WI: The Great Depression starts in 1920?

For those who don’t know, the US experienced a major recession during 1920-1921 (in fact the initial stages of this recession completely dwarfed the initial stages of the Great Depression), but president Warren G. Harding handled the recession very well, leading to a short recovery. However, what would be the long-term effects on the world if the US economy collapsed over 10 years earlier with no roaring 20’s, no Weimar Germany, and a total global economic collapse much earlier. As a POD, let’s have Charles Evans Hughes win the election of 1916 and still get involved in an unpopular World War I. Because of this, the Democratic candidate James Cox, with a young FDR as VP, inherits the severe recession of 1920 but does not handle it well like Harding did, leading to total economic collapse over 10 years earlier. What are the effects?
 
Well the UK had a pretty nasty recession about 1920-1924 OTL, so that’s two big economies in trouble. Russia and Germany were obviously in deep trouble, I assume central and Eastern Europe were not having a great time following all the border upheavals.
So it could get pretty big and nasty, especially if a few politicians decide to win support by playing hardball over war debts and the various OTL shenanigans happen early.
 
If the West is weaker and in even worse shape than it already was IOTL, Lenin and the Bolsheviks make a serious attempt at organising Communist movements among the working class in the West. Red movements will be stronger than OTL, very disruptive to society, violent and potentially could be successful. Some countries like Germany and perhaps even France could descend to civil war or anarchy. It will be very ugly, not that things weren't bad IOTL.
 
For those who don’t know, the US experienced a major recession during 1920-1921 (in fact the initial stages of this recession completely dwarfed the initial stages of the Great Depression), but president Warren G. Harding handled the recession very well, leading to a short recovery.

Harding's role has IMO been much exaggerated and the nature of the 1920-21 depression misunderstood. To quote an old post of mine at https://www.alternatehistory.com/fo...-the-20th-century.339057/page-2#post-10126561:

***
In the past when I discussed Harding online, it was to defend him against his detractors, and especially against the absurd rating of him by some historians as the worst president in history (which is obvious nonsense when one considers that Pierce and Buchanan made either disunion or a bloody civil war all but inevitable) and to call attention to his real accomplishments.

However, more recently I have had to dissent from what has become a popular theme among conservatives and libertarians--the idea that Harding was an economic genius who cured the 1920-21 depression through wisely applying laissez-faire economics, cutting spending and taxes, and declining to use "interventionist" measures like those used by Hoover and FDR in the Great Depression.

For a critique of this Austrian-school Hardingolatry, see Daniel Kuehn, "A critique of Powell, Woods, and Murphy on the 1920-1921 depression" in *The Review of Austrian Economics*, Volume 24, Number 3, 273-291. To oversimplify, Kuehn's main point is that in order to curb inflation the Federal Reserve steeply raised interest rates before the Depression--and then helped end the Depression by lowering them. Under those circumstances, Kuehn argues, fiscal stimulus would not, even by Keynesian standards, be appropriate. Kuehn also notes that the budget-balancing and spending cuts began with Wilson, not Harding, and that while federal income tax *rates* were cut in 1921-2 this was offset by an expansion of the income subject to taxation at any given rate:

"As Woods (2009) points out, President Harding agreed with the Federal Reserve on the need for 'intelligent and courageous deflation' (Harding 1920). However, the Harding administration's role in the facilitation of price deflation was marginal at best. By the time Harding called for 'intelligent and courageous deflation,' the New York branch of the Federal Reserve had already raised the discount rate to the 7% plateau that would be maintained for the ensuing year. Harding's election in November of 1920 roughly coincided with the halfway point in Strong's high discount rate policy. The trough in industrial production was in March 1921, the month that Harding was inaugurated. Thus, despite his forceful campaign rhetoric, Harding did not play a significant role in the painful, but necessary, deflation of 1920-1921. The emphasis that Powell (2009) and Woods (2009) place on Harding's role in liquidating malinvestments with a contractionary fiscal policy is therefore consistent with Harding's personal outlook on economic policy, but it is historically inaccurate. Instead, the impact of the Harding administration during this time period must be assessed by examining his fiscal policy during the recovery, rather than the initial deflation.

