A note on America's 1920--21 depression as an argument for austerity

This note argues that recent interest in the 1920--21 depression in the USA as a historical precedent for austerity is inappropriate. Most of the austerity measures preceded the depression, which had already begun receding by the time Warren Harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity. The evidence suggests that the 1920--21 depression was the result of a variety of supply constraints, rather than a deficiency of effective demand, and is therefore a poor test of the efficacy of Keynesian fiscal policy. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.