History Facts: Economy, Taxation, and Integrity

History Facts:

Economy, Taxation, and Integrity

Calvin Coolidge represents the exact opposite of Left-wing politics.. 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.

Thanks to A.F. Branco at Legal Insurrection.com for his great cartoon

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


Hayek Quotes: Liberty, Socialism, and Economy

Dinner Topics for Wednesday

Quotes by Friedrich Hayek

keyIf we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion. ~Friedrich August von Hayek

Even the striving for equality by means of a directed economy can result only in an officially enforced inequality – an authoritarian determination of the status of each individual in the new hierarchical order. ~Friedrich August von Hayek

We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice. ~Friedrich August von Hayek


socialjusticeThe mirage of social justice

F. A. Hayek made many valuable contributions to the field of economics as well as to the disciplines of philosophy and politics. This volume represents the second of Hayek’s comprehensive three-part study of the relations between law and liberty. … Google Books




hayekbooksocialismThe Fatal Conceit

Book by Friedrich Hayek

The Fatal Conceit: The Errors of Socialism is a non-fiction book written by the economist and political philosopher Friedrich Hayek and edited by William Warren Bartley. Wikipedia

Published: 1988Author: Friedrich Hayek


Friedrich Hayek

Friedrich August Hayek ( 8 May 1899 – 23 March 1992), born in Austria-Hungary as Friedrich August von Hayek and frequently known as F. A. Hayek, was an Austrian, later turned British,[1] economist and philosopher best known for his defense of classical liberalism. In 1974, Hayek shared the Nobel Memorial Prize in Economic Sciences (with Gunnar Myrdal) for his “pioneering work in the theory of money and economic fluctuations and … penetrating analysis of the interdependence of economic, social and institutional phenomena”.[2]

Hayek is an economist[3] and major political thinker of the twentieth century.[4] Hayek’s account of how changing prices communicate information which enables individuals to coordinate their plans is widely regarded as an important achievement in economics.[5] He also contributed to the fields of systems thinking, jurisprudence, neuroscience, and the history of ideas.[6]

Hayek served in World War I and said that his experience in the war and his desire to help avoid the mistakes that had led to the war led him to his career. Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938. He spent most of his academic life at the London School of Economics (LSE), the University of Chicago, and the University of Freiburg.

In 1984, he was appointed as a member of the Order of the Companions of Honour by Queen Elizabeth II on the advice of Prime Minister Margaret Thatcher for his “services to the study of economics”.[7] He was the first recipient of the Hanns Martin Schleyer Prize in 1984.[8] He also received the US Presidential Medal of Freedom in 1991 from president George H. W. Bush.[9] In 2011, his article The Use of Knowledge in Society was selected as one of the top 20 articles published in the American Economic Review during its first 100 years.[10]


More about Hayek from Wikipedia

The Hayek Center


History: Government, Character, and Economics

Dinner Topics for Wednesday

History Time Line: Economy without Character


keyWhat is the missing factor in each of these economic “equations?” Character.

“It’s the Economy, Stupid.” The now trite phrase from the Clinton Era still doesn’t answer some nagging questions. Exactly what is “stupid”? And, is the economy only about money?

The answer to the multi-trillion dollar question of what is “stupid” is obvious. But what happens when the economy is only about money?

History gives us many examples, for which there is room here to give a few.


Unlike the American Revolution, which was about liberty, the French revolution, put simply, was about vengeance of poverty against wealth. Certainly, not all the “noble” class had noble character. On the other hand, a small but sufficient number of the peasant class possessed so little good character that they became mass murderers. The result was the death of thousands of innocent people, including children, and destruction of a huge portion of the French culture. Why? For money.


Hitlerjugend.svgIn addition to the obviously racially and politically motivated Holocaust, Hitler and his regime had thousands of elderly people and birth-defective babies murdered. Why? The State did not want to allocate necessary money to keep them alive.

obamadoctorChristmas Eve, 2009

The Obama administration, together with a spineless Congress forced the first phases of Obamacare into law, using un-Constitutional means. Why? Money, and power. The result: destruction of the Constitution and people’s liberty.

