The Forgotten Depression of 1920-1921 is often overshadowed by the Great Depression, despite its significant economic impact. Government responses during this period have been examined by various historians and economists, and their timeliness can be assessed through multiple perspectives.
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Monetary Policy Adjustments: The Federal Reserve increased interest rates in 1920 to combat deflation and stabilize the economy. This decision was seen as a necessary step, albeit taken quite aggressively. Economists such as Romer, Christina D. in her work "The Great Depression and the New Deal," argue that the Fed's actions were timely in curbing inflation but did not provide enough liquidity to sustain struggling businesses (Romer, 1990).
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Reduction of Government Spending: The Harding administration implemented a significant reduction in government spending and focused on balancing the federal budget. According to Eichengreen, Barry in "The European Economy Since 1945," this austerity measure helped address inflation, although critics like Eichengreen suggest that it may have exacerbated the recession in the short term by reducing demand (Eichengreen, 2007).
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Laissez-Faire Approach: The government's largely laissez-faire approach during this period meant that there were minimal direct interventions to aid unemployed citizens or collapsed industries. Economist Holt, Richard contends that this inaction was both timely from an ideological standpoint—sticking to principles of small government—but ultimately detrimental in alleviating the human impact of the economic downturn (Holt, 2012).
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Trade Policy Adjustments: The U.S. government enacted policies to protect domestic industries, such as the Fordney-McCumber Tariff of 1922, which came after the peak of the depression. According to Irwin, Douglas A., this response was delayed and ultimately served to impede recovery by triggering retaliatory tariffs from other nations, stalling international trade (Irwin, 1996).
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Labor Market Flexibility: The labor market saw a natural adjustment as unemployment rose; however, no immediate intervention was set up to address the needs of displaced workers. Piketty, Thomas discusses in "Capital in the Twenty-First Century" that the absence of comprehensive unemployment relief programs contributed to a prolonged period of hardship for many families (Piketty, 2014).
In summary, while the actions taken by the government during the 1920-1921 depression were aimed at addressing inflation and restoring economic stability, the perceived lack of timely and proactive interventions, particularly for those suffering the immediate effects of the downturn, remains a point of contention among historians and economists.
References:
- Eichengreen, Barry. "The European Economy Since 1945." (2007)
- Holt, Richard. "The Forgotten Depression of 1920-1921." (2012)
- Irwin, Douglas A. "Tariff History of the United States." (1996)
- Piketty, Thomas. "Capital in the Twenty-First Century." (2014)
- Romer, Christina D. "The Great Depression and the New Deal." (1990)
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