"While active monetary policy seems to have had the most decisive influence on the 1920-1921 deflation, the fiscal policy of the Wilson administration should also be taken into account. Wilson's most important contribution to the deflation was to balance the federal budget. The 3-month moving average of the difference between federal expenditures and federal tax receipts turned and remained positive (indicating a budget surplus) in November 1919. Thus, net federal borrowing ceased 7 months before Harding vowed to 'strike at government borrowing,' 12 months before he was elected to office, and 24 months before Harding passed his first budget.

"Although modern Keynesians place greater emphasis on the federal deficit than on federal spending, an almost identical narrative is provided by spending data; the Wilson administration cut expenditures dramatically before the 1920-1921 depression and before Harding took office. The claim of Woods (2009) that 'instead of 'fiscal stimulus,' Harding cut the government's budget nearly in half between 1920 and 1922' obscures the fact that federal spending was falling precipitously over the course of 1919 and 1920. When Harding took office in March of 1921, the Wilson administration had already reduced monthly federal spending to 17% of its war-time high. The bulk of this reduction was achieved by the end of 1919. While it is certainly true that the Harding administration would reduce spending further, the cuts were not as substantial as the cuts made by the Wilson administration immediately prior to the downturn. The use of annual data of Woods (2009) instead of monthly data is misleading because spending was still being winnowed down over the course of the 1920 fiscal year. It gives the false impression that most of the adjustment to federal spending occurred during the depression, when in fact most occurred well before the downturn began...

"Powell (2009) and Woods (2009) suggest that the Harding administration's decision to cut income taxes was instrumental to the recovery which began in 1921 and continued in earnest the following year. This is a misleading account of the Harding administration's tax policy. The Harding administration did cut tax rates for higher income families in 1922 the highest bracket's rates were reduced from 73% to 58%) and implemented an across the board rate reduction in 1923 (from 58% to 43.5% for the highest bracket and from 4% to 3% for the lowest bracket). However, these rate cuts were accompanied by a considerable expansion of the income taxable at any given rate (Internal Revenue Service 2010). For example, while the top bracket's rate was reduced by 15% points from 1921 to 1922 in Harding's Revenue Act of 1921, the income taxable at that rate was expanded from all income over $1,000,000 to all income over $200,000. Therefore, while the tax rates were lowered, the amount of income that these tax rates were assessed against was considerably increased by the Harding administration. The net effect was that from 1921 to 1922, the period of the initial Harding tax 'cut,' the percent of individual income collected as revenue through the income tax actually increased from 3.67% to 3.95% (Internal Revenue Service 2010). While this expansion of the tax burden under Harding is not particularly large, it belies claims by Powell (2009) about a tax cut during the economic recovery. After 1922, further rate cuts assessed on the same income brackets did result in a decline in the tax burden from 1922 to 1923. The early Harding administration saw increasing income tax burdens for a variety of reasons, not the least of which being the restored economic growth, which pushed more families into higher tax brackets. However, the statutory expansion of these tax brackets in Harding's Revenue Act of 1921 represented a deliberate, though modest, tax increase in the interest of maintaining a balanced federal budget...[The] brief decline in the tax burden that occurred in 1923 came too late to be considered as a factor in the recovery from the 1920-1921 downturn.." p://www.springerlink.com/content/5683j4v650187261/fulltext.html
 
Harding's role has IMO been much exaggerated and the nature of the 1920-21 depression misunderstood. To quote an old post of mine at https://www.alternatehistory.com/fo...-the-20th-century.339057/page-2#post-10126561:

***
In the past when I discussed Harding online, it was to defend him against his detractors, and especially against the absurd rating of him by some historians as the worst president in history (which is obvious nonsense when one considers that Pierce and Buchanan made either disunion or a bloody civil war all but inevitable) and to call attention to his real accomplishments.

However, more recently I have had to dissent from what has become a popular theme among conservatives and libertarians--the idea that Harding was an economic genius who cured the 1920-21 depression through wisely applying laissez-faire economics, cutting spending and taxes, and declining to use "interventionist" measures like those used by Hoover and FDR in the Great Depression.

