Speaking up for ‘Silent Cal’

Book reviews, when done well, can provide useful history lessons in and of themselves.

Take The Economist’s review of Coolidge, Amity Shlaes’ new biography of the underappreciated 30^th US president.

“Mr. Coolidge’s hallmark was distrust of government. He saw it as an entity that uses ‘despotic exactions’ (taxes) that sap individual initiative and prosperity across the board …” according to publication.

“Coolidge learned at first towards the surging progressive movement, which supported state intervention and union involvement in the economy,” the review adds. “But his views shifted when he saw what those ideas meant in practice.”

The Economist is not noted for being a publication of a particularly libertarian bent by any means, but it recognizes Coolidge’s achievements during his five-and-a-half years as president, during which American debt fell by one-third, the tax rate by half and unemployment dropped precipitously. It’s unfortunate that more Americans haven’t taken note of Coolidge’s accomplishments.

While no means perfect, Coolidge offers an interesting counterbalance to FDR and his New Deal approach.

History be damned, let’s sell some beer!

No one would dispute that a bit of “creative license” is to be expected when it comes to advertising.

Few distort reality with more regularity and aplomb than American brewery companies.

These are the folks that would have you believe that the low-grade swill they pump out daily in quantities equivalent to that of a supertanker is a full-bodied, uniquely brewed, refreshingly satisfying beer.

In reality once you’re of legal drinking age you quickly come to the realization that not only do the ads in question leave a bit to be desired in terms of promises versus reality, but that you’re reluctant to even dump the slop in question into the steaming radiator of a rusting ‘63 Studebaker Lark for fear the suds will eat their way through the cooling system.

Indeed, it would seem that the more a beer ad promises and the more effort the company puts into selling its product, the lower the quality of the brew.

Take one of the latest advertising efforts by Budweiser, called “Return of the King.”

How Hoover caused the Great Depression

As we continue to struggle through the so-called “Great Recession,” it’s important to note that American history has been dotted with economic downturns of varying severity, with more than 40 such events taking place since the nation’s founding.

Among the more notable:

• The Panic of 1837, caused by bank failures and a lack of confidence in paper currency, led to the failure of more than 600 banks and the collapse of the Southern cotton market.
• The Panic of 1873, precipitated partly by American overinvestment in railroads, was known as the Great Depression until the 1930s, when the latter economic downturn was given that moniker and that the earlier downturn renamed the “Long Depression.”
• The Panic of 1893 came about after the failure of the Reading Railroad and the withdrawal of European investments led to a collapse of the US stock market and the American banking industry. It was also spurred in part by a run on the US gold supply. Profits, investment and income all fell, leading to political instability.
• The Panic of 1907 started with a run on Knickerbocker Trust Co. deposits in October 1907, which brought about events that led to a severe monetary contraction. The fallout from the panic led to Congress creating the Federal Reserve System.

Yet no economic downturn can touch the Great Depression of the 1930s for overall impact on the American psyche. Paul Johnson, writing at the Mises Daily Blog, states that the Wall Street collapse of 1929 and the Great Depression that followed were among the most important events of the 20th century.

Hoover, Roosevelt and ‘Annie’

One of the great myths of American history is that President Herbert Hoover was a proponent of laissez-faire economics, and that his purported hands-off approach led the US to economic ruin.

In fact, Hoover was anything but hands off once the economy began tanking in 1929, and his meddling made things far worse than they otherwise would have been.

According to economist Murray Rothbard, the government under Hoover embarked on the “Hoover New Deal,” an anti-depression program marked by extensive governmental economic planning and intervention – including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works).

“Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez-faire canons,” according to Rothbard. “As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 percent of the labor force.”

Cotton roads: Recalling an ill-conceived idea

Using cotton as a key ingredient in road building seems difficult to fathom today but during the 1930s it was all the rage, at least for a short while. 

Part of the reason was that because in the midst of the Great Depression there was an abundance of three things: Unemployed Americans, cotton and roads that needed to either be built or refurbished. Someone somewhere came up with the idea of combining the three.

Hence, for some time, cotton roads were said to be the wave of the future, and the soft, fluffy staple fiber became a major element in road building across a good part of the US.

The idea apparently came about when a New Deal entity called the Agricultural Adjustment Administration sought ways to increase consumption of American cotton, the price of which had been driven down through overproduction.

How alcohol made FDR a legend

A perplexing question to some of us born long after Franklin Roosevelt’s reign as president ended is how a man who enlarged the powers of the federal government beyond anything even considered previously, built up labor unions, slowed long-term economic growth and weakened business was able to acquire such a cult of personality?

Author Mark Thornton says the answer is simple, if counterintuitive to many today: ”In (Roosevelt’s) first 30 days, he did more to bring liberty to Americans than any president since Thomas Jefferson repealed the Alien and Sedition Acts.”

Inaugurated on March 4, 1933, Roosevelt dealt with the banking crisis and the budget during his first week on the job.

Then, on March 13, he called on Congress to repeal Prohibition and 1o days later signed the Cullen-Harrison Act, which legalized the sale in the United States of beer with an alcohol content of 3.2 percent.

