A Publication of Hillsdale College

ImpOverr 2,600,000imi Readers Mosnthly February 2013 • Volume 42, Number 2

Calvin Coolidge and the Moral Case for Economy Amity Shlaes Author, Coolidge

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 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. Hillsdale College: Pursuing Truth • Defending Liberty since 1844

Enter Coolidge running mate. And following their vic- tory, Harding’s inaugural address set a Following World War I, the federal debt different tone from that of the outgoing stood ten times higher than before the war, Wilson administration (and from that of and it was widely understood that the debt the Obama administration today): “No burden would become unbearable if interest altered system,” Harding said, “will work rates rose. At the same time, the top income a miracle. Any wild experiment will only tax rate was over 70 percent, veterans were add to the confusion. Our best assurance having trouble finding work, prices had lies in efficient administration of our risen while wages lagged, and workers in proven system.” Seattle, New York, and Boston were talk- One of Harding’s first steps was to ing revolution and taking to the streets. shepherd through Congress the Budget The administration had and Accounting Act of 1921, under which nationalized the railroads for a time at the the executive branch gained author- end of the war, and had encouraged stock ity over and took responsibility for the exchanges to shut down for a time, and budget, even to the point of being able to Progressives were now pushing for state or impound money after it was budgeted. even federal control of water power and This legislation also gave the executive electricity. The business outlook was grim, branch a special budget bureau—the fore- and one of the biggest underlying prob- runner to today’s Office of Management lems was the lack of an orderly budgeting and Budget—over which Harding named process: Congress brought proposals to a flamboyant Brigadier General, Charles the willy-nilly, and they Dawes, as director. Together they pro- were customarily approved. ceeded to summon department staff The Republican Party’s response in and their bosses to semiannual meetings the 1920 election at Continental Hall, was to campaign for Imprimis (im-pri-mis),−´ where Dawes cajoled smaller government [Latin]: in the first place and shamed them into

and for a return to Editor making spending cuts. what its presidential Douglas A. Jeffrey In addition, Harding Deputy Editors candidate, Warren Rebecca Burgess pushed through a tax Harding, dubbed Timothy W. Caspar cut, lowering the top Copy Editors “normalcy”—a cur- Emily Sarver rate to 58 percent; and tailing of govern- Monica VanDerWeide in a move toward priva- Art Director ment interference Angela E. Lashaway tization, he proposed to in the economy to Marketing Directors sell off naval petroleum create a predict- William Gray | Fred Hadra reserves in Wyoming to Production Manager able environment in Lucinda Grimm private companies. which business could Circulation Manager Unfortunately, confidently operate. Wanda Oxenger some of the men Staff Assistants Calvin Coolidge, Robin Curtis Harding appointed to Kim Ellsworth a Massachusetts Kathy Smith key jobs proved suscep- governor who had Mary Jo Von Ewegen tible to favoritism or

gained a national Copyright © 2013 Hillsdale College bribery, and his admin- reputation by facing The opinions expressed in Imprimis are not istration soon became necessarily the views of Hillsdale College. down a Boston police Permission to reprint in whole or in part is embroiled in scandal. strike—“There is no hereby granted, provided the following credit In one instance, the line is used: “Reprinted by permission from right to strike against Imprimis, a publication of Hillsdale College.” cause of privatization the public safety by Subscription free upon request. sustained damage anybody, anywhere, ISSN 0277-8432 when it became clear Imprimis trademark registered in U.S. any time,” he had Patent and Trademark Office #1563325. that secret deals had declared—was cho- taken place in the leas- sen to be Harding’s ing of oil reserves at 2 FebRUaRy 2013 • Volume 42, Number 2 < hillsdale.edu

