Harding, Warren (Administration)

MANY HOLD A DIM view of the Warren Harding administration. Some historians rank his administration as the worst in U.S. history. Yet this was not always the case, and others dispute the opinions of his critics. Harding was popular during the early part of his presidency, but his standing fell by the end of his administration and declined further with the passage of time. This was mostly because of scandals involving top members of his administration.

Warren Harding came from a modest background in Blooming Grove, Ohio, yet ultimately rose to the presidency. He attended Ohio Central College and undertook a brief and unsuccessful venture into the insurance [Page 459]business. He then bought a small newspaper—the Marion Star—and made it into a success. This led to rapid political success. Harding was elected state senator in 1899, lieutenant governor in 1902, and a U.S. senator in 1914.

Harding won the election of 1920 in a landslide. In his inaugural address he pledged himself to fiscal austerity and low taxes. By the time Harding took the oath of office in January 1921, the wartime economic boom had given way to depression. Unemployment had been 1.4 percent in 1919. In 1920 it rose to over five percent. In 1921 unemployment peaked at 11.7 percent and industrial production slowed. Heavy industry suffered the worst losses. Employment in the iron and steel industries was cut in half. Other heavy industries suffered similar employment losses. Prices and wages fell during this period of deflation. The poverty resulting from this depression was severe but temporary.

The Harding administration acted to reduce government involvement in the economy during the 1920–21 crises. This administration and Congress cut federal spending massively, reduced tax rates, and ended many wartime controls on industry. In 1920 federal spending was $6.357 billion. It fell to $5.061 billion in 1921, 3.389 billion in 1922, and $3.140 billion in 1923. Harding vetoed a soldier's bonus bill sponsored by the American Legion. In November 1921 marginal income tax rates were cut by 13.8 percent. Tax revenue fell, but not as much as spending, so the budget surplus rose and total public debt fell from $24.299 billion in 1920 to $22.349 billion in 1923.

One exception to Harding's laissez faire policies was his support of the Fordney-McCumber tariff act of 1922. This was a highly protectionist tariff. Harding also increased the power of the presidency relative to Congress with the creation of the Bureau of the Budget.

The economy began to recover in the second year of the Harding administration. The end of the depression of 1920 meant renewed growth, low unemployment, and growing prosperity. Unemployment fell to 6.7 percent in 1922 and 2.4 percent in 1923. Of course, the prosperity of the early 1920s was not uniform. Many farmers endured hard times during the 1920s. There was also an increase in income inequality. Harding opposed measures to redistribute income through progressive income taxation.

The fact of the matter was that most increased inequality of this time resulted from investment income in financial markets, especially from the stock market boom. Labor income was not the source of rising inequality, so it made no sense, even for those who wanted to reduce inequality, to redistribute through income tax rates.

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