In 1920, America was in a depression. President Warren Harding lowered taxes for all income levels. He cut spending by 50% and reduced the national debt by a 1/3. The Federal Reserve did not pursue an active monetary policy.

The economist Kenneth E. Weiher said of the Federal Reserve, “despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”

It was the closest an economy has ever approached a laissez faire approach to a recession or depression and the results were astounding. The unemployment rate in 1920 stood at 12.7%. However, two years later, it was 2.4%. One can argue that the tax cuts provided fiscal stimulus, but Keynesians believe in spending increases rather than tax reductions because they believe the multiplier is greater, and tax cuts may lead to an increased savings ratio, which Keynes was apoplectic about. This led to the roaring twenties. Some historians argue that the tax cuts of Harding favoured the rich, thus widening inequality, which led to the depression. If wealth inequality caused economic slumps then we would have recessions in perpetuity.

In short, fiscal stimulus is useless.

Nice place. :0)

Yes.