Teapot Dome. Then in the summer of government per year is about $125,000,” 1923, during a trip out West to get away he instructed the press in 1926. “I am for from the scandals and prepare for a new economy, and after that I am for more presidential campaign, Harding died economy,” he told voters. suddenly. Enter Coolidge, whose personality was at first deemed a negative—his face, Alice Coolidge in Roosevelt Longworth said, “looked as Command though he had been weaned on a pickle.” But canny political leaders, includ- “It is much more important to kill bad ing Supreme Court Justice and former bills than to pass good ones,” Coolidge President , quickly had once advised his father. And indeed, came to respect the new president. while Harding had vetoed only six bills, Secretary of State Charles Evans Hughes, Coolidge vetoed 50—including farming after visiting the White House a few subsidies, even though he came from times that August, noted that whereas farming country. (“Farmers never had Harding had never been alone, Coolidge made much money,” he told a guest, and often was; that whereas Harding was he didn’t see there was much the govern- partial to group decisions, Coolidge ment could rightly do about it.) He also made decisions himself; and most impor- vetoed veterans’ pensions and govern- tant, that whereas Harding’s customary ment entry into the utilities sector. answer was “yes,” Coolidge’s was “no.” Perhaps reflecting his temperament, The former governor of Massachusetts Coolidge favored the pocket veto—a way was in his element when it came to bud- for the president to reject a bill without geting. Within 24 hours of arriving back a veto message and without affording in Washington after Harding’s death, Congress a chance to override a veto. he met with his own budget director, Grover Cleveland, who Coolidge admired, Herbert Lord, and together they went on had used this veto in his day, as had offense, announcing deepened cuts in . But Coolidge raised two politically sensitive areas: spending its use to an art form. The New York Times on veterans and District of Columbia referred to it as “disapproval by inaction.” public works. In his public statements, Gaining public acceptance of having a Coolidge made clear he would have Scrooge as president required playing the scant patience with anyone who didn’t role of Scrooge consistently. Coolidge took go along: “We must have no carelessness care to do so, visiting his saving habit on in our dealings with public property or everyone around him. It was at the White the expenditure of public money. Such a House dinner table, for instance, that condition is characteristic of undeveloped Coolidge’s attack on “pork” became literal: people, or of a decadent generation.” At one point the housekeeper proudly If Harding’s budget meetings had showed the President the spread for a big been rough, Coolidge’s were rougher. dinner, and instead of receiving praise she Lord first advertised a “Two Percent was scolded for serving “an awful lot of Club,” for executive branch staffers who ham.” She departed soon after. managed to save two percent in their The Hurricane Katrina of the Coolidge budgets. Then a “One Percent Club,” for years, the great Mississippi River flood those who had achieved two or more of 1927, wiped out many areas of the already. And finally a “Woodpecker South. Yet Coolidge pointedly chose not Club,” for department heads who kept to visit the devastated areas—sending chipping away. Coolidge did not even Commerce Secretary in find it beneath his pay grade to look at the his place—out of concern that a presiden- use of pencils in the government: “I don’t tial visit might encourage the idea of fed- know if I ever indicated to the confer- eral spending on disaster relief, for which ence that the cost of lead pencils to the there were already advocates in Congress. 3 Hillsdale College: Pursuing Truth • Defending Liberty since 1844

