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The Great Refrainer

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
August 30, 2010
Forbes Online

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A president often brings a particular sport to mind, even one that he does not personally play. President George W. Bush evokes rugby; Al Gore--the near President--scuba diving; and President Jimmy Carter, curling. I am currently writing a biography of Calvin Coolidge, who, when I think of a sport, puts me in mind of windsurfing.

The image is dauntingly anachronistic but still suits. A windsurfer looks as though he's doing nothing at all, just riding the wind; however, the sport takes great strength. Even in a gust of wind the windsurfer must minimize his movement, holding still or pulling in. President Coolidge often looked as though he were doing nothing, and his peers, as well as later observers, mocked him for it. But in fact the Coolidge style of government, which included much refraining, took great strength and yielded superior results. Nowhere did the Great Windsurfer demonstrate such strength more than on the waters of economics.

In 1921, when Calvin Coolidge came to Washington as Warren Harding's vice president, the country was just coming out of a period of government hyperactivity. During his presidency Woodrow Wilson had pushed income tax rates up dramatically, with the top bracket hitting 77%. Those at the bottom paid 6%, one percentage point below what had formerly been reserved for the very top earners. By 1923 President Harding and his Treasury Secretary, Andrew Mellon, had cut taxes so the top rate was effectively below 50%.

Conversing in Pauses

When Harding died suddenly in 1923, Coolidge knew he was going to need another pair of hands to launch further reforms. One of his first moves as President was to reject the Treasury Secretary's resignation. Mellon became the navigator who charted Coolidge's economic course. The pair worked well together because they were alike; both were so taciturn that it was said they conversed in pauses. Whenever they could, Coolidge and Mellon, professional minimalists, pared away unnecessary features of their craft to make it sleeker.

They began with the tax brackets. Both disliked the fact that under Wilson the tax schedule had gone from seven brackets to dozens, confusing taxpayers to the point they didn't know what they should pay. Once the number of brackets was drastically reduced, more people could easily figure out what they owed.

But their grandest feat involved tax rates. Coolidge and Mellon tightened and pulled multiple times, eventually getting the top rate down to 25%, a level that hasn't been seen since. Mellon argued that lower rates could actually bring in greater revenues because they removed disincentives to work. Government, he said, should operate like a railroad, charging a price for freight that "the traffic will bear."

Coolidge's commitment to low taxes came from his concept of property rights. He viewed heavy taxation as the legalization of expropriation. "I want taxes to be less, that the people may have more," he once said. In fact, Coolidge disapproved of any government intervention that eroded the bond of the contract.

Another area Coolidge and Mellon greatly affected was monetary policy. Coolidge believed, accurately, that inflation was the twin of taxes and that it, too, was expropriation. In an inflationary environment those who hold the dollars find they can buy less. The Coolidge Treasury and the young Fed pursued a monetary policy that yielded deflation. Unemployment, for its part, politely held back, staying below 5%.

Coolidge also refrained--and caused the U.S. to refrain--in other areas. One of these was agriculture. More than once Coolidge vetoed what would later be called farm allotment--the government purchase of commodities to reduce supply and drive up prices. Coolidge also made a habit of refraining in his refraining. Rather than moving to veto a law, he often used the pocket veto--employing it so frequently it became an art form. Unlike many other successful politicians Coolidge also refrained from the temptation of running for a second full term. In 1928 he told voters, "I do not choose to run."

There were times when Coolidge really wiped out, such as when he willfully ignored the fragility of Weimar Germany and what it signified. But overall he and his partner at Treasury traveled smoothly. The U.S. averaged real growth closer to 4% than 3%, even during years of deflation. The Administration's budgets were in surplus. In 1927 Time magazine reported that Coolidge paid a call at the Mellon mansion in Pittsburgh and walked "near the smoky fork of the Allegheny & Monongahela Rivers." Together the men looked at the spot on the Allegheny where George Washington fell off a raft into freezing waters. The pair understood that their policies had helped them steer past a few potential disasters.

Many other Coolidge-isms are described by my fellow authors in a new anthology (this article is adapted from my contribution) published this month, Why Coolidge Matters (National Notary Association). The piece by the Pittsburgh Post-Gazette's David Shribman on Coolidge's common sense is especially interesting.

Today our government has moved so far from Coolidge's tenets that it's difficult to imagine such policies being emulated. But it is precisely this remove that is creating a new and national fascination with the Great Windsurfer.

Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations; Paul Johnson, eminent British historian and author; Lee Kuan Yew, minister mentor of Singapore; and David Malpass, global economist, president of Encima Global LLC, rotate in writing this column. To see past Current Events columns, visit our Web site at www.forbes.com/currentevents.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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