March 7, 2011

Dr. Daphne Austin, British socialist health care official, said that 23-week premature babies should be left to die. Why? “We’re spending an awful lot of money on treatments” for them. (Blaze.com)

March, 2011

Madison, Wisconsin. Governor Scott Walker, manifesting the restraint of frugal character, tried to increase responsibility in the management of his state’s budget. Some of the changes affected unionized public-sector jobs, only to place some features on a more equal scale with those jobs in the private sector, held by taxpayers. Union mobs, surely not representing all union members, issued death threats, verbal abuse, and injury to persons who disagreed with them, and stormed the state capitol, leaving a wake of filth, trash, and destruction costing millions of dollars to repair or clean up. Why? Money, and greed.

What is the missing factor in each of the above economic “equations?” Character. The list of examples would fill volumes. It is an unalterable lesson of history: a national economy without character ends in destruction.

WalkerFor a powerful example of economics with good character, see

State Government: Character, Tax, and Wisconsin

Copyright © 2011 by C.A. Davidson

Economy: Liberty vs. Socialism

Dinner Topics for Wednesday

The Miracle of Freedom

Senator Ted Cruz speaking at Hillsdale College graduation

The political left in our country seeks to reach down the hand of government and move people up the economic ladder.[Socialism] This attempt is almost always driven by noble intentions. And yet it never, ever works. Conservatives, in contrast, understand from experience that the only way to help people climb the economic ladder is to provide them the opportunity to pull themselves up one rung at a time.

tedcruzToday the U.S. dollar is the international reserve currency. English is the world’s standard language for commerce. The strength of our economy allows us to maintain the mightiest military in the world. And U.S. culture—film, TV, the Internet—is preeminent in the world (although for many of our TV shows and movies, perhaps we owe the world an apology). A disproportionate number of the world’s great inventions in medicine, pharmaceuticals, electronics, the Internet, and other technology come from America, improving, expanding, and saving lives. America was where the telephone, the automobile, the airplane, and the iPhone were invented. Americans were the first to walk on the moon.

But most importantly, freedom produces opportunity. And I would encourage each of you to embrace what I call opportunity conservatism, which means that we should look at and judge every proposed domestic policy with a laser focus on how it impacts the least among us—how it helps the most vulnerable Americans climb the economic ladder.

The political left in our country seeks to reach down the hand of government and move people up the economic ladder. This attempt is almost always driven by noble intentions. And yet it never, ever works. Conservatives, in contrast, understand from experience that the only way to help people climb the economic ladder is to provide them the opportunity to pull themselves up one rung at a time.

As President Reagan said, “How can we love our country and not love our countrymen, and loving them, reach out a hand when they fall, heal them when they’re sick, and provide opportunity to make them self-sufficient so they will be equal in fact and not just in theory?”

Historically, our nation has enjoyed remarkable economic mobility. About 60 percent of the households that were in the lowest income quintile in 1999 were in a higher quintile ten years later. During the same decade, almost 40 percent of the richest households fell to a lower quintile. This is a nation where you can rise or fall. It is a nation where you can climb the economic ladder based not on who you are born to, or what class you are born into, but based on your talents, your passion, your perseverance, and the content of your character.

Economic freedom and the prosperity it generates reduce poverty like nothing else. Studies consistently confirm that countries with higher levels of economic freedom have poverty levels as much as 75 percent lower than countries that are less free.

Thanks to America’s free market system, the average poor American has more living space than the typical non‑poor person in Sweden, France, or the United Kingdom. In 1970, the year I was born, only 36 percent of the U.S. population enjoyed air conditioning. Today, 80 percent of poor households in America have air conditioning; and 96 percent of poor parents say that their children were never hungry at any time in the preceding year because they could not afford food.

