Yesterday, Paul Krugman had another quick post on Harding and the 1920-1921 depression. It's been odd how the timing on his posts has worked - last time he commented on it, my RAE article just came out, so I sent it to him and he linked to it. This time, too, he posted shortly after my CJE article came out, so I sent that to him as well, and then I got another link!
I suggested if he was short on time he scroll down to the figure - I thought he'd like that.
I do want to clarify something on the passage he cites. It makes it sound like I may even think that post-war austerity caused the 1920-21 depression. That was certainly something you heard at the time (and a big part of the reason why a few people thought there might be a depression after WWII). I don't actually think it's quite that simple, myself - and I don't want people to be thrown by the passage Krugman cited. In my opinion Christina Romer (1988) has amply demonstrated that demand shocks had little to do with the 1920-21 depression. I agree. What I think is reasonable to say is that the sort of demand shock implicit in the rapid demobilization might have made things a little worse than they would have been to boot. That was really the intention of that passage.
Certainly if fiscal austerity was an important determinant of recovery, as some claim, the deep cuts of the Wilson administration should have prevented us from ever falling into the 1920-21 depression in the first place!