Return of the Roaring Twenties?November 9, 2019
Recently I’ve heard some talk about the return of the Roaring Twenties over our next decade and it caused me to want to dig into what happened in the 1920s that made it the Roaring Twenties. I felt that was where I should start to begin to have an opinion on whether or not we could see another Roaring Twenties over the next 10 years.
To review what went on in the decade of the 1920s, I went to two different articles and noted that the following events took place:
- On January 16, 1920, the Volstead Act prohibited the sale, manufacture, or transport of any alcoholic beverage. Note that it didn’t prevent consumption. This led to an underground economy for liquor.
- On August 18, 1920, women won the right to vote in America.
- There were multiple recessions in the 1920s. In January 1920, we started a recession that went through July 1921 (recession #1 – 19 months long). Another recession started in May 1923 and went to July of 1924 (recession #2 – 15 months long). In October 1926 a mild recession began that ran till November 1927 (recession #3 – 14 months long).
- Taxes were a hot topic in the twenties. On the personal tax side, in 1920, the tax rate for those earning $1 million dollars was 73 percent (ouch! Almost 70 percent of the the Federal revenue came from income taxes). President Harding then lowered the income tax rate from 78 to 58 percent in 1922. By 1924, the Revenue Act lowered the top tax rate to 46 percent and in 1925 it was lowered again to 25 percent. When Herbert Hoover became president in 1929, he lowered the income tax rate to 24 percent.
- Corporate taxes were also a topic as in 1921, Congress increased the corporate tax rate from 10 percent to 12.5 percent. In 1925, the corporate tax rate was increased to 13 percent and in 1925, it increased again to 13.5 percent. Finally, in 1929, President Hoover lowered the corporate tax rate to 12 percent.
- The average income rose from $6,460 to $8,016 (24% increase).
- On immigration, in 1921 the Emergency Immigration Act restricted the number of immigrants to 3 percent of the 1910 U.S. population.
- In 1923, the stock market began a six year bull market.
- The Fed adjusted the discount rate (from 4 percent to 3.5 percent) in 1927 to help end the recession. In 1928, the Fed raised the discount rate to 5 percent as stock prices rose 39 percent to stop speculation.
- The Great Depression began in August of 1929 and the stock market crashed in October.
In the 1920s, technology and manufacturing were soaring. Cars were becoming more common place, the Government spent approximately $1 billion building new roads, and the airline industry was taking off. For the first time consumers were buying washing machines, radios (60 percent of families had radios), vacuum cleaners and refrigerators. With the automobile and airplane becoming more common, our world became smaller as mail was now using both sources of transportation and we also saw restaurants, hotels, and gas stations popping up because people could now cover longer distances.
After reading the two articles, I can see a lot of similarities in today’s climate to the climate in the 1920s. For one, we live in a fast paced world with a lot of innovation happening. Cars are still very important to our everyday lives but we are changing how those cars are propelled. We see more intervention from the Fed today than in the twenties. Taxes are still a hot topic as well as immigration.
There are a lot of ways to look at the similarities but one thing did stand out and that was the economy always bounces back and we will always have headwinds with day to day business. Perhaps we shouldn’t worry about speculation of future recessions but rather focus on how to continue to grow our businesses in this modern global economy? We know that we are going to have more recessions but that doesn’t mean business and progress will stop. A recession is nothing but a headwind that comes and goes and at times, it’s a tailwind!
What do you think about the Roaring Twenties? Will the next decade be another Roaring Twenties? Feel free to post your comments in the comment section below.
The two articles I referenced are here: