Sunday, June 12, 2011

The "Roaring Twenties" - Where'd the Money Come from?

The standard narrative presented by most American History textbooks talks about the booming economy of the 1920's: unemployment was almost unknown, and not only did Americans have jobs, but they had well-paid jobs; new standards of personal wealth arose - people sold their horses and bought cars, people got radios, telephones, and electricity.

What created these "good time"? Princeton University's Larry Kudlow explains:

Coolidge’s vice president was former Harding budget director and Chicago banker Charles Dawes. Coolidge kept on former-President Harding’s Treasury man, Andrew Mellon. Working with a Republican Congress during the mid 1920s, these men continued the “return to normalcy” policies of Warren Harding by cutting tax rates, reducing federal spending, and lowering the post-WWI Federal debt.

The timeless economic truths hold: lower taxes, reduce government debt, and people will prosper. The good times of the 1920's ended with the Great Depression - a time marked by increased government debt, higher taxes, and government interference in the free market. It is debatable whether or not regulation caused the Great Depression - some economists think that the reason is to be found in the tariffs - but it is in any case clear that the Great Depression was prolonged by government spending, government debt, government regulation of business, and taxes.