Now, of course, there is still need in America and throughout the world, and all of us should act to help our fellow man. But more and more government is not the way to do this. To insist otherwise is to ignore the fact that all major European nations have higher levels of public spending than the United States, and that all of them are poorer.

Nor are human beings happiest when they’re taken care of by the state. Indeed, areas under the yoke of dependency on government are among the least joyous parts of our society. The story of Julia that we saw depicted in last year’s election—the story of cradle-to-grave dependency on government—is not an attractive utopia. Men and women flourish, instead, when afforded the equal opportunity to work and create and accomplish.

I remember some time ago when former Texas Senator Phil Gramm was participating in a Senate hearing on socialized medicine, and the witness there explained that government would best take care of people. Senator Gramm gently demurred and said, “I care more about my family than anyone else does.” And this wide-eyed witness said, “Oh no, Senator. I care as much about your children.” Senator Gramm smiled and said, “Really? What are their names?”

* * *

It is precisely because economic freedom and opportunity outperform centralized planning and regulation that so many millions have risked everything for a chance at the American dream.

Fifty-five years ago, my father fled Cuba, where he had been imprisoned and tortured—including having his teeth kicked out—as a teenager. Today my father is a pastor in Dallas. When he landed in Austin, Texas, in 1957, he was 18. He couldn’t speak a word of English. He had $100 sewn into his underwear. He went and got a job washing dishes and made 50 cents an hour. He worked seven days a week and paid his way through the University of Texas, and then he got a job, and then he went on to start a small business.

Now imagine if, at that time, the minimum wage had been two dollars an hour. He might never have had the opportunity to get that dishwashing job and work his way through school and work his way up from there. I cannot tell you how many times I’ve thanked God that some well-meaning liberal didn’t greet him when he landed in Austin and put his arm around him and say: “Let me take care of you. Let me make you dependent on government. Let me sap your self-respect—and by the way, don’t bother learning English.”

When I was a kid, my father used to say to me: “When we faced oppression in Cuba, I had a place to flee to. If we lose our freedom here, where do we go?” For my entire life, my dad has been my hero. But what I find most incredible about his story is how commonplace it is. Every one of us here today has a story like that. We could line up at this podium and each of us tell the story of our parents or grandparents or our great, great, great grandparents. We are all children of those who risked everything for liberty. That’s the DNA of what it means to be an American—to value freedom and opportunity above all.

In 1976, Margaret Thatcher delivered her “Britain Awake” speech. In it, she said: “There are moments in our history when we have to make a fundamental choice. This is one such moment, a moment when our choice will determine the life or death of our kind of society and the future of our children. Let’s ensure that our children will have cause to rejoice that we did not forsake their freedom.”

If we don’t fight to preserve our liberty, we will lose it. The men and women graduating here today, blessed with a world-class liberal arts education and a Hillsdale love of learning, are perfectly situated to lead the fight, to tell and retell the story of the miracle of freedom to so many Americans—so many young Americans in particular—who’ve never heard that story from the media, or in their schools, and certainly not from Hollywood.

Mrs. Thatcher continued: “Of course, this places a burden on us, but it is one that we must be willing to bear if we want our freedom to survive.”

Throughout history, we have carried the torch for freedom. At Hillsdale, you have been prepared to continue to do so, that together we may ensure that America remains a shining city on a hill, a beacon to the world of hope and freedom and opportunity.

Thank you and God bless you.

Read more about Ted Cruz speech at Hillsdale College


Economy: History Timeline and Facts

Dinner Topics for Thursday

Month-Defining Moment

key“Keynesian” is the term for Liberal economic policy. If you try to find a definition of it, you will quickly get lost in all the liberal verbiage. Here, from American Thinker, is a definition in plain English. At the conclusion of this post you’ll find more information about why this philosophy has never worked.


