Let's set the stage. After 25 years of economic growth, the U.S. stumbles into a recession and double-digit unemployment. An unpopular war aggravates the crisis; the national debt skyrockets. In response, the nation elects a fresh face: a first-term U.S. senator from a Midwestern state, with a vice president from an Eastern state. They promise hope and change; their party builds a formidable coalition of blacks, whites, and immigrants, and sweeps both houses of Congress. After his election, we had a President's Conference on Unemployment to deal with the job crisis. What emerged was a sensational plan: a stimulus package to create jobs -- especially infrastructure jobs -- and thereby attack unemployment directly.
Sound familiar? It should. The year was 1921, and the newly elected President Warren G. Harding and Vice President Calvin Coolidge faced many of the same issues as Barack Obama and Joe Biden 88 years later. What's different is how these men responded. Coolidge and Obama embody two starkly contrasting visions of economic order.
Over the last century, all presidents have bought in to one of these two visions. Harding, Coolidge, and Ronald Reagan were constitutionalists. Limit the government, they argue, and let entrepreneurs and free markets create growth. By contrast, Barack Obama and most of his predecessors -- especially Franklin Roosevelt -- have been interventionists. Government planning, federal spending, and a Keynesian fine-tuning of the economy are the methods they choose to spark the economy and sustain prosperity.
In the case of the 1921 recession, unemployment had indeed soared to 11.7 percent, and industrial income had fallen almost 25 percent in one year alone. But Harding and Coolidge (who became president in 1923 when Harding died) were constitutionalists. They opposed the popular stimulus scheme to use tax dollars to build public works. "The excess stimulation from that source," Harding insisted, "is to be reckoned a cause of trouble rather than a source of cure." They epitomized what President Obama would later call "The politics of No."
But what they said yes to was cutting income tax rates and slashing federal spending. That kind of discipline, they argued, would unleash entrepreneurs, reduce the federal debt, and release human energy for recovery.
Andrew Mellon, their secretary of the treasury, was a banking genius. He had helped launch Alcoa, Gulf Oil, and many other corporations. He designed the plan to cut tax rates and federal spending. In making his case, he made the astonishing claim that cutting tax rates might actually increase revenue. "It seems difficult to understand," he said, "that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates."
When Mellon's prediction was attacked, Coolidge came to the rescue. "I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayers will be left to bear the entire burden."
With Congress in Republican hands, Harding, Coolidge, and Mellon began to implement their free market plans piece by piece. Therefore, the 1920s budgets showed surpluses every year, and income tax rates were chopped across the board, leaving the wealthiest Americans paying at a 25 percent marginal rate. The results were spectacular. By 1923, unemployment had plummeted to 2.4 percent. From 1921 to 1929, GNP soared a remarkable 48 percent, the "average annual earnings of employees" rose 34 percent, and almost one-third of the national debt simply disappeared.
Entrepreneurs enjoyed one of their most creative periods in U.S. history: from radios to sliced bread to Scotch tape, inventors marketed new products. Older inventions finally secured the capital to emerge: air conditioners, refrigerators, vacuum cleaners, and zippers thus found their way into millions of households across America. U.S. patent numbers were higher in 1929 than in every year thereafter until 1965.
Calvin Coolidge became an American icon. His reelection in 1924 was so overwhelming that the Democratic Party, with a mere 28.8 percent of the vote, appeared near death. In Coolidge's six years as president, he averaged 3.3 percent unemployment and less than 1 percent inflation -- the lowest misery index of any president in the 20th century.
ONE MIGHT THINK that Coolidge's spectacular success would have ended the economic debate. The constitutionalists had triumphed. Instead, after 1929, the interventionists, starting with Herbert Hoover, dominated American politics for the next 50 years. Hoover, who had been secretary of commerce in Coolidge's cabinet, often dissented from the president. In turn, Coolidge labeled him "Wonder Boy" and said privately, "That man has offered me unsolicited advice for six years, all of it bad." Hoover believed that targeted intervention could improve the economy without losing any of the gains from Coolidge's free markets.
Once in office, Hoover signed the highest tariff in U.S. history and then started a flow of federal subsidies (and loans) to farmers, bankers, industrialists, and those unemployed. The Federal Reserve, which is somewhat independent of the president, also intervened and contributed to the Great Depression that followed, by raising interest rates and shrinking the money supply. As the country wallowed in federal deficits, Hoover signed a bill raising income taxes to a top marginal rate of 63 percent. Entrepreneurs retrenched, and jobs rapidly disappeared.
With unemployment at 25 percent in 1932, Gov. Franklin Roosevelt of New York, the Democratic nominee for president, was poised to oust Hoover from office. In doing so, FDR decided to campaign as a constitutionalist, someone much less interventionist than Hoover.
Calvin Coolidge could have written FDR's campaign speech in Pittsburgh two weeks before the election. Hoover's deficits, FDR announced, were "so great that it makes us catch our breath." Such spending was "the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime Government, anywhere, any time." Of Hoover's tax hikes, FDR concluded that such a burden "is a brake on any return to normal business activity. Taxes are paid in the sweat of every man who labors because they are a burden on production and are paid through production. If those taxes are excessive, they are reflected in idle factories...."
