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Economics Matters: The Roaring '20s (Vol. 116)

Updated: Oct 3, 2023

Good Economic Policies = Good Economic Outcomes

Most Americans are not focused on economic history and the lessons we can learn from it. But we are hearing more and more about the U S Debt today. If you aren't paying attention to this, we recently went through the self induced trauma of raising the Debt Ceiling. We didn't just raise it, we ‘suspended’ it until after the election in November, 2024. Yes, we can borrow and spend to our heart’s delight. No Problemo. Right?

Not so fast. How are we going to pay the debt? Hmmmm. Let me think. I know, we will raise taxes. Well, maybe the public will not like that. I know. We will borrow some more. Brilliant. Let the next guy worry about how to pay for that. And so it goes.

So let’s take a peek at history and what it tells us. In 1920, America was recovering from WWI and the Spanish Flu epidemic, taxes under President Wilson were very high, reaching 70%. America was in a severe depression. President Harding/Vice President Coolidge came into office in 1921. These were very frugal men and moved in a completely different direction. They cut expenses and taxes, eventually down to 25% maximum tax bracket.

Lo and behold, an economic miracle magically appeared, called the Roaring 20’s. Take a look at the chart below. What worked best? Confiscatory taxes of Wilson, or frugal government and low taxes of Harding/Coolidge.

The chart below will give you some insight into the financial evaluation of the economy in the 20’s. The stock market flourished.


The lessons we can learn from history are unmistakable. There are whole books written about the 20’s relating the frugal government policy and low taxes and how that fostered success in the economy. That is beyond the scope of this overview. But it is quite clear that limited government and low taxes worked to enable the country to flourish.

This period was followed by the Great Depression. We will discuss that in coming weeks, but yes, you guessed it, it was government policy that fostered and prolonged that awful period.


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