A Return to Normalcy:
Why Presidents Harding and Coolidge Still Matter
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
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.”
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
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.
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.
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
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.
Harding-Mellon economic plan continued after the death of President
Harding in the Coolidge administration.
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.
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.”
In fact federal spending was at $3.5 billion in 1926.
In addition the unemployment rate fell to a low of 1.8 percent in 1926.
The economic policies of President Harding, President Coolidge, and
Secretary Mellon helped usher in the “Coolidge prosperity” of the 1920s.
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.
President of The CATO Institute, recently wrote that conservatives and
Republicans need to start addressing spending cuts and the “proper role
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
Hendrickson is a Research Analyst at Public Interest Institute.
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.
Vedder and Lowell Gallaway, Out of Work: Unemployment and
Government in Twentieth-Century America, Holmes & Meier, New
York, 1993, p. 61.
Jim Powell, “America’s Greatest Depression Fighter,”
LewRockwell.com, December 23, 2003, <http://www.LewRockwell.com>
(May 6, 2009).
Jim Powell, “Not –So-Great Depression,” National Review
Online, January 7, 2009, <http://nationalreview.com> (May 6,
Burton W. Folsom, Jr. “Two Presidents, Two Philosophies, and Two
Different Outcomes,” The Freeman, June 2007, p. 33.
Powell, “Not-So-Great Depression.”
Edward H. Crane, “Obama is a Statist, Not a Socialist,”
CATO.org, April 29, 2009, <http://www.cato.org> (May 6,