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Transcription of interview with Amity Shlaes on April 8, 2013.
Douglas Goldstein, CFP�, Financial Planner & Investment Advisor
Amity Shlaes is a columnist for Bloomberg and a senior fellow of the Council on Foreign
Relations. She is also a bestselling author and has recently come out with a book about
Calvin Coolidge.
Douglas Goldstein: What made you write about Calvin Coolidge?
Amity Shlaes: Calvin Coolidge was the 30th president of the United States, serving in
the 1920s. The single answer is that today we have a model of president as action figure,
as action toy almost. The U.S. president has to jump in everywhere and everything, whether
it�s a domestic challenge or an international one, and Coolidge was a champion of inaction.
He ruled or led by doing little. He wouldn�t have even used the word �rule,� and yet
his results were so good. We had a very strong economy in United States in the 1920s.
The one thing you do want to mention about him is that Coolidge served for 67 months
as U.S. President, and when he left, the federal budget was lower than when he came in. Now,
it is retentively impossible for a president to leave this. Maybe a president would reduce
the increases if you�re someone who actually cut through concerted inaction.
Douglas Goldstein: Times were a little bit different then. There were just not the same
level of promises that governments made to help people and to help the sick, and they
didn�t have the same kind of commitments to the old. We also have a lot more old people
than we did then. So are we really comparing apples to apples?
Amity Shlaes: What I discovered in researching Coolidge is that there were strong progressive
forces in the United States at that time. The national ownership of electric power,
for example, liked the idea of owning the railroad, the principal method of transportation
at that time. It was an ambitious Progressive party, and the year President Coolidge did
run for president, you want to recall, he came in when a president died. He was vice
president and he had to run himself in 24. The Progressives captured 17% of our U.S.
vote for those radical ideas, and then there were the Democrats.
Yes, there was strong pressure for certain government spending. The Progressives were
veterans who returned from World War I in pain. We had universal conscription in the
United States in World War I. There were no antibiotics here and they sought a pension,
what we called a bonus in the 1920s, and Coolidge turned that down. It�s not exactly like
today. The U.S. government is much larger relative to the economy than it was at that
point, but there are some strong analogies. You want to remember too that in Europe, the
progressives and the socialists were doing wild things. There were revolutions and at
that time, we thought such a revolution might be possible in the United States, so to say
no could be politically risky. America was a less stable place.
Douglas Goldstein: Very soon after he left, things began to fall apart quite substantially.
Was that because of his policies or that because of the new policies that then came in?
Amity Shlaes: This book is the prequel to Forgotten Man, the history of the 1930s. Forgotten
Man lists a number of reasons why the Great Depression happened. The Great Depression
was long- it was a decade. Starting with the crash, we had many other crashes in the United
States with no Great Depression, and I list some of the reasons for this multi-causal
disaster, taking place over years, like Japan more recently. It was a ten-year story, at
each point a wrong turn of the Great Depression. One of these was that we pushed up labor prices,
and another was that we increased the government�s mandate and couldn�t handle it, and the
third was absolutely arbitrary, with the value of money in the 1930s in the face of a monetary
problem and deflation. Another is that we raised taxes and we increased tariffs.
All these things happened after Coolidge. They don�t start with C for Coolidge. The
only one of them really that you can affiliate him with is the tariff, because he was a Republican
and the Republican Party was always for tariffs. But he did not sign the infamous Smoot-Hawley
Tariff. So I have trouble, having studied the Great Depression for Forgotten Man for
so long, with assigning blame to Coolidge for it. You want to know too that in the U.S.,
he felt the government intervention would set a bad precedent.
When the stock market went very high in the 1920s and it did disturbingly high, Coolidge
was personally disturbed, but he did not want to set a president of Washington intervening.
At the time, the states regulated the stock market, so it would�ve been New York State.
There are many clich�s. We believe the crash caused the Depression, or that the 20s caused
the crash and the Depression. You want to delink them or unpack or uncouple all these
clich�s because a lot of thinking people recognize that these assumptions don�t hold
any truth.
Douglas Goldstein: What could we learn from President Coolidge�s economic policies that
could be applied today?
Amity Shlaes: If you read it together with Forgotten Man, you will see that a president
who is less active, I called him the great refrainer in this book, can get good results
because we haven�t spoken about it yet but the results of the 1920s were very interesting.
We had strong growth in the U.S. in the 1920s. We had low unemployment and barely noticed
recession. Our union membership dropped, and that�s particularly relevant for Israel,
even as wages increased in their purchasing power.
The U.S. was basically a happy place in the 20s. We had a few sad spot,s and one was farming
but it was basically a happy place. There was a wonderful book called Middle Town, a
snapshot of the U.S. in the 1920s, by a pair of sociologists called Lynd. You�ll see
everyone got cars, washing machine, vacuum cleaners, electricity, and telephones, and
our health got better here. It was an upbeat decade, and most of that sort of upbeat was
real. That is to say, we saw productivity gains in our economy that were admirable.
