Obama's Vision Through History

[bonnie]

http://spectator.org/archives/2009/11/30/obamas-vision-through-history

Obama's Vision Through History

By Burton Folsom, Jr. from the November 2009 issue

Let's set the stage. After 25 years of economic growth, the U.S. stumbles into a recession and double-digit unemployment. An unpopular war aggravates the crisis; the national debt skyrockets. In response, the nation elects a fresh face: a first-term U.S. senator from a Midwestern state, with a vice president from an Eastern state. They promise hope and change; their party builds a formidable coalition of blacks, whites, and immigrants, and sweeps both houses of Congress. After his election, we had a President's Conference on Unemployment to deal with the job crisis. What emerged was a sensational plan: a stimulus package to create jobs -- especially infrastructure jobs -- and thereby attack unemployment directly.

Sound familiar? It should. The year was 1921, and the newly elected President Warren G. Harding and Vice President Calvin Coolidge faced many of the same issues as Barack Obama and Joe Biden 88 years later. What's different is how these men responded. Coolidge and Obama embody two starkly contrasting visions of economic order.

Over the last century, all presidents have bought in to one of these two visions. Harding, Coolidge, and Ronald Reagan were constitutionalists. Limit the government, they argue, and let entrepreneurs and free markets create growth. By contrast, Barack Obama and most of his predecessors -- especially Franklin Roosevelt -- have been interventionists. Government planning, federal spending, and a Keynesian fine-tuning of the economy are the methods they choose to spark the economy and sustain prosperity.

In the case of the 1921 recession, unemployment had indeed soared to 11.7 percent, and industrial income had fallen almost 25 percent in one year alone. But Harding and Coolidge (who became president in 1923 when Harding died) were constitutionalists. They opposed the popular stimulus scheme to use tax dollars to build public works. "The excess stimulation from that source," Harding insisted, "is to be reckoned a cause of trouble rather than a source of cure." They epitomized what President Obama would later call "The politics of No."

But what they said yes to was cutting income tax rates and slashing federal spending. That kind of discipline, they argued, would unleash entrepreneurs, reduce the federal debt, and release human energy for recovery.

Andrew Mellon, their secretary of the treasury, was a banking genius. He had helped launch Alcoa, Gulf Oil, and many other corporations. He designed the plan to cut tax rates and federal spending. In making his case, he made the astonishing claim that cutting tax rates might actually increase revenue. "It seems difficult to understand," he said, "that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates."

When Mellon's prediction was attacked, Coolidge came to the rescue. "I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayers will be left to bear the entire burden."

With Congress in Republican hands, Harding, Coolidge, and Mellon began to implement their free market plans piece by piece. Therefore, the 1920s budgets showed surpluses every year, and income tax rates were chopped across the board, leaving the wealthiest Americans paying at a 25 percent marginal rate. The results were spectacular. By 1923, unemployment had plummeted to 2.4 percent. From 1921 to 1929, GNP soared a remarkable 48 percent, the "average annual earnings of employees" rose 34 percent, and almost one-third of the national debt simply disappeared.

Entrepreneurs enjoyed one of their most creative periods in U.S. history: from radios to sliced bread to Scotch tape, inventors marketed new products. Older inventions finally secured the capital to emerge: air conditioners, refrigerators, vacuum cleaners, and zippers thus found their way into millions of households across America. U.S. patent numbers were higher in 1929 than in every year thereafter until 1965.

Calvin Coolidge became an American icon. His reelection in 1924 was so overwhelming that the Democratic Party, with a mere 28.8 percent of the vote, appeared near death. In Coolidge's six years as president, he averaged 3.3 percent unemployment and less than 1 percent inflation -- the lowest misery index of any president in the 20th century.

ONE MIGHT THINK that Coolidge's spectacular success would have ended the economic debate. The constitutionalists had triumphed. Instead, after 1929, the interventionists, starting with Herbert Hoover, dominated American politics for the next 50 years. Hoover, who had been secretary of commerce in Coolidge's cabinet, often dissented from the president. In turn, Coolidge labeled him "Wonder Boy" and said privately, "That man has offered me unsolicited advice for six years, all of it bad." Hoover believed that targeted intervention could improve the economy without losing any of the gains from Coolidge's free markets.

Once in office, Hoover signed the highest tariff in U.S. history and then started a flow of federal subsidies (and loans) to farmers, bankers, industrialists, and those unemployed. The Federal Reserve, which is somewhat independent of the president, also intervened and contributed to the Great Depression that followed, by raising interest rates and shrinking the money supply. As the country wallowed in federal deficits, Hoover signed a bill raising income taxes to a top marginal rate of 63 percent. Entrepreneurs retrenched, and jobs rapidly disappeared.

