know that America was in a depression at the start of the 1920s? Following the end of World War I, America was ravaged by the Spanish Flu and an industrial decline. The flu outbreak impacted mostly young adults, and the workforce was decimated. In 1920 and 1921, the American economy declined by 17%. What we can learn from history is that the policies of Presidents Warren Harding and Calvin Coolidge turned an economic depression into a decade we now know as The Roaring 20s.

Rather than bailing out businesses, sending government checks to families, and offering laid off workers endless unemployment benefits, America changed its fortunes by lowering taxes and cutting government spending. The Revenue Acts of 1921, 1924, and 1926, engineered by Treasury Secretary Andrew Carnegie Mellon, the top income tax rate was cut from 77% in 1921 to 25% in 1928. Federal spending was cut in half by the end of 1922. The result was a doubling of American wealth, rapid wage growth and a stock market that surged by 500% during the decade.

In addition to the unprecedented gains in wealth during the Roaring 20s, the decade was marked by cultural changes. Increased wages led to a demand for time-saving consumer products, such as vacuum cleaners, washing machines, and sewing machines, which in-turn led to a manufacturing boom. More Americans began driving cars. Women obtained the right to vote and coveted innovative fashion and beauty products.

Moving 100 years forward, dramatic federal spending cuts are very unlikely in the age of Social Security, Medicare, and Medicaid. America faces a global military threat in 2020, so large reductions in military spending appear unlikely. Pro-business and pro-consumer tax policies can be just as effective today as the were in the Roaring 20s and can be used to lift America’s economy out of the deep recession. Emerging industries and technologies can also play a role in America’s comeback.

The Tax Cuts and Jobs Act of 2017 reduced America’s corporate income tax from 35% (highest in the world) to 21%. President Donald Trump’s top economic advisor Larry Kudlow recently proposed cutting the existing rate in half if corporations shift production from China to the United States. During the COVID-19 crisis, the American public has become aware of our country’s dependence on China for medicines and medical equipment. Another measure being explored by the Trump Administration is a payroll tax holiday, which would enable employees to keep an additional 7.6% of their salaries for the rest of the year.

The potential surge in American manufacturing would force dramatic changes in our education system. High school students must be equipped with the skills needed for the jobs in demand. The Trump Administration’s Pledge to America’s Workers, which sought to train 12 million workers in five years, will have to be accelerated. The high cost of college education and the shaky financial footing colleges have experienced during the COVID-19 crisis may influence people to seek professional certifications in skilled trades and information technology rather than college degrees.

The COVID-19 crisis will likely change the business culture in America. Expect more employees who produce their work product on computers to telecommute, having the beneficial consequence of less vehicular traffic. More retailers are offering on-line sales, which has also led to new jobs for supply chain managers and delivery drivers. Remote services, such as telemedicine, will allow more people to be served without driving to appointments and waiting to be seen.