Give Newsweek an ‘F’ in basic Economics

According to the cover of the most recent Newsweek magazine “We Are All Socialists Now.”

While Newsweek doesn’t fully identify to whom the pronoun “we” refers to, it can be assumed that the magazine is speaking for the United States as a whole, with the second assumption being that once and for all, capitalism has been proved a failure.

And while what with the growing government bailouts, increased calls to limit the salaries of corporate CEOs and the overall effort to further grow the size and scope of the federal government do indeed appear to have the US headed toward some sort of quasi-socialistic economy, the fact is that we’ve been headed down this path since at least the New Deal days of the 1930s.

But, as Richard M. Ebbling explains, the continual mantra being pushed by big government, big media and big academia to “do something” about the economy will only make things worse, much worse.

“Not only is the capitalist system not responsible for the present economic crisis, but any attempt to severely hamstring or regulate the market economy out of existence would only succeed in undermining the greatest engine of economic progress and prosperity known to mankind,” Ebbling writes in an article for the American Institute for Economic Research.

Detractors of capitalism need to understand that we’re a long way from a true free-market economy, and have been for some time.

The current downturn has its roots in years of monetary mismanagement by the Federal Reserve System and misguided policies emanating from Washington, DC, Ebbling argues. The banking system took advantage of and gamed the system, using “creative” ways to bundle together mortgage loans into tradeable packages they could foist on to other investors.

All was well as long as housing prices continued to rise, and as long as government-created agencies such as Fannie Mae and Freddie Mac were guaranteeing the growing number of suspect mortgages, with the “full faith and credit” of the federal government behind them, Ebbling says.

But, like a house built on foundation of sand, it couldn’t last.

“The easy money and government-guaranteed house of cards all started to come tumbling down last year, and with a huge crash during the last six months,” Ebbling says. “Now, the same people in Washington who produced the mess we are in say that they need more regulatory authority to repair the very financial and housing markets their earlier actions so severely undermined.”

That’s a politician for you: create a problem, then say you’re here to solve it.

Yet, according to Newsweek, The New York Times and a lot of other geniuses in the “Mainstream Media,” it’s capitalism that’s at fault, not the politicians who made the whole fiasco possible.

Yes, derail the economy through ill-conceived policies, then blame “the system.” Afterward, we’ll dole out hundreds of billions in taxpayer dollars to save the rich and powerful, and keep the poor from engaging in the 21st Century equivalent of The Bread March of Women.

Sure, no one will learn a lesson, and we’ll prolong this miserable economic downturn and all but ensure we’ll be going through this again at some point down the road, but at least our elected leaders can point to their records with collective pride and say that they “did something.”

How government fails when it takes away failure

Tyler Watts, an economics student at George Mason University, has an interesting article on the Ludwig von Mises Institute’s website called ”The Importance of Failure” that looks at what occurs when we prevent failure from happening, as we’re doing by bailing out collapsing companies.

“Profit and loss go together — like up and down, left and right, good and bad. If we try to do away with losses, we’ll wind up diluting the meaning of profits. After all, why strive for profits if Uncle Sam will cover your losses with a bailout? Why bust your butt to compete and succeed if you can just clamor for a handout instead? Bailouts destroy the profit motive — and all the benefits of a competitive economy.”

As Watts correctly points out, capitalism depends on three highly complementary, yet distinct, institutions: prices, property, and “profit and loss.”

“These fundamental institutions of the market economy are like legs of a stool,” he writes. “If we gradually weaken one leg, we will eventually bring the stool toppling down — economic collapse.”

As was shown all too clearly during the Great Depression, government intervention only exacerbates economic crises. Unfortunately, though, we don’t seem to learn from the past, particularly when it comes to economic matters.

Why 2008 is like 1932

For a decidedly contrarian view regarding potential solutions to the nation’s economic woes, take a look at this piece, which ran in the Wall Street Journal.

Russ Roberts, a professor of economics at George Mason University, argues that today, just as in 1932, government intervention is exacerbating the nation’s fiscal situation, rather than providing a remedy.  

“Today, President George W. Bush plays the role of (Herbert) Hoover, the so-called free market ideologue who is trying anything to avert disaster. He signs a $700 billion bill putting Treasury in charge of buying troubled assets. A week later, the money is used to partially nationalize the banks. Some companies, like Bear Stearns, are bailed out. Others, like Lehman Brothers, are not. Some companies are sold. Some are allowed to fail. There is no plan, no rules, nothing to count on.

“It’s just like the New Deal: a massive accumulation of power in Washington justified by the need to do something. There is every reason to think this trend will accelerate …”

The difference between 2008 and 1932 is that today even more of our politicians, academicians and media believe that government largess is the answer to all life’s problems.

Trying to solve economic problems by doing less rather than more may seem counter-intuitive, but history demonstrates the wisdom of letting the marketplace right itself on its own.

Will we heed the lessons of the Great Depression? So far, the answer is a resounding “No.”