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  • Writer's pictureJoe D'Orsie

A Tale of Two Recessions - BLOG - February 2021

Updated: Jan 5, 2022

Many people are well aware of the Great Depression, a deep and lasting economic slump that plagued not just American workers and families but businesses and households in every conceivable country on earth from 1929 through the 1930’s. But not as many people are aware that a similar recession period struck the US just eight years prior to the start of the 1929 recession turned “depression.” The result was very different, and so were the tactics used in staving it off.

The first recession, after a relatively short time of correction and pain, gave way to the “Roaring Twenties,” a memorable historic American moment marked with incredible economic explosion, technological advancement, and a drastic increase in American quality of life. The second recession, on the other hand, resulted in a decade-long valley of economic despair, slashing American economic output, reversing much of the growth of the 20’s, and bankrupting businesses and individuals alike.

Why and how were the results so different? First, two quick notes. These two recessions, of course, weren’t exactly the same, so comparing them as if identical twins wouldn’t be prudent. They can, however, serve as capable case studies as it relates to government’s role in an economic crisis. Second, a common misconception about the Great Depression is that thanks to quick action by the Roosevelt administration, losses were curbed and lives and livelihoods were drastically and immediately improved. History doesn’t exactly echo this version of the story. (for more, check out Amity Shlaes’ modern classic: The Forgotten Man).

Recession #1: Leadership – Republican / Philosophy – Less Government.

Harding, and then his successor Coolidge, believed that the perfect remedy to a natural market correction was less government involvement. This meant, essentially, keeping their hands off of the situation, allowing the market to naturally rebound and cut its losses, and implementing pro-capital measures, like reducing taxes and scaling back regulations. The results, after a short time of economic stagnation, were incredible.

Recession #2: Leadership – Pseudo Republican (Hoover-1928-1932) & Democrat (FDR-1932-1945) / Philosophy – More government.

To be clear, Hoover, a Republican, guided by his whims to act, responded to this second recession in horrible fashion. His instincts told him to use the mechanism of government to soften the economic blow, and his instincts, capped by the signing of the Hawley-Smoot Tariff Act, were devastating to the American economy. Roosevelt inherited a tough situation in 1932, but instead of realizing the error of too much government intervention, he doubled down. This marked an era of wasteful government programs, extreme levels of bureaucracy, and an all-out war on the private sector of the American economy (endearingly coined “The New Deal Era”). This big government reaction resulted in a deep and lasting economic plunge only to be counterbalanced eventually by a wartime production boost and a post-war economic boom.

- JF D'Orsie

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