"In a recent paper in the Cambridge Journal of Economics, Daniel Kuehn storms into the face of austerity hawks by arguing that the 1920-21 recession - heralded by many as a poster-boy for austerity measures – is not applicable."
- from a post by Vincent Geloso
I still wished I had explained the supply shock argument a little better (i.e. - reproduce with ample citation Romer's excellent treatment and share a few other things on agriculture at the time that I dug up). The tight money policy was an aggregate demand shock, and the tight money policy did really put the economy into a nose-dive, so you have to be careful in talking about it as a supply-side downturn. And there was a good reason why they did that: to bring the price level back in line. The reason why it doesn't really give us much guidance about fiscal policy is that monetary policy had a ridiculous amount of maneuvering room (which it took advantage of even before Harding came into office), and their was no demand shock to speak of except for the one that Benjamin Strong was already in the process of removing.