History Facts: Economy, Taxation, and Integrity

History Facts:

Economy, Taxation, and Integrity

Calvin Coolidge represents the exact opposite of President Obama. Coolidge had integrity. He deserves a lot more respect than he ever got. ~C.A. Davidson

“Reprinted by permission from Imprimis, a publication of Hillsdale College.”

key“We must have no carelessness in our dealings with public property or the expenditure of public money. Such a condition is characteristic of undeveloped people, or of a decadent generation.” ~Calvin Coolidge

Senator Selden Spencer once took a walk with Coolidge around the White House grounds. To cheer the President up, Spencer pointed to the White House and asked playfully, “Who lives there?” “Nobody,” Coolidge replied. “They just come and go.”

It is much more important to kill bad bills than to pass good ones. ~Calvin Coolidge

Amity Shlaes
Author, Coolidge

calvincoolidgeCalvin Coolidge and the Moral Case for Economy

AMITY SHLAES is a syndicated columnist for Bloomberg, a director of the Four Percent Growth Project at the George W. Bush Presidential Center, and a member of the board of the Calvin Coolidge Memorial Foundation. She has served as a member of the editorial board of the Wall Street Journal and as a columnist for the Financial Times, and is a recipient of the Hayek Prize and the Frederic Bastiat Prize for free-market journalism. She is the author of four books, Germany: The Empire Within, The Forgotten Man: A New History of the Great Depression, The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It, and Coolidge.

The following is adapted from a talk given at Hillsdale College on January 27, 2013, during a conference on “The Federal Income Tax: A Centenary Consideration,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.


WITH THE FEDERAL DEBT spiraling out of control, many Americans sense an urgent need to find a political leader who is able to say “no” to spending. Yet they fear that finding such a leader is impossible. Conservatives long for another Ronald Reagan. But is Reagan the right model? He was of course a tax cutter, reducing the top marginal rate from 70 to 28 percent. But his tax cuts—which vindicated supply-side economics by vastly increasing federal revenue—were bought partly through a bargain with Democrats who were eager to spend that revenue. Reagan was no budget cutter—indeed, the federal budget rose by over a third during his administration.

An alternative model for conservatives is Calvin Coolidge. President from 1923 to 1929, Coolidge sustained a budget surplus and left office with a smaller budget than the one he inherited. Over the same period, America experienced a proliferation of jobs, a dramatic increase in the standard of living, higher wages, and three to four percent annual economic growth. And the key to this was Coolidge’s penchant for saying “no.” If Reagan was the Great Communicator, Coolidge was the Great Refrainer.

Enter Coolidge
Following World War I, the federal debt stood ten times higher than before the war, and it was widely understood that the debt burden would become unbearable if interest rates rose. At the same time, the top income tax rate was over 70 percent, veterans were having trouble finding work, prices had risen while wages lagged, and workers in Seattle, New York, and Boston were talking revolution and taking to the streets. The Woodrow Wilson administration had nationalized the railroads for a time at the end of the war, and had encouraged stock exchanges to shut down for a time, and Progressives were now pushing for state or even federal control of water power and electricity. The business outlook was grim, and one of the biggest underlying problems was the lack of an orderly budgeting process: Congress brought proposals to the White House willy-nilly, and they were customarily approved.

The Republican Party’s response in the 1920 election was to campaign for smaller government and for a return to what its presidential candidate, Warren Harding, dubbed “normalcy”—a curtailing of government interference in the economy to create a predictable environment in which business could confidently operate. Calvin Coolidge, a Massachusetts governor who had gained a national reputation by facing down a Boston police strike—“There is no right to strike against the public safety by anybody, anywhere, any time,” he had declared—was chosen to be Harding’s running mate. And following their victory, Harding’s inaugural address set a different tone from that of the outgoing Wilson administration (and from that of the Obama administration today): “No altered system,” Harding said, “will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.”

One of Harding’s first steps was to shepherd through Congress the Budget and Accounting Act of 1921, under which the executive branch gained authority over and took responsibility for the budget, even to the point of being able to impound money after it was budgeted. This legislation also gave the executive branch a special budget bureau—the forerunner to today’s Office of Management and Budget—over which Harding named a flamboyant Brigadier General, Charles Dawes, as director. Together they proceeded to summon department staff and their bosses to semiannual meetings at Continental Hall, where Dawes cajoled and shamed them into making spending cuts. In addition, Harding pushed through a tax cut, lowering the top rate to 58 percent; and in a move toward privatization, he proposed to sell off naval petroleum reserves in Wyoming to private companies.

Unfortunately, some of the men Harding appointed to key jobs proved susceptible to favoritism or bribery, and his administration soon became embroiled in scandal. In one instance, the cause of privatization sustained damage when it became clear that secret deals had taken place in the leasing of oil reserves at Teapot Dome. Then in the summer of 1923, during a trip out West to get away from the scandals and prepare for a new presidential campaign, Harding died suddenly.