Sequester: Government Spending Cuts

Keynesian Economics: “Keynesian Economics” is the insane belief that the economy can be stimulated by government spending.  It provides the excuse to depart from common sense that allows politicians to ignore the alarm bells.  It is ludicrous mainly because our government doesn’t have any money to spend.

The New Deal was the largest real-world test of the Keynesian Myth in recent history. Franklin Roosevelt’s Treasury Secretary Henry Morgenthau confessed that the “New Deal” was a failure in sworn testimony before Congress on May 9, 1939. 

“We have tried spending money. We are spending more than we have ever spent before and it does not work.”

And FDR’s Treasury Secretary also told Congress:

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”



1. Sequester is a policy devised by the White House in the first place

2. The actual amount of the cut is 2.3 percent of $3.6 trillion budget in 2013

3. Discretionary spending budget is still 7 percent higher than when Obama took office

4. Federal employees earn 30 to 40 percent more in salary and benefits than comparable private sector workers

5. NBC/Wall Street Journal Poll: 53 percent of Americans support sequester or want even deeper slashes


Great Sequester Hysteria of 2013


Obama Regime Policy: Keynesian Economics

1. Government must never lose a dime

2. If Americans insist on reducing government, Americans must be punished by government

1944-1947 Post World War 2


Keynesian Predictions (Translate: “Budget Cut Hysteria of 1946”)

1. Depression in 1946, economic Armageddon

2. 35 percent jobless rate


1. 1946—Federal spending fell by 66 percent in one year

2. “The ‘Depression of 1946’ may be one of the most widely predicted events that never happened in American history.” ~ Jason E. Taylor, Richard K. Vedder, Cato Institute policy report

3. 1947—Budget surplus of over 5 percent of GDP

4. In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of [GDP] in 1944 to only 8.9 percent in  1948, a drop of over 35 percentage points of [GDP]. While government spending fell like a stone, federal tax revenues fell only …10.6 percent. Yet, the economy boomed. September 1945 to December 1948, the average unemployment rate was only 3.5 percent. ~David R. Henderson, Mercatus Center at George Mason University

5. As government spending fell by 66 percent, private investment rose by 156 percent.  ~James Pethokoukis, American Enterprise Institute

6. “Why did the U.S. economy do so well in the years following World War II, given how badly it had done in the years preceding America’s entry into the war? The answer, in a nutshell, is that dramatically reducing government spending and deregulating an economy can take that economy from sickness to health.” ~ David R. Henderson, Mercatus Center at George Mason University

The Madness of Keynesian Economics

By Jonathon Moseley

American Thinker
President Barack Obama demands more stimulus spending to avoid the “fiscal cliff.”   Obama increased the national debt $6 trillion to $16 trillion.  Yet the Democrats’ ‘cure for what ails ya’ is even more spending.   Obama demands around $75 billion in new spending to stimulate the economy in 2013.

“Keynesian Economics” is the insane belief that the economy can be stimulated by government spending.  It provides the excuse to depart from common sense that allows politicians to ignore the alarm bells.  It is ludicrous mainly because our government doesn’t have any money to spend.

If the government had a surplus saved up, spending actual money might give our economy a short-term sugar high (with dubious long-term results).   But our Federal and state governments must first suck money out of the economy by borrowing it.

History has repeatedly proven that this is nonsense.  Yet Democrats will not let go of the Keynesian Myth.  The government is the center of society, America’s modern Democrats want to believe.  So they cannot shake the dogma that our entire economy depends upon government spending.

The New Deal was the largest real-world test of the Keynesian Myth in recent history. Franklin Roosevelt’s Treasury Secretary Henry Morgenthau confessed that the “New Deal” was a failure in sworn testimony before Congress on May 9, 1939. 

fdrnewdeal“We have tried spending money. We are spending more than we have ever spent before and it does not work.”

And FDR’s Treasury Secretary also told Congress:

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”  (See:  Human Events    and The Heritage Foundation   

What’s more, Morgenthau was a friend and ally of FDR’s, not just the Treasury Secretary responsible for the finances of the New Deal.