For a critique of this Austrian-school Hardingolatry, see Daniel Kuehn, "A critique of Powell, Woods, and Murphy on the 1920-1921 depression" in *The Review of Austrian Economics*, Volume 24, Number 3, 273-291. To oversimplify, Kuehn's main point is that in order to curb inflation the Federal Reserve steeply raised interest rates before the Depression--and then helped end the Depression by lowering them. Under those circumstances, Kuehn argues, fiscal stimulus would not, even by Keynesian standards, be appropriate. Kuehn also notes that the budget-balancing and spending cuts began with Wilson, not Harding, and that while federal income tax *rates* were cut in 1921-2 this was offset by an expansion of the income subject to taxation at any given rate:

"As Woods (2009) points out, President Harding agreed with the Federal Reserve on the need for 'intelligent and courageous deflation' (Harding 1920). However, the Harding administration's role in the facilitation of price deflation was marginal at best. By the time Harding called for 'intelligent and courageous deflation,' the New York branch of the Federal Reserve had already raised the discount rate to the 7% plateau that would be maintained for the ensuing year. Harding's election in November of 1920 roughly coincided with the halfway point in Strong's high discount rate policy. The trough in industrial production was in March 1921, the month that Harding was inaugurated. Thus, despite his forceful campaign rhetoric, Harding did not play a significant role in the painful, but necessary, deflation of 1920-1921. The emphasis that Powell (2009) and Woods (2009) place on Harding's role in liquidating malinvestments with a contractionary fiscal policy is therefore consistent with Harding's personal outlook on economic policy, but it is historically inaccurate. Instead, the impact of the Harding administration during this time period must be assessed by examining his fiscal policy during the recovery, rather than the initial deflation.

"While active monetary policy seems to have had the most decisive influence on the 1920-1921 deflation, the fiscal policy of the Wilson administration should also be taken into account. Wilson's most important contribution to the deflation was to balance the federal budget. The 3-month moving average of the difference between federal expenditures and federal tax receipts turned and remained positive (indicating a budget surplus) in November 1919. Thus, net federal borrowing ceased 7 months before Harding vowed to 'strike at government borrowing,' 12 months before he was elected to office, and 24 months before Harding passed his first budget.

"Although modern Keynesians place greater emphasis on the federal deficit than on federal spending, an almost identical narrative is provided by spending data; the Wilson administration cut expenditures dramatically before the 1920-1921 depression and before Harding took office. The claim of Woods (2009) that 'instead of 'fiscal stimulus,' Harding cut the government's budget nearly in half between 1920 and 1922' obscures the fact that federal spending was falling precipitously over the course of 1919 and 1920. When Harding took office in March of 1921, the Wilson administration had already reduced monthly federal spending to 17% of its war-time high. The bulk of this reduction was achieved by the end of 1919. While it is certainly true that the Harding administration would reduce spending further, the cuts were not as substantial as the cuts made by the Wilson administration immediately prior to the downturn. The use of annual data of Woods (2009) instead of monthly data is misleading because spending was still being winnowed down over the course of the 1920 fiscal year. It gives the false impression that most of the adjustment to federal spending occurred during the depression, when in fact most occurred well before the downturn began...

"Powell (2009) and Woods (2009) suggest that the Harding administration's decision to cut income taxes was instrumental to the recovery which began in 1921 and continued in earnest the following year. This is a misleading account of the Harding administration's tax policy. The Harding administration did cut tax rates for higher income families in 1922 the highest bracket's rates were reduced from 73% to 58%) and implemented an across the board rate reduction in 1923 (from 58% to 43.5% for the highest bracket and from 4% to 3% for the lowest bracket). However, these rate cuts were accompanied by a considerable expansion of the income taxable at any given rate (Internal Revenue Service 2010). For example, while the top bracket's rate was reduced by 15% points from 1921 to 1922 in Harding's Revenue Act of 1921, the income taxable at that rate was expanded from all income over $1,000,000 to all income over $200,000. Therefore, while the tax rates were lowered, the amount of income that these tax rates were assessed against was considerably increased by the Harding administration. The net effect was that from 1921 to 1922, the period of the initial Harding tax 'cut,' the percent of individual income collected as revenue through the income tax actually increased from 3.67% to 3.95% (Internal Revenue Service 2010). While this expansion of the tax burden under Harding is not particularly large, it belies claims by Powell (2009) about a tax cut during the economic recovery. After 1922, further rate cuts assessed on the same income brackets did result in a decline in the tax burden from 1922 to 1923. The early Harding administration saw increasing income tax burdens for a variety of reasons, not the least of which being the restored economic growth, which pushed more families into higher tax brackets. However, the statutory expansion of these tax brackets in Harding's Revenue Act of 1921 represented a deliberate, though modest, tax increase in the interest of maintaining a balanced federal budget...[The] brief decline in the tax burden that occurred in 1923 came too late to be considered as a factor in the recovery from the 1920-1921 downturn.." p://www.springerlink.com/content/5683j4v650187261/fulltext.html
Woah man, chill :coldsweat:. I was just asking about a potential what if and not a debate on Keynesian vs. Supply-Side Economics. Sure you could argue your point but making a whole research paper on it was a bit unnecessary.
 