This triggered resentment, which Senator twenties. Mellon believed, and informed Thaddeus Caraway of Arkansas expressed Coolidge, that these cuts might result in in personal terms: “I venture to say that additional revenue. This was referred to if a similar disaster had affected New as “scientific taxation”—an early formu- England the President would have had lation of the Laffer Curve. And Coolidge no hesitation in calling an extra session. passed the word on: “Experience does Unfortunately he was unable to visualize not show that the higher rate produces the situation.” But soon thereafter floods the larger revenue. Experience is all the tore across Vermont, the state where other way,” he said in a speech in early Coolidge had spent his childhood, and 1924. “When the surtax on incomes of calls for him to visit grew loud—to no $300,000 and over was but 10 percent, avail. “He can’t do for his own, you see, the revenue was about the same as it was more than he did for the others,” as one at 65 percent.” Vermonter explained. Vermont, like Mellon and Coolidge did not win all Arkansas, would have to recover without they sought. The top rate of the final law federal intervention. was in the forties. But even this reduc- In doing research for my new biogra- tion yielded results—more money flow- phy of Coolidge, I reviewed his presiden- ing into the Treasury—suggesting that tial appointment books and found a clue “scientific taxation” worked. By 1926, as to why he was able to be so consistent: Coolidge was able to sign legislation that sheer discipline. Coolidge and his budget brought the top marginal rate down to 25 director met every Friday morning before percent, and to do so retroactively. cabinet meetings to identify budget Today’s Republicans tend to take plea- cuts and discuss how to say “no” to the sure when the Laffer Curve is vindicated requests of cabinet members. Most presi- and more money flows into government dents give in after a time—Eisenhower as a result of tax cuts. Indeed, this idea being a good example—but Coolidge did of “scientific taxation” is often used to not, despite the budget surpluses during attempt to get Democrats to go along his presidency. He held 14 meetings with with tax cuts, as if those cuts are an end his budget director after coming to office in themselves. By contrast, the specter in late 1923, 55 meetings in 1924, 52 in of increased federal revenue rendered 1925, 63 in 1926, and 51 in 1927. Coolidge anxious, personally and politi- In a conference call with Jewish cally—so much so that he considered philanthropists, Coolidge explained his foregoing the rate cuts: “While I am consistency this way: “I believe in bud- exceedingly interested in having tax gets. I want other people to believe in reduction . . . it can only be brought about them. I have had a small one to run my as a result of economy,” he said at one own home; and besides that, I am the point. He would not put tax cuts before head of the organization that makes the budget reduction, insisting on twinning greatest of all budgets, that of the United the two goals. To underscore the point, States government. Do you wonder then twin lion cubs given to Coolidge by the that at times I dream of balance sheets mayor of Johannesburg were named and sinking funds, and deficits and tax “Budget Bureau” and “Tax Reduction.” rates and all the rest?” In short, Coolidge didn’t favor tax cuts as a means to increase revenue or to buy off Democrats. He favored them The Purpose of because they took government, the peo- Tax Cuts ple’s servant, out of the way of the people. And this sense of government as servant Speaking of tax rates, in December extended to his own office. Senator Selden 1923, Coolidge and Treasury Secretary Spencer once took a walk with Coolidge Andrew Mellon launched a campaign around the White House grounds. To to lower top rates from the fifties to the cheer the President up, Spencer pointed 4 February 2013 • Volume 42, Number 2 < hillsdale.edu to the White House and asked playfully, “Who lives there?” “Nobody,” Coolidge * * * replied. “They just come and go.” Beyond the inspiration of Coolidge’s This view of government and his example of principle and consistency, attendant insistence on economy made what are the lessons of his story that are Coolidge few friends in Washington—a relevant to our current situation? One fact illustrated by notes kept by White certainly has to do with the mecha- House usher Ike Hoover. These notes nism of budgeting: The Budget and record the excuses given by lawmakers Accounting Act of 1921 provided a for not attending breakfasts hosted by means for Harding and Coolidge to con- Coolidge at the White House: “Senator trol the budget and the nation’s debt, and Heflin: Regrets, sick. Senator Norris: at the same time gave the people the abil- Unable to Locate. Senator Pittman: ity to hold someone responsible. That law Regrets, sick. Senator Reed, of Missouri: was gutted in the 1970s, when it became Regrets, sick friend.” But as unpopular as collateral damage in the anti-executive he was in Washington, Coolidge proved fervor following Watergate. The law that enormously popular with voters. In 1924, replaced it tilted budget authority back the Progressive Party ran on a platform to Congress and has led to over-spending of government ownership of public power and lack of responsibility. and a return to government ownership of A second lesson concerns how we look railroads. Many thought the Progressive at tax rates. When tax rates are set and Party might split the Republican vote judged according to how much revenue as it had in 1912, handing the presi- they bring in due to the Laffer Curve— dency to the Democrats. As it happened, which is how most of today’s tax cutters Progressive candidate Robert LaFollette present them, thereby agreeing with tax indeed claimed more than 16 percent of hikers that the goal of tax policy is to the vote. Yet Coolidge won with an abso- increase revenue—tax policy can become lute majority, gaining more votes than the a mechanism to expand government. Progressive and the Democrat combined. The goals of legitimate government— And in 1928, when Coolidge decided American freedom and prosperity—are not to run for reelection despite the urg- left by the wayside. Thus the best case ing of party leaders who looked on his for lower taxes is the moral case—and as reelection as a sure bet, Herbert Hoover Coolidge well understood, a moral tax successfully ran on a pledge to continue policy demands tough budgeting. Coolidge’s policies. Finally, a lesson about politics. The Unfortunately, Hoover didn’t live popularity of Harding and Coolidge, and up to his pledge. Critics often confuse the success of their policies—especially Hoover’s policies with Coolidge’s and Coolidge’s—following a long period of complain that the latter did not prevent Progressive ascendancy, should give the Great Depression. That is an argu- today’s conservatives hope. Coolidge in ment I take up at length in my previous the 1920s, like Grover Cleveland in the book, The Forgotten Man, and is a topic previous century, distinguished govern- for another day. Here let me just say that ment austerity from private-sector aus- the Great Depression was as great and terity, combined a policy of deficit cuts as long in duration as it was because, as with one of tax cuts, and made a moral economist Benjamin case for saying “no.” Anderson put it, the A political leader who government under does the same today is both Hoover and likely to find an elec- Franklin Roosevelt, torate more inclined unlike under Did you know? to respond “yes” than Coolidge, chose to The 76,000-square-foot Margot V. he or she expects. ■ “play God.” Biermann Athletic Center will open in March and will house a six-lane, 200-meter track and four tennis courts. 5