Morgenthau made this “startling confession,” says historian Burton W. Folsom Jr., in the New Deal’s seventh year.   “In these words, Morgenthau summarized a decade of disaster, especially during the years Roosevelt was in power. Indeed average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover,” Folsom’s book is “New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America.”

It’s like this:  You scoop water from the deep end of a swimming pool with a bucket, run around to the shallow end, and then pour the water into the shallow end of the pool.  Can you make the shallow end deeper?  The entire swimming pool is one inter-connected whole.  You are accomplishing nothing…  except spilling some water (waste) and using up energy (administrative overhead).

So our government vacuums money out of the economy by borrowing it.  The money is largely wasted because it is directed according to political goals and to benefit political cronies, not by sound economic criteria.  No one is accountable for good or bad results.  Some of the money is wasted on administrative overhead.  Some of the money is wasted on fraud or abuse or to line people’s pockets.

But nothing real has changed.  So the economy will end up right back where it was before — after a sugar rush hangover.  Salaries might be bigger only due to inflation lowering the value of the dollar.

For one thing, businesses and consumers do not change their behavior when they know that government actions are only temporary.   Only permanent changes in conditions affect economic dynamics, empirical evidence shows.

Advocates for the Keynesian Myth argue that unemployment dipped during the Great Depression from 20% to “only” 14% in 1938, before it jumped back up to 17% by 1939.  They insist that “austerity” budgets drove unemployment back up again to 17%.

So liberals admit that Keynesian Economics is a failure.  As soon as the government spending stops, the economy slumps back where it was before.  Nothing has actually changed.  The Keynesian Myth promises that the economy can be fundamentally improved.

Moreover, liberals ignore the massive debt they burden the country with.  Considering the whole picture, including the debt, the nation is left worse off than it was to start with.

Liberals argue that Roosevelt’s stimulus was not big enough and it took World War II to finally end the Great Depression.  However, Obama’s most out-spoken economist lets the truth slip:   The Great Depression ended partly because Adolf Hitler drove wealth out of Europe and into the United States.  As European war loomed in 1938 and 1939, genuine increases in real investments flowing from Europe fundamentally grew the economy.  This was real money invested in the country, not government manipulation.

Christina D. Romer is Obama’s most eager cheerleader for the Keynesian madness.  But she cannot avoid giving away the store in the process.  Romer was Chair of President Obama’s Council of Economic Advisers, and an economics professor at the University of California, Berkeley.

Romer reluctantly lets the cat out of the bag.  It was not World War II deficit spending but the military draft removing nearly 10 million men from the work force.   Nearly 10 million jobs needed to be back-filled.   Romer also reluctantly concedes that economic participation was driven by national survival.  In a recession, consumers pull back on spending out of fear and limited funds, while businesses wait for the economy to improve.  But when Japan bombed Pearl Harbor, and Germany declared war under their defense pact, national output soared out of patriotism.  After the war, many of America’s global competitors had been laid waste while the USA was untouched.

Economic historian Robert Higgs offers a detailed analysis in his book Depression, War and Cold War of how Roosevelt’s New Deal made the Great Depression longer and worse and how government deficit spending during World War II did not cure the Great Depression.  Higgs notes that Roosevelt stimulated manufacturing with some policies that are today Republican proposals:  Tax deferrals, contractual incentives, and capital and guarantees to convert their factors to defense manufacturing.

Top economists show us that the government cannot expand the economy through deficit spending because borrowing disrupts and displaces other economic activities, including Milton Freedman, E. Cary, John Taylor of Stanford, Gary Becker and Eugene Fama of the University of Chicago and Greg Mankiw and Robert Barro of Harvard. In the end, the government simply moves economic activity around (benefitting campaign donors) without any real improvement. As economist Hal Varian of the University of California at Berkeley points out, private investment  in the economy builds a foundation for long-term, sustainable growth and prosperity, whereas government spending does not.

