Tuesday, December 16, 2014

The Coolidge Way (Part II)

Coolidge understood there would be a recession since the Dow Jones industrial average more than quadrupled in his last term. He knew that pace of growth could not be sustained and a correction was going to happen. Near the end of the Coolidge presidency, Republicans seeing how much the Coolidge / Mellon tax breaks had worked decided to reduce tax rates further. Coolidge signed the bill, but warned that tax rates could be too low. He and Mellon also warned that tax reductions on the middle class were fruitless unless rates were decreased on the wealthy, since the wealthy ran most businesses.

Herbert Hoover was appointed by Coolidge to help manage the South through its flood disaster. Hence, Hoover theorized that American infrastructure for dams and levees had to be improved. As soon as Hoover was elected President he passed his hydropower bill (led to the building of the Hoover Dam). Hoover, Democrats, and progressive Republicans began to spend and the budget surpassed 4 billion in Hoovers first year. Tax revenues fell as the recession hit and by the time Hoover left office the upper tax bracket was once again up to 70%. Hoover started several social works programs and Franklin Roosevelt not only continued them when he was President, he created scores more of social programs under the New Deal.

There is no question that the stock market would have adjusted if Coolidge remained president for a third term, but Coolidge would have tightened spending and may have even increased tax rates slightly. But that is it, Coolidge understood all too well that increased spending and taxes would not get the U.S. out of the recession, it would make matters worse. Coolidge would not interfere with the recession. It was that meddling in the private sector that most likely put the country in a depression. Coolidge understood when tax rates were high people protected their money by moving it into tax free municipal bonds. He also understood that these municipal bonds also kept money away from the businesses and the private sector. And this is exactly what happened under Hoover and Roosevelt. And America stayed in a recession / depression until the early 1940s when the U.S. entered WWII at which point money flowed again into U.S. industry.

What made Coolidge a great president? It was not just his conservatism because he railed against unions, high budgets, and high taxes. It was that he was the antithesis of all American presidents. While most Presidents bloviate Coolidge listened and remained quiet. Coolidge did not comment or enter himself into area he did not understand. While most Presidents pretend to be know-it-alls, Coolidge was realistic and knew that was impossible. So while Coolidge was ridiculed for not being an expert in all areas, he was the only honest one. Coolidge was not a hypocrite. While he held the U.S. to a tight budget, he too lived a frugal life (although he was generous and gave away lots of money at the end of his life). He and his family never had big luxuries or glamorous clothes. And for living a simple life, Coolidge was also criticized. Coolidge put competent people in cabinet positions and trusted them to their jobs whereas many presidents place people who give to their campaigns in important posts regardless of their knowledge in these fields. Where most Presidents were progressive and grew government, Coolidge believed the only good form of progressivism was individual progressivism where people worked hard to better their lives. And finally, Coolidge was not a narcissistic egomaniac unlike other Presidents.

Coolidge was ahead of his times in terms of placing a Democratic special prosecutor in charge of investigating Harding scandals. He also understood the Laffer Effect before it was conceived. While he was disliked by other politicians even within his party – the Senate Majority Leader, Henry Lodge, a Republican, was from Coolidge’s home state of Massachusetts and he distained Coolidge, the American public loved Coolidge. Coolidge was popular because he was real and could relate to the common man. And while politicians routinely bashed Coolidge, Coolidge was civil and never stooped to their level.

1 comment:

  1. Sounds like we could use another Coolidge! Thanks for the history lesson, Patrick. It was interesting.