With unemployment at 25 percent in 1932, Gov. Franklin Roosevelt of New York, the Democratic nominee for president, was poised to oust Hoover from office. In doing so, FDR decided to campaign as a constitutionalist, someone much less interventionist than Hoover.

Calvin Coolidge could have written FDR's campaign speech in Pittsburgh two weeks before the election. Hoover's deficits, FDR announced, were "so great that it makes us catch our breath." Such spending was "the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime Government, anywhere, any time." Of Hoover's tax hikes, FDR concluded that such a burden "is a brake on any return to normal business activity. Taxes are paid in the sweat of every man who labors because they are a burden on production and are paid through production. If those taxes are excessive, they are reflected in idle factories...."

Mellon was from Pittsburgh, and if he had been in the audience that day he would have cheered. You can't create jobs by taxing one group and giving to another -- you can only redistribute existing wealth. To create wealth, you had to cut tax rates, not raise them. That was the chief premise of the constitutionalists.

[phkrause]

Very interesting article Bonnie. I think we need to look at the amount of people living in the USA that were of working age. I'd say the population has increased quite a bit there are less jobs available. And since this recession and the laying off of so many I've seen companies realize that they can do as much with fewer people. Almost no companies are rehiring people. They have what they want. Lets take for an example the company that I worked for. We used to have 3 guys doing the preparing of electronic files for printing, 2 on days and 1 on nights. Than they laid me off so they had 1 on days and 1 on nights. One year ago the laid off the guy working days. Now the guy working nights works day and night. Its kind of an extreme example but this is what lots of companies are doing. Obviously this is not everywhere but its happening. I get emails from every online work engine, like monster.com, careers.com, job.com, etc. There are less and less jobs available with more and more people getting laid off! I believe jobs are dwindling down. Again like I mentioned companies are finding they can do the same with less. And those that are hiring want either those that have just graduated from HS or College depending what they need. Because those of us that have been laid off who are older and carry a bigger wage they don't want. They'd rather hire inexperinced people and train them and pay them minimum salary. Which I can understand, but where does that leave me and dgrimm and others that are at that stage of our lives where at least for me carry a large debt and need a high paying job. Can't really retire and collect SS. Can't sell our home's because they are worth less than we owe now. I don't blame either party. This has been festering for many many many years. Sorry to go on so long. I'm really not complaining just venting.

If it were not for God I don't know how we would still be here. He has been amazing.

pk

pk

[bonnie]

I heard something on our local news today that surprised me.

The number of new start businesses is increasing.They claim that is not unusual for those laid off and not finding employment.Our two youngest sons lost their busineses.Thankfully they landed on their feet in a business that is not dependent on the economy.

I deal with a lot of young moms and their ingenuity never ceases to surprise me. About 3/4 are going to be first time moms and are working up to delivery.Not confident of a job after the pregnancy leave or not wanting to use day care they are preparing in some ways that kind of set me back.

I sell designer cloth diapers and the demand is high.At first I thought it was the "green" thing but it seems economy driven.

Thinking ahead to their second child before they have even had their first they strive to buy the gender neutral.

When they learn the sex of their baby they begin buying lots of clothes off ebay,stocking up on all seasons.

The biggest surprise is the stocking of food.Not as in the Mormon directive but non-perishable items while they are still working. They hit every two for one in canned goods they can find. All are very uneasy where all this is headed and trying to do what they can now while still holding good jobs

[bonnie]

People can be pretty resourceful when the need is great.

Every year I have a garage sale and a couple come to see what I have. This is what they do as they could not find work. Many times they pick up items on street corners as give away and repair or whatever is needed.

They sell on ebay and a variety of sites like craigs list etc.

To them the loss of their jobs turned out great as they really enjoy this.

I haunt the goodwill for good pieces of furniture to redo. I like the stripping and my husband excels at enameling. I never have enough as the older furniture with a new look is what most want.

A man I know locally sells on ebay and the other sites. He has crop land and makes more selling small batches of hay for hansters than selling a bale of hay for a cow. Put so much in a quart freezer bag and sells each for 2.50. That ends up to be one mighty expensive bale of hay.

My brother lives in a part of WY that God forgot he placed on earth. He lives in the middle of 400 acres. There is no work except ranching for miles. His neighbor was going to lose his ranch.His wife saved the ranch by selling tumbleweeds, No over head,the only expense was her computer. First year she made under 5,000.00 Refined her process a bit and ended up earning enough every year to pay for their ranch and expenses.

Crazy people in Boston and New York could not believe their luck in finding a honest to goodness tumbleweed.Each to their own.

A little ingenuity can go a long way

[bonnie]

BONNIE

THESE are interesting stories how people can learn

to adapt

dgrimm60

I am sure it beats the heck out of dodging the repo man.

I have dealt with so many that have landed on their feet when they thought there was no hope.