When political cronies benefit, honest business building is demoralized and discouraged.  Economic growth is harmed by liberal meddling and government disruption of the private sector.

This author was reminded (scolded, really) that even John Maynard Keynes himself would never approve of the claptrap thrown around in his name.   Keynes argued that governments should run deficits in bad times but should also pay off those debts promptly in good times and run up surpluses to save for the future.  But since Keynes is not here anymore to defend his reputation, Keynes’ theories have become grossly perverted in the halls of Congress, the White House, and academia.]\

Now, the tea party cannot save the country without slaying the Keynesian dragon once and for all.  The tea party is fighting against out-of-control government spending as its most important priority.  Ordinary Americans were driven out of their living rooms and into the streets to form the tea party by the fiscal madness in Washington.  But the tea party cannot bring a stop to deficit spending without confronting the demon at its core.
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Truth about Socialism from Experience

Russian Immigrant calls Rush Limbaugh Radio Show:

 She Thought She had Outrun Socialism

RUSH: The schools in this country do not teach the evils of socialism. They teach just the opposite. They sing its praises. Little kids in America today are taught that it’s the only route to fairness and equality and all of that wonderful, good stuff. Big government, command-and-control economy, authority, this sort of stuff. This is what kids are taught.

feudal serfs

Feudal slaves in Dark Ages

CALLER: Hello. My name is Irina, and I appreciate that you took my call, and I want to say special thank you to your team. They were very nice to me. I was born in Moscow. I came here 14 years ago. I was 35 years old. Now I’m 50. And I want to tell you, I’m very optimistic. I feel with all my guts that Romney will win this election. But I still have fear, and I’m terrified by seeing what’s going on four years in this country. I’m terrified that people can put an Obama in Oval Office, back again.

RUSH: See, people who lived under socialism know. You’ve lived under this stuff, and so you have a palpable fear when you see it starting to grow here. Am I right?

CALLER: I see whole symptoms, Rush. They’re there. What terrified in any way people… I communicate with many people, and I see how uneducated and unopen-minded they are. They cannot believe it, what they hearing.

RUSH: Irina, the schools in this country do not teach the evils of socialism. They teach just the opposite. They sing its praises. Little kids in America today are taught that it’s the only route to fairness and equality and all of that wonderful, good stuff. Big government, command-and-control economy, authority, this sort of stuff. This is what kids are taught. I mean, look at ’em. Young kids that you saw believe this stuff. Dolts in Hollywood, they fall for it. It is seductive for people that don’t like competition.

CALLER: You know, Rush, I totally agree with you. But sometimes in the back of your common sense, sometimes your heart can tell you when people are lying and when they are not. And those celebrities, trust me: If they make a movie, they play certain characters. It doesn’t mean anything. People have to understand it. They know exactly how to fly airplane if they playing the pilot? Absolutely not. And even celebrities who travel all over the world and they see the life in other countries, they have to be smart and understand that Obama using them.

RUSH: I actually —

CALLER: He using minority groups to get to the point that they elect him.

RUSH: I’m —

CALLER: And question number one: Do they understand when he use them, what happened after that?

RUSH: I actually am enjoying this. Do you people understand what you’re hearing here? Here is somebody who grew up under it. Here’s somebody who lived it. Irina is two things. She’s scared and she can’t believe the people in this country who are falling for it. That’s what I love. I love this. She can’t believe people are falling for this. She lived it. She grew up in it; she was born into it. She escaped it.

Now it’s caught up [with] her again. She thought she had outrun socialism, but it’s caught her. And she’s scared. Irina, you’re in the right place, and we’re gonna beat this back. We are going to beat it back. It’s what this whole campaign has been about. It’s what this weekend is gonna be about. I’m flattered that you’re in the audience. I’m glad you called. It’s the voice of experience there folks, the voice of experience. “Celebrities don’t know anything.” She’s right. I appreciate the call.