Sunday, March 10, 2013

“Coolidge – A Primer for Obama”

Sydney M. Williams

Thought of the Day
“Coolidge – A Primer for Obama”
March 11, 2013

“I am for economy. After that I am for more economy.” Generations of Americans have been taught that it was a frugal, laissez-faire, “Silent Cal” who served as our 30th President. “Weaned on a pickle,” was the way Alice Roosevelt Longworth once impolitely described him. Certainly Calvin Coolidge favored business, was careful with a dollar, and  was equally careful (and short) in conversation, but there was much more to the man. Amity Shlaes has corrected that perception in her tersely titled biography, Coolidge, and provided an illuminating portrait of a President who was highly popular during his five and a half years in office. He ended America’s military expeditions in Central America and brought prosperity to millions at home. While the times are very different from that long-ago age, there was much in his beliefs and conduct that are universal and timeless. Mr. Obama would be wise to read this book.

One of the more timely anecdotes in Ms. Shlaes’ biography is the point where Mr. Coolidge (who was not schooled in economics) realizes that tax cuts will expand the economy; thereby generating more revenue. Mr. Coolidge came to office determined to reduce the debt (a product of World War I), eliminate the deficit and reduce  government’s annual budget. He accomplished all three. In doing so, the economy experienced unprecedented growth.

Ms. Shlaes writes of Mr. Coolidge: “One could look at the economy as a fraction. On top was the numerator, the government. On the bottom was the general economy…Coolidge had been focusing on the numerator, the government, making it smaller relative to commerce. But you could also get the same result by concentrating on the mysterious denominator. Growth in commerce, in the end, was the goal…” Treasury Secretary Andrew Mellon believed in what he called “scientific tax cuts” – what we call supply side economics. Mr. Coolidge and Mr. Mellon noted that the lowered tax rates on the wealthy actually generated more revenues. Ms. Shlaes writes: “A greater portion of the income tax came from top earners than had at the beginning of the decade. In 1927, those earning $50,000 – a tremendous sum – would pay almost 80% of the income taxes, whereas in 1920 those top earners paid about half.” The top tax rate was brought down from 70% to 25%. Charles Johnson, quoted in Sunday’s New York Post and author of Why Coolidge Matters, noted: “But even liberals may find something to like in the Coolidge boom; the tax code became more progressive. Those making less than $5000 a year paid 15.4% of total income taxes in 1920, but only 0.4% in 1929.” Lowering tax rates and simplifying the code helps drive economic growth.

The story of the 1920s is familiar to us today – only in reverse. In place of lowering tax rates, Mr. Obama raised them. Instead of simplifying regulation, the Obama Administration has added to them. Regulations cost American business about $1.75 trillion a year – almost half the annual budget for the federal government, and almost 15% of GDP. Last year’s fiscal cliff was averted when Congress agreed to Mr. Obama’s demand that higher taxes should be levied on the rich, in the interest of “fairness.” They were, and now he wants more. During Mr. Obama’s tenure, the size of government relative to GDP has expanded, total debt is 60% higher than when he took office, deficits are deeper, more people are living in poverty and there are fewer people working.

Mr. Obama’s approach to the recession that ended four years ago has been more like that of Presidents Hoover and Roosevelt during the Depression. Both sought bigger government and raised taxes. Additionally, Mr. Hoover worsened things by signing the Smoot-Hawley Tariff, and Mr. Roosevelt did the same with a raft of new regulations. While it is impossible to re-write history, what we do know is that the policies of both men did nothing to alleviate the suffering of so many affected by the Great Depression and, in my opinion, made things worse. Unemployment peaked around 1933 at 25%, but was still 15% when we entered the War eight years later. The unlearned lesson by so many on the Left is that redistribution only shuffles the deck. It is the expansion of the deck that is wanted, and that is only possible with economic growth. And economic growth stems from the private sector.

My start at school coincided with FDR’s death and the end of World War II. At that time, Roosevelt was idolized; Hoover was reviled and Coolidge was ignored. The fact that Roosevelt’s domestic policies had done very little to staunch the Great Depression did not concern his admirers. Despite his aristocratic heritage and bearing, Mr. Roosevelt was able to identify with the common man. His fireside chats comforted people and he deservedly earned credit for his role in defeating Germany and Japan. With the aid of functionaries and abetted by a compliant press, he was elevated to a God-like status. It is an image that persists to this day and one that beckons those like our President. But those images are at odds with the facts. In an earlier book, The Forgotten Man (that should be read in conjunction with Coolidge) Amity Shlaes corrects many of those misperceptions.

