When you think about American presidents, President Calvin Coolidge is not the first name that springs to mind.
Yet according to bestselling author Amity Shlaes, Coolidge could teach us a lot of important economic lessons that would be very valuable to the world today. Amity recently published a book about the president, called Coolidge.
I recently interviewed Amity on my radio show, Goldstein on Gelt.Read the transcript of this interesting interview below.
Douglas Goldstein: What made you write about Calvin Coolidge?
Amity Shlaes: Calvin Coolidge was the 30th president of the United States, serving in the 1920s. The single answer is that today we have a model of president as action figure, as action toy almost. The U.S. president has to jump in everywhere and everything, whether it's a domestic challenge or an international one, and Coolidge was a champion of inaction. He ruled or led by doing little. He wouldn't have even used the word "rule," and yet his results were so good. We had a very strong economy in United States in the 1920s.
The one thing you do want to mention about him is that Coolidge served for 67 months as U.S. President, and when he left, the federal budget was lower than when he came in. Now, it is retentively impossible for a president to leave this. Maybe a president would reduce the increases if you're someone who actually cut through concerted inaction.
Douglas Goldstein: Times were a little bit different then. There were just not the same level of promises that governments made to help people and to help the sick, and they didn't have the same kind of commitments to the old. We also have a lot more old people than we did then. So are we really comparing apples to apples?
Amity Shlaes: What I discovered in researching Coolidge is that there were strong progressive forces in the United States at that time. The national ownership of electric power, for example, liked the idea of owning the railroad, the principal method of transportation at that time. It was an ambitious Progressive party, and the year President Coolidge did run for president, you want to recall, he came in when a president died. He was vice president and he had to run himself in 24. The Progressives captured 17% of our U.S. vote for those radical ideas, and then there were the Democrats.
Yes, there was strong pressure for certain government spending. The Progressives were veterans who returned from World War I in pain. We had universal conscription in the United States in World War I. There were no antibiotics here and they sought a pension, what we called a bonus in the 1920s, and Coolidge turned that down. It's not exactly like today. The U.S. government is much larger relative to the economy than it was at that point, but there are some strong analogies. You want to remember too that in Europe, the progressives and the socialists were doing wild things. There were revolutions and at that time, we thought such a revolution might be possible in the United States, so to say no could be politically risky. America was a less stable place.
Douglas Goldstein: Very soon after he left, things began to fall apart quite substantially. Was that because of his policies or that because of the new policies that then came in?
Amity Shlaes: This book is the prequel to Forgotten Man, the history of the 1930s. Forgotten Man lists a number of reasons why the Great Depression happened. The Great Depression was long- it was a decade. Starting with the crash, we had many other crashes in the United States with no Great Depression, and I list some of the reasons for this multi-causal disaster, taking place over years, like Japan more recently. It was a ten-year story, at each point a wrong turn of the Great Depression. One of these was that we pushed up labor prices, and another was that we increased the government's mandate and couldn't handle it, and the third was absolutely arbitrary, with the value of money in the 1930s in the face of a monetary problem and deflation. Another is that we raised taxes and we increased tariffs.
All these things happened after Coolidge. They don't start with C for Coolidge. The only one of them really that you can affiliate him with is the tariff, because he was a Republican and the Republican Party was always for tariffs. But he did not sign the infamous Smoot-Hawley Tariff. So I have trouble, having studied the Great Depression for Forgotten Man for so long, with assigning blame to Coolidge for it. You want to know too that in the U.S., he felt the government intervention would set a bad precedent.
When the stock market went very high in the 1920s and it did disturbingly high, Coolidge was personally disturbed, but he did not want to set a president of Washington intervening. At the time, the states regulated the stock market, so it would've been New York State. There are many clichés. We believe the crash caused the Depression, or that the 20s caused the crash and the Depression. You want to delink them or unpack or uncouple all these clichés because a lot of thinking people recognize that these assumptions don't hold any truth.
Douglas Goldstein: What could we learn from President Coolidge's economic policies that could be applied today?
Amity Shlaes: If you read it together with Forgotten Man, you will see that a president who is less active, I called him the great refrainer in this book, can get good results because we haven't spoken about it yet but the results of the 1920s were very interesting. We had strong growth in the U.S. in the 1920s. We had low unemployment and barely noticed recession. Our union membership dropped, and that's particularly relevant for Israel, even as wages increased in their purchasing power.