Enter Coolidge, whose personality was at first deemed a negative—his face, Alice Roosevelt Longworth said, “looked as though he had been weaned on a pickle.” But canny political leaders, including Supreme Court Justice and former President William Howard Taft, quickly came to respect the new president. Secretary of State Charles Evans Hughes, after visiting the White House a few times that August, noted that whereas Harding had never been alone, Coolidge often was; that whereas Harding was partial to group decisions, Coolidge made decisions himself; and most important, that whereas Harding’s customary answer was “yes,” Coolidge’s was “no.”

The former governor of Massachusetts was in his element when it came to budgeting. Within 24 hours of arriving back in Washington after Harding’s death, he met with his own budget director, Herbert Lord, and together they went on offense, announcing deepened cuts in two politically sensitive areas: spending on veterans and District of Columbia public works. In his public statements, Coolidge made clear he would have scant patience with anyone who didn’t go along: “We must have no carelessness in our dealings with public property or the expenditure of public money. Such a condition is characteristic of undeveloped people, or of a decadent generation.”

If Harding’s budget meetings had been rough, Coolidge’s were rougher. Lord first advertised a “Two Percent Club,” for executive branch staffers who managed to save two percent in their budgets. Then a “One Percent Club,” for those who had achieved two or more already. And finally a “Woodpecker Club,” for department heads who kept chipping away. Coolidge did not even find it beneath his pay grade to look at the use of pencils in the government: “I don’t know if I ever indicated to the conference that the cost of lead pencils to the government per year is about $125,000,” he instructed the press in 1926. “I am for economy, and after that I am for more economy,” he told voters.

Coolidge in Command
“It is much more important to kill bad bills than to pass good ones,” Coolidge had once advised his father. And indeed, while Harding had vetoed only six bills, Coolidge vetoed 50—including farming subsidies, even though he came from farming country. (“Farmers never had made much money,” he told a guest, and he didn’t see there was much the government could rightly do about it.) He also vetoed veterans’ pensions and government entry into the utilities sector.

The Purpose of Tax Cuts

In short, Coolidge didn’t favor tax cuts as a means to increase revenue or to buy off Democrats. He favored them because they took government, the people’s servant, out of the way of the people. And this sense of government as servant extended to his own office.

Senator Selden Spencer once took a walk with Coolidge around the White House grounds. To cheer the President up, Spencer pointed to the White House and asked playfully, “Who lives there?” “Nobody,” Coolidge replied. “They just come and go.”

But as unpopular as he was in Washington, Coolidge proved enormously popular with voters. In 1924, the Progressive Party ran on a platform of government ownership of public power and a return to government ownership of railroads. Many thought the Progressive Party might split the Republican vote as it had in 1912, handing the presidency to the Democrats. As it happened, Progressive candidate Robert LaFollette indeed claimed more than 16 percent of the vote.

Yet Coolidge won with an absolute majority, gaining more votes than the Progressive and the Democrat combined. And in 1928, when Coolidge decided not to run for reelection despite the urging of party leaders who looked on his reelection as a sure bet, Herbert Hoover successfully ran on a pledge to continue Coolidge’s policies.

Unfortunately, Hoover didn’t live up to his pledge. Critics often confuse Hoover’s policies with Coolidge’s and complain that the latter did not prevent the Great Depression. That is an argument I take up at length in my previous book, The Forgotten Man, and is a topic for another day. Here let me just say that the Great Depression was as great and as long in duration as it was because, as economist Benjamin Anderson put it, the government under both Hoover and Franklin Roosevelt, unlike under Coolidge, chose to “play God.”

Lessons from Coolidge

Beyond the inspiration of Coolidge’s example of principle and consistency, what are the lessons of his story that are relevant to our current situation? One certainly has to do with the mechanism of budgeting: The Budget and Accounting Act of 1921 provided a means for Harding and Coolidge to control the budget and the nation’s debt, and at the same time gave the people the ability to hold someone responsible. That law was gutted in the 1970s, when it became collateral damage in the anti-executive fervor following Watergate. The law that replaced it tilted budget authority back to Congress and has led to over-spending and lack of responsibility.

A second lesson concerns how we look at tax rates. When tax rates are set and judged according to how much revenue they bring in due to the Laffer Curve—which is how most of today’s tax cutters present them, thereby agreeing with tax hikers that the goal of tax policy is to increase revenue—tax policy can become a mechanism to expand government. The goals of legitimate government—American freedom and prosperity—are left by the wayside.

Thus the best case for lower taxes is the moral case—and as Coolidge well understood, a moral tax policy demands tough budgeting.

Finally, a lesson about politics. The popularity of Harding and Coolidge, and the success of their policies—especially Coolidge’s—following a long period of Progressive ascendancy, should give today’s conservatives hope. Coolidge in the 1920s, like Grover Cleveland in the previous century, distinguished government austerity from private-sector austerity, combined a policy of deficit cuts with one of tax cuts, and made a moral case for saying “no.” A political leader who does the same today is likely to find an electorate more inclined to respond “yes” than he or she expects.

Coolidge and Moral Economy, complete article

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55 comments on “History Facts: Economy, Taxation, and Integrity

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  2. That is a great tip especially to those fresh to the blogosphere.

    Brief but very accurate info… Many thanks for sharing this one.
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  3. One of Harding’s first steps was to shepherd through Congress the Budget and Accounting Act of 1921, under which the executive branch gained authority over and took responsibility for the budget,

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