A Return to Normalcy:
Why Presidents Harding and Coolidge Still Matter

By John Hendrickson

The current economic recession has fostered a national debate over various economic policies and theories that can be used to bring about full recovery. President Barack Obama and Democrat leaders in Congress have placed their faith in the economic theories of John Maynard Keynes and using President Franklin D. Roosevelt and the New Deal as an example for policies and programs. Republicans tend to focus on the theory of supply-side economics, which was championed in the 1980s by President Ronald Reagan. This theory emphasizes tax cuts and economic growth, but at the same time limited government gets left out. Policymakers need to examine the economic and tax policies of President Warren G. Harding and Calvin Coolidge. The Harding and Coolidge policies focused on tax reform as well as reducing government spending and growth. Both Harding and Coolidge realized that limited government was an essential ingredient to economic prosperity.  

In 1920 the United States economy went into a sharp decline in the aftermath of the Great War. The Depression of 1920 is often forgotten because it is overshadowed by the Great Depression and the 1920 Depression lasted only a short time. “By far the most important business cycle development of the first three decades of the twentieth century was the very sharp economic downturn of 1920 and 1921.”[1] With the economic decline “the estimated gross national product plunged 24% from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921.”[2] 

President Warren Harding responded to the economic depression by utilizing limited-government means. President Harding in the presidential election of 1920 had campaigned on a “return to normalcy” slogan which called for a policy of tax reform, reducing government spending, and eliminating wasteful regulations from the private sector.[3] Harding believed in limited government. The Harding economic plan was aided by Secretary of the Treasury Andrew Mellon who shared the same limited-government views as President Harding.  

The Harding-Mellon plan resulted in tax and spending reductions and pro-business policies to encourage an economic recovery by 1922. Economic historian Jim Powell described the Harding-Mellon economic record:

Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922…With Harding’s tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million — a reported 6.7 percent of the labor force — in 1922.

The Harding-Mellon economic plan continued after the death of President Harding in the Coolidge administration.  

President Calvin Coolidge and Secretary Mellon continued to pursue limited-government objectives of debt reductions, tax reform, and cutting back on government spending. President Coolidge and Mellon were successful in cutting taxes. For example, the top tax rate on incomes when Harding became President stood at a wartime level of 73 percent, but at the end of the Coolidge administration it had been reduced to 25 percent, and lower rates had also been slashed.[4] 

President Coolidge and Secretary Mellon also worked to “cut the size of government” and he was “the last President to have a budget surplus every year of his presidency.”[5] In fact federal spending was at $3.5 billion in 1926.[6] In addition the unemployment rate fell to a low of 1.8 percent in 1926.[7] The economic policies of President Harding, President Coolidge, and Secretary Mellon helped usher in the “Coolidge prosperity” of the 1920s.  

President Harding, President Coolidge, and Secretary Mellon understood that limited- government policies lead to economic prosperity. They also understood that high levels of taxation, government spending, and regulation are dangerous for economic growth. In addition they believed in prudent spending and a balanced federal budget. Although Harding, Coolidge, and Mellon were not pure supporters of the free market, all three believed in economic nationalism and their economic ideas can provide policy makers today with a solid blueprint for our economy.  

Ed Crane, President of The CATO Institute, recently wrote that conservatives and Republicans need to start addressing spending cuts and the “proper role of government.”[8] Tax cuts can spur economic growth, but without the necessary ingredient of cutting government spending growth, it can take away from the effectiveness of tax reductions. President Obama and Democrats will continue to pursue Keynesian and socialist policies, but Republican policymakers should follow the constitutional governing style of the Harding and Coolidge administrations. Harding and Coolidge proved that cutting taxes, reducing government spending, and reducing debt is not only a successful economic policy, but it follows constitutional government.    

John Hendrickson is a Research Analyst at Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.