SIGNS OF ECONOMIC TROUBLE AHEAD
Even as the 1920s roared, signs that America's fast growth was running on empty began to appear:
- U.S. manufacturing output rose by 50 percent, but even in good times, hundreds of banks failed every year.
- Buying on credit was rare at the beginning of the decade, but by the end of the 1920s, more than half of the purchases for cars and appliances were on time payments. If people lost their jobs, they couldn't make the payments.
- A Florida land boom so hot that people even bought lots that were under water turned to bust in one 1925 hurricane.
The stock market went up for so long that everybody forgot it could ever go down. Ordinary working people bet their life savings on stocks, buying them on margin — a kind of time payment, just like the financing scheme they used for their cars.
The Republican-controlled Congress cut the taxes on rich people: What was three dollars in tax for the rich in 1920 became only one dollar. Wealth-friendly politicians said this money would trickle down to the poorer people.
Question: What was the Republican position on taxes for the rich?
Answer: Republicans cut taxes on the rich, claiming benefits would trickle down to poorer people.
A little trickling down would have been good, because 40 percent of the whole nation (and a much higher percentage of farmers and blacks) lived below the poverty line, even in the good times of the 1920s. While the poor people lived without government help, cheap taxes for the rich made the economy blow up like a big balloon.
Question: Which groups had it hardest during the 1920s?
Answer: The most economically-depressed groups were farmers and blacks. They didn't share much in the 1920s boom times.
POLITICS LEADING TO THE DEPRESSION
The three Republican presidents in the 1920s really thought people should take care of themselves. Even after the stock market crashed in 1929, Herbert Hoover quoted the cold-hearted words of President Cleveland from 50 years before: ". . . though the people support the Government, the Government should not support the people."
The same hands-off governmental philosophy guided the three 1920's Republican presidents in international affairs; the U.S. was isolationist and unprepared for war. Antitrust laws passed by earlier progressive presidents, both Republicans and Democrats, went unenforced. Businesses soon learned that they could get away with forming trade associations that limited competition:
- The Esch-Cummins Transportation Act (1920) allowed the private combination of the railroads and committed the Interstate Commerce Commission to help them make a profit.
- The Merchant Marine Act (1920) sold off ships built by the government at bargain prices to big businessmen. A railroad strike protesting a 12 percent pay cut during boom times was put down with harsh measures by the government in 1922.
International efforts were mostly symbolic:
- The U.S. called the leading powers together to sign the Washington Naval Treaty (1922) where they agreed to limit warship construction at an easy-to-meet high level.
- Harding helped American companies grab oil concessions (1923) in the Middle East that would eventually lead to international trouble.
- The Nine-Power Treaty (1922) made an Open Door policy to China an official international agreement, but it didn't keep Japan and Russia from trying to sneak in to grab some territory for themselves.
- The Kellogg-Briand Pact (1928) proved how easy it is to say good words by "outlawing war."
All these agreements sounded good, but with only a weak League of Nations, there was no power to enforce them.
Republicans hiked the tariffs, as they had done in the past, under the Fordney-McCumber Tariff Law (1922), which also gave the president the power to raise or lower tariffs by himself. The Republican presidents sent the tariffs even higher on 32 important commodities like dairy products and iron. They lowered taxes on only five items nobody wanted anyway, including paintbrush handles and bobwhite quail.
Calvin Coolidge: "Silent Cal" stands by
After president Harding escaped facing his administration's corruption by dying in office, Vice President Calvin Coolidge took over and governed in a straightforward manner. Coolidge specialized in keeping his remarks simple. A famous story tells of a dinner guest who said, "Mr. Coolidge, I've made a bet against a fellow who said it was impossible to get more than two words out of you." Coolidge's reply: "You lose."
Although Coolidge had little to say, he supported business like it was a religion. In fact, he believed that "the man who builds a factory builds a temple" and "the man who works there worships there." Coolidge had never worked in a factory.
Although Coolidge came from a New England farm family, he stood by and did nothing as one out of four families lost farms to debt in the 1920s. He just said that farming had never paid much and that the government couldn't do anything about it. Coolidge got elected once in his own right and then decided not to run again.
Herbert Hoover: Good intentions, bad mistakes
Herbert Hoover had a great reputation as a humanitarian and a problem-solver for three earlier administrations. Then he actually became president and lost his reputation in the Great Depression. Elected in a landslide in 1928, he started by trying to do something for the desperate farmers.
The Agricultural Marketing Act (1929) lent money to farmers' organizations to manage their crops for maximum profit. It didn't work very well; prices for grain and cotton just kept dropping because farmers kept growing an oversupply of crops.