The U.S. was basically a happy place in the 20s. We had a few sad spot,s and one was farming but it was basically a happy place. There was a wonderful book called Middle Town, a snapshot of the U.S. in the 1920s, by a pair of sociologists called Lynd. You'll see everyone got cars, washing machine, vacuum cleaners, electricity, and telephones, and our health got better here. It was an upbeat decade, and most of that sort of upbeat was real. That is to say, we saw productivity gains in our economy that were admirable. We saw patents increased in the U.S. very strongly. All of this is going on even as the government is pulling back. Our tax rate under Coolidge went down to 25%, and that is lower than Ronald Reagan.
Why don't we know about this? I think, working backwards, we want to justify what Roosevelt did as good, and since it took Roosevelt a decade to get us out of the Depression, whoever caused that before must have been mighty bad, or so the emotional logic says, and therefore, we want to ignore how good actually the 1920s were. You want to separate emotional logic from true logic.
Douglas Goldstein: Certainly a lot of the Keynesians today are talking about how after our most recent real estate credit crash a few years ago, by increasing taxes and increasing government spending all of a sudden we're finding that unemployment has come down and that the stock market is flying again. People seem to be in a little bit of a better mood, albeit perhaps a little bit on a shaky foundation, but it seems that you can take up opposite conclusions from the two different recoveries.
Amity Shlaes: It is important to understand that with the Progressives, as strong as they were at the time, when people believed in the Progressive move that you want to think about what was happening in your part of the world at that time or in Europe, Coolidge took an absolute majority of the vote, beating the Progressives and the Democrats combined. It's possible in an economic crisis to go for free market, or less government even, to force recession. As we know, in the name of stronger growth subsequent to the recession, people are not sheep or rabbits. They have souls and thoughts and they have memories and they can look forward, and that's what Coolidge showed. I think I would just stick with that.
Douglas Goldstein: Given the complexity of the way legislation is handled in the United States today, is it even possible to imagine that the subsidies and all the support programs could in fact significantly be changed and cut?
Amity Shlaes: You're participating in U.S. arrogance when you assume the U.S. could not change. The U.S. will have its credit rating go down, and its currency will be challenged. Our unemployment rate today, down as it is, is not acceptable for U.S. standards unless we become like Europe. It should be below 5, not well above it. Our young people are unemployed, as in Europe and perhaps in Israel, and that's not acceptable. Our young people are now seeing a mortgaged future, as you have and Europe has, but we have historically not always had. There will be a crisis. There will be a credit rating coming in, and then our people will need heroes, and what I would put to all of us is that Coolidge is a good hero.
He studied ancient languages. He knew Latin and Greek. He knew Italian and he translated Dante. He had a view about the Hebrews in a kind of old-fashioned bibley way. His name is Calvin, as in Calvin, but he also had an interesting respect for Jewish communities in the United States. There's a famous conference between him and the Federation of Jewish Philanthropic Societies of New York, and they were at the Hotel Pennsylvania and he was in Washington. He told them that he commended them for raising $7 million and for budgeting so well, that is, for not being corrupt and for spending well. There's one thing that he said: "I believe in budget," and he told them, "I regarded a good budget as among the noblest monuments of virtue."
Coolidge was a scrooge. He budgeted at the White House. He budgeted everywhere. He didn't tip well, but he honored what he was good at - contracts. He didn't trick people. He had a theory in business that we would all like to adapt, which is that he wanted to deal with people so well that they would come back and do business with him again, rather than some kind of transactional cynical rip off, which is the other model we have here and also in Israel: "I'll get what I can. I'll never see you again. The market is anonymous." He thought the market was not anonymous and everyone knew everyone. The world is tiny and we do run into people that we've met before.
Even here, the market is not anonymous, even when it's vast, like international capital markets. Markets have memories, and individuals have memories, so I like that about him. He tried to make everyone always want to do business with him again, and that too contributes a trust level to economic growth. One of the interesting things that we discovered in the recent U.S. crisis is that we didn't have good measures for trust and growth, where people trusted markets to invest in them or held back. We were insufficiently capturing that with our extant indices.
One of them that I like very much is a new one by the University of Chicago in combination with Northwestern Kellogg, by a scholar called Paola Sapienza. She tries to capture whether people trust the market and trust their investment partners. Go and look at this. It's the Chicago Booth Northwestern Kellogg Financial Trust Index, and that would be a good way to fill out markets as well. When trust goes up, people trade more frequently.
Douglas Goldstein: How can people follow your work?
Amity Shlaes: I run a high school debate program that teaches youngsters how to think about economics with the George W. Bush Presidential Center. It's a presidential library where we do that kind of thing and that's a lot of fun. You can see it on www.amityshlaes.com and you can see a lively discussion of the merits of Coolidge on my Facebook page, the one with the Coolidge picture.