We live in a far different time than the Coolidge Presidency. At that time, federal government spending, as a percent of GDP, was smaller than that of the combined forty-eight states. Today the budget of the federal government is roughly two thirds larger than that of all fifty states.. State’s rights were considered far more sacrosanct ninety years ago than today. Federally supported social safety nets did not exist. They were assumed to be the responsibility of states, local government, community organizations and well-off individuals. While the United States was the world’s largest economy by the mid 1920s, she did not have the responsibility for global security she bears today.

There are also cultural differences between then and now, some of which could and should be regained – for example, attitudes toward personal responsibility and debt. President Coolidge was accused of meanness when he stood firm on principle in refusing federal dollars for the victims of floods in Mississippi and Vermont in 1927; it cost him dearly, especially as so many of his Vermont neighbors had been terribly impacted. But how could he help those in his home state when he had not helped those in the South? He believed strongly in the principle of state’s rights, that the responsibility lay with the state, even when a disaster had national consequences. Was he wrong? Perhaps. But he was parsimonious by nature, and he was fully cognizant that government’s money belonged to the people, not the politicians. He was a steward, not a saviour. He saw himself as President, not an autocrat, and was fully aware that the word president derives from the Latin praesideo, which means to guard or protect. It was an attitude toward the Office that, unfortunately, has gone out of fashion. Today our Presidents are far more imperial in attitude and action, surrounded as they are by yes-men and women. And Mr. Obama is certainly the most imperious we have had since Nixon.

As Mr. Coolidge, Andrew Mellon and budget director Herbert Lord worked to reduce the debt incurred during World War I. They were aware of the effects cuts would have on the lives of people; for example the effect of not granting bonuses to World War I veterans. He viewed such promises as a slippery slope. One can contrast his concern with the exaggerated fears expressed by Mr. Obama as to the consequences of sequestration. Even with implementing half of the $85 billion in forced cuts, 2013’s budget will exceed 2012’s. As Senator Coburn noted in a pointed op-ed in Friday’s Wall Street Journal, there are literally thousands of programs that could be cut, without denying 5th graders a tour of the "people’s White House," or causing millions to spend an extra hour going through security at the nation’s airports. Had he been more like Mr. Coolidge, Mr. Obama would first have admitted ownership of the sequester and, second, would have explained it was the unfortunate consequence of a failure on the part of both Parties to come together, but that he, as President, would ensure that it would have as little effect as possible. Instead he has emphasized its harshness.

What threatens the United States more than anything else is not al Qaeda, or a nuclear armed Iran or North Korea. It is the enemy within. It is debt. It might even be said that the problem we face has origins in the inherent decency of Americans – to improve life for those around us, particularly the sick, elderly and impoverished; though I suspect that it also emerged from a darker sense of political opportunism. Similarly, unions risk bankrupting states and municipalities with unrealistic demands. It is these promises, written on the backs of our grandchildren, that threaten to undo us. Without significant change, we have no way of honoring past and present commitments to those in need. Social Security and Medicare and Medicaid consumed 45% of the 2012 budget. Interest expense was another 6%. Discretionary spending was a mere 17%. Given an aging population, with 10,000 baby boomers retiring every day, Social Security and Medicare will continue to expand as a percentage. Persistent deficits and normalized interest rates could easily result in interest expense doubling. We cannot walk away from our obligations, but we need to make adjustments – raising the age of retirement, means-testing, etc. And government workers, whether elected, appointed or just hired, must be made fully aware that they serve as servants to the people, and that the dollars they spend are only available because of the hard work of those in the private sector.

I don’t pretend to have answers, other than to say that the sooner we admit the creek we are up the better. There is an urge to play ostrich. My mother-in-law used to quote from an old poem by Elizabeth Allen, Rock me to Sleep: “Backward, turn backward, O time in your flight. Make me a child again, just for tonight.” Troubles often make us wish to return to the womb; unfortunately that is impossible. But what is possible is a re-reading of Coolidge and the application of the common sense solutions he advocated to the problems we face today. Mr. Obama, take heed.

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