We saw patents increased in the U.S. very strongly. All of this is going on even as
the government is pulling back. Our tax rate under Coolidge went down to 25%, and that
is lower than Ronald Reagan.
Why don�t we know about this? I think, working backwards, we want to justify what Roosevelt
did as good, and since it took Roosevelt a decade to get us out of the Depression, whoever
caused that before must have been mighty bad, or so the emotional logic says, and therefore,
we want to ignore how good actually the 1920s were. You want to separate emotional logic
from true logic.
Douglas Goldstein: Certainly a lot of the Keynesians today are talking about how after
our most recent real estate credit crash a few years ago, by increasing taxes and increasing
government spending all of a sudden we�re finding that unemployment has come down and
that the stock market is flying again. People seem to be in a little bit of a better mood,
albeit perhaps a little bit on a shaky foundation, but it seems that you can take up opposite
conclusions from the two different recoveries.
Amity Shlaes: It is important to understand that with the Progressives, as strong as they
were at the time, when people believed in the Progressive move that you want to think
about what was happening in your part of the world at that time or in Europe, Coolidge
took an absolute majority of the vote, beating the Progressives and the Democrats combined.
It�s possible in an economic crisis to go for free market, or less government even,
to force recession. As we know, in the name of stronger growth subsequent to the recession,
people are not sheep or rabbits. They have souls and thoughts and they have memories
and they can look forward, and that�s what Coolidge showed. I think I would just stick
with that.
Douglas Goldstein: Given the complexity of the way legislation is handled in the United
States today, is it even possible to imagine that the subsidies and all the support programs
could in fact significantly be changed and cut?
Amity Shlaes: You�re participating in U.S. arrogance when you assume the U.S. could not
change. The U.S. will have its credit rating go down, and its currency will be challenged.
Our unemployment rate today, down as it is, is not acceptable for U.S. standards unless
we become like Europe. It should be below 5, not well above it. Our young people are
unemployed, as in Europe and perhaps in Israel, and that�s not acceptable. Our young people
are now seeing a mortgaged future, as you have and Europe has, but we have historically
not always had. There will be a crisis. There will be a credit rating coming in, and then
our people will need heroes, and what I would put to all of us is that Coolidge is a good
hero.
He studied ancient languages. He knew Latin and Greek. He knew Italian and he translated
Dante. He had a view about the Hebrews in a kind of old-fashioned bibley way. His name
is Calvin, as in Calvin, but he also had an interesting respect for Jewish communities
in the United States. There�s a famous conference between him and the Federation of Jewish Philanthropic
Societies of New York, and they were at the Hotel Pennsylvania and he was in Washington.
He told them that he commended them for raising $7 million and for budgeting so well, that
is, for not being corrupt and for spending well. There�s one thing that he said: �I
believe in budget,� and he told them, �I regarded a good budget as among the noblest
monuments of virtue.�
Coolidge was a scrooge. He budgeted at the White House. He budgeted everywhere. He didn�t
tip well, but he honored what he was good at - contracts. He didn�t trick people.
He had a theory in business that we would all like to adapt, which is that he wanted
to deal with people so well that they would come back and do business with him again,
rather than some kind of transactional cynical rip off, which is the other model we have
here and also in Israel: �I�ll get what I can. I�ll never see you again. The market
is anonymous.� He thought the market was not anonymous and everyone knew everyone.
The world is tiny and we do run into people that we�ve met before.
Even here, the market is not anonymous, even when it�s vast, like international capital
markets. Markets have memories, and individuals have memories, so I like that about him. He
tried to make everyone always want to do business with him again, and that too contributes a
trust level to economic growth. One of the interesting things that we discovered in the
recent U.S. crisis is that we didn�t have good measures for trust and growth, where
people trusted markets to invest in them or held back. We were insufficiently capturing
that with our extant indices.
One of them that I like very much is a new one by the University of Chicago in combination
with Northwestern Kellogg, by a scholar called Paola Sapienza. She tries to capture whether
people trust the market and trust their investment partners. Go and look at this. It�s the
Chicago Booth Northwestern Kellogg Financial Trust Index, and that would be a good way
to fill out markets as well. When trust goes up, people trade more frequently.
Douglas Goldstein: How can people follow your work?
Amity Shlaes: I run a high school debate program that teaches youngsters how to think about
economics with the George W. Bush Presidential Center. It�s a presidential library where
we do that kind of thing and that�s a lot of fun. You can see it on www.amityshlaes.com
and you can see a lively discussion of the merits of Coolidge on my Facebook page, the
one with the Coolidge picture.
Douglas Goldstein, CFP�, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel. Securities offered
through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried
by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
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