Woah man, chill :coldsweat:. I was just asking about a potential what if and not a debate on Keynesian vs. Supply-Side Economics. Sure you could argue your point but making a whole research paper on it was a bit unnecessary.

Well, actually Keynesian vs. Austrian. But the point is that if the depression was caused by a deliberate deflationary policy by the Fed (raising interest rates) then it is fairly easy for the Fed to cure the depression (by lowering the rates once the back of inflation had been broken). This is not rocket science, and it therefore is not likely that the depression will be too prolonged regardless of who is in the White House.
 
If you take the long view of economic trends, particularly in industrial development and capitol investment, along with labor movement from skill to skill, or between demand points. then the Depression as a large scale event was already underway globally from at least the mid 1920s, if not earlier. When looking at over capitalized and over capacity 'mature' industries or economic sectors, and new segments there is what looks like of perfect storm of economic volatility, or outright chaos created by a unusually large number of mature non growth sectors shedding labor, and returns, faster than new industrial sectors could compensate. One example is how in the 1920s the US (and probably Germany) hit the tipping point between population and labor in the rural agricultural sectors, and in the urban industrial sectors. This era was at or near the peak in rapidity of shift in population/labor from agriculture to urban industrial employment. Or at least urban unemployment. Men & women with relatively high skills in agriculture became marginally employable when forced to move to the city and take low wage entry level work. This represented a long term loss in spending power by a growing segment of the population. It also hindered growth in new industrial sectors through dealing with a labor pool with insufficient numbers of essential skills.

Of course such large events like the global depression are not 'single cause' occurrences. The after effects of the Great War, the loss of the former Russian Empire to the global economy (the Soviet Autarky damaged a lot more than Russia) the ongoing warfare & chaos in China, ect... aggravated the core problem of industrial transition.
 
Considering the size and influence of the Ku Klux Klan in the 1920's in OTL they would be very well positioned to take advantage of the upheaval of a depression.
 
Considering the size and influence of the Ku Klux Klan in the 1920's in OTL they would be very well positioned to take advantage of the upheaval of a depression.
That is a major danger. Some writer like James W. Löwen consider the 1920s the absolute nadir of American race relations. from sundown towns to lynchings to race riots. If there had been a depression there would likely have been efforts in the North to empty the ghettoes of blacks and everywhere to repeal the (ineffective) Fifteenth Amendment. The basic goal – unchanged since the 1830s – was to make sure all blacks are bound farmworkers on plantations in the South. Of course, maintaining such a state even in a largely KKK-ruled United States would have required much more effective control of the boll weevil in this era. Minus better boll weevil control there could easily have been mass unemployment and possibly a genocide of African-Americans comparable to the Holocaust.

Much more effective boll weevil control is of itself another topic that is seldom proposed in the domain of alternate history.

It is certainly possible the the KKK – which all but ruled some states as it was in the 1920s – would have gained a much tighter hold on power had a depression come permanently in 1920. Quite likely, the Ku Klux Klan would have been able to rule all of the United States outside of the urban and heavily Catholic parts of the Northeast, and a few heavily Catholic areas of Louisiana and Southwest. Even in these areas there would have been powerful challenges from the KKK, as was seen in Louisiana.

If a prolonged 1920s Depression spread to Europe, it is certainly possible that Communism could have had more appeal and more chance of success – whether by election or revolution – in Western Europe. We could also have seen a Spanish Civil War against Primo de Rivera, quite likely (in the absence of aid from Nazi Germany and possible from Fascist Italy) leading to a radically “Republican” Spain allied to the USSR. Under this circumstance, the US’ only allies in Europe could have come from Portugal and the underdeveloped Eastern European countries, and even Portugal would not be certain if a radical government establishes in Spain.
 
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