Mellon was from Pittsburgh, and if he had been in the audience that day he would have cheered. You can't create jobs by taxing one group and giving to another -- you can only redistribute existing wealth. To create wealth, you had to cut tax rates, not raise them. That was the chief premise of the constitutionalists.
Letter to the Editor
Burton Folsom, Jr. is professor of history at Hillsdale College and author of New Deal or Raw Deal? (Simon & Schuster, 2008).
Interest Rates » The American Spectator : Obama's Vision Through History links to this page. Here’s an excerpt:
Paying On Time - Credit Cards » Obama's Vision Through History - Spectator.org links to this page. Here’s an excerpt:
The American Spectator : Obama's Vision Through History | Insurance mesothelioma stru links to this page. Here’s an excerpt:
Silent Cal is my favorite president, far more than Reagan or George Washington. Silence isn't merely golden; it is worth more than all precious metals-- in fact all precious metals and jewels are worthless compared to silence. And as the chattering classes become more chattery, silence will appreciate in value.
Cal is certainly my favorite of the 20th century. Totally underrated by historians.
underrated by everyone save for paleos.
The American Spectator : Obama's Vision Through History links to this page. Here’s an excerpt:
The American Spectator : Obama's Vision Through History : PlanetTalk.net - Learn the links to this page. Here’s an excerpt:
I've said it a number of times, but it needs repeating. Regardless of the seeming similarities of FDR's policies and Obama's policies...FDR was a patriotic American. OBAMA AIN'T!
FDR screwed up for whatever wrong-headed reasons, but Obama and crew are not screwing up at all. They are trying very hard to tear this republic apart.
Ken, FDR like Obama was motivated by arrogance and a desire to control others. His administration purposely worked to create soft despotism with FDR the Hugo Chavez of the 1930's. FDR was worse than Obama and his patriotism was forced upon him by the Japs.
All In One Information » The American Spectator : Obama's Vision Through History links to this page. Here’s an excerpt:
Ken,
You are way too kind to FDR. I beg to differ on the reasons FDR did what he did. They were not unintentional at all and we are still paying the price, esp. in regards to precedent vis a vis the Constitution.
I agree -
I question FDR's patriotism. He had to know the violence he was doing to the Constitution and the American economy. He just didn't care - power and re-elections were more important.
The American Spectator : Obama's Vision Through History | americantoday links to this page. Here’s an excerpt:
Note the success the Dems have had in demonizing ninety years of Republican Presidents: Harding a fool and crook, Coolidge a tight-fisted mediocrity, Hoover the devil incarnate until Nixon came along to replace him, Reagan a senile bumbler whose only worthwhile accomplishment was owed to Gorbachev, G H W Bush uncaring, Dubya a stupid cowboy.
Only the war hero Eisenhower has entered history relatively unscathed.
More than anything else, it's propaganda that allows the Dems to compete successfully on the national scene. In other words, though they often (usually?) fail at policy they succeed in the public mind by being effective liars.
Dai part of the problem as we witnessed during the Reagan (despite his now iconic position) and both Bush administrations conservatives too often work hand in glove with Democrats disparaging Republicans, because they to often prefer bitching over governing. Obama is as much a creation of the 2005 conservative crack up as any thing else.
" Hoover the devil incarnate until Nixon came along to replace him,"
LBJ's administration midwifed Watergate, both in paving the way (a)morally, and LBJ's catastrophic personal mis-micromanagement of Vietnam War.
African American Collectible Porcelain Doll Angelique | The African Art Store links to this page. Here’s an excerpt:
Well, you guys may be right regarding FDR, but I must place the man in his time and his world.
Outright socialism was all the rage ...worldwide... Question: was FDR trying an "American" answer to totalitarianism via communism or Nazi ism... Sort of a "backblaze" so to speak?
FDR and I both had polio. (thank goodness I recovered 90% and went on to play baseball through college.) In FDR's early days...there WAS no safety net for disabled people and widows. I don't mind providing a safety net. I'm willing to be taxed reasonably for it... just a perspective, guys. Thank you for your forbearance.
Twitter Trackbacks for The American Spectator : Obama's Vision Through History [spec links to this page. Here’s an excerpt:
Warren Harding was an outstanding president and a conservative president. That's why the Left derides him.
A new WPA for 2009 is a chain gang solution to joblessness. Obama said: the interests of community are more important than are the interests of the individual. He promised change. Change must then mean to abandon individual freedom. The chain gang is one way to do so. You can call his ideas left, socialist, communist, fascist, monarchist or any others that turn you on, but in reality, there are only two different political forms. The oldest is where the few elite rule the many, part of all those labels. They have always favored a chain gang. The newest is where the many rule themselves, guided by a moral consensus and written law, i.e., individual freedom. Conservatives and libertarians say the interests of individuals are more important than are those of the community. They believe when individuals prosper, their families and communities prosper and government works best staying out of their way. Modern Democrats believe community interests are most important. They claim they can better define and govern community interests. They expand the role of government to serve those interests and as a few elite, will rule the many. This is the center of Obama's chain gang. Claysamerica.com
And these people are ivy league educated and still continue down the path to idiocy.....stupid, stupid, stupid.....Vote em all out 2010/2012
TJ In the words of a friend of mine..."you betcha'!!!
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