Echoes >> Analysis, insights & evidence from economic history, with Amity Shlaes
Is Government Spending Historically High?: Echoes
As the debt-limit debate heats up in Congress, we're hearing a lot of talk about how much the government spends. The more pertinent question is how much it spends in relation to the overall economy.
A look at this chart shows just how high that figure has climbed. Total federal expenditures as a share of the national economy dropped drastically after World War I. They kept creeping downward through the 1920s before rising in the 1930s and ballooning during World War II. The end of that war ushered in another big decline.
Budget Advice From the Clinton Era: Echoes Book of the Week
Since the early 1980s, the only time when the federal debt has declined as a share of gross domestic product was from 1997 to 2001, during President Bill Clinton's second term. As officials in the White House today struggle to turn the economy around, one book they might pick up is Clinton's 2004 memoir, "My Life."
It's tempting to look back on the Clinton years as a halcyon era. During his eight years in office, the economy expanded almost 4 percent annually. The unemployment rate fell to 4.7 percent in January 2001, when Clinton left office, from 8 percent in January 1993, when he took over as president. The federal budget went to a surplus of $128.2 billion in 2001 from a deficit of $203.2 billion in 1994, the first year for which Clinton signed appropriations bills. By 2000, federal debt as a percent of GDP had fallen to 57.3 percent from 66.1 percent in 1993.
In Coolidge Stimulus, A Lesson For Today's Fiscal Hawks: Echoes
If Calvin Coolidge were president today, what would be his recipe for recovery? Would he call for “reduced spending, sound monetary policy and low taxes,” as Amity Shlaes suggests in her post this week? Or would he ask for something different?
Like, say, another round of stimulus?
Echoes: A Two-Step Approach to Solving Budget Gridlock
Two decades ago, President George H.W. Bush, Senate Majority Leader George Mitchell and House Speaker Tom Foley agreed to "the largest and most comprehensive deficit reduction package in U.S. history," according to the president's Council of Economic Advisers, on which I served as a member at the time. We estimated that the deal would "reduce the Federal deficit by a total of nearly one-half trillion dollars over the next 5 years."
Economists still debate whether the deal actually reduced the deficit over those five years, let alone by a half trillion dollars. But there's little debate that by agreeing to the Democrats' request to increase tax rates, Bush lost the White House in 1992 to Bill Clinton, who then raised taxes again, with the top rate going up to 39.6 percent, well above the 28 percent rate before the 1990 deal.
Margaret Hoover Talks Politics, Depression Economics: Echoes
Calvin Coolidge and the businessman-as-president were the topics of my column last week. In it, I depicted Herbert Hoover as a businessman who suffered the supreme humiliation of failing at the business of the presidency. Hardly an original move -- who doesn't criticize the 31st president?
But now Hoover is striking back, at least through the medium of his great-granddaughter, the television commentator and author Margaret Hoover.
To Cut Budget, Concentrate on Growth, History Shows: Echoes
Reform the process. That's the solution often put forward these days to control federal spending. Budgets? They require triggers, one of Washington's favorite new words, to automatically restrain deficits. The debt ceiling? That's all about fiddling with the rules, too.
But controlling the budget isn't merely about rules. It's also about the will of legislators and voters to change law and policy in all fields, from monetary to tax, as well as to change what might be called the spending culture.
The Coolidge Prosperity by the Numbers: Echoes
Every president must confront two major economic challenges: inflation and unemployment. The sum of the two has been called the Misery Index.
In the past, economists argued there was a trade off: You could pick one misery or the other. As this graphic shows, this isn't always the case. Under some presidents, such as Jimmy Carter, both high inflation and unemployment abided. Under others, such as Dwight Eisenhower, the country suffered from little of either.
On the 10th Anniversary of the Keynesian Revival: Echoes
July marks the tenth anniversary of the revival of discretionary countercyclical fiscal policies in the U.S. Such Keynesian policies -- sending checks to people to get them to spend more, temporarily increasing government purchases, offering temporary tax credits -- are intended to counter economic downturns.
They were popular in the 1970s, but then fell out of favor during the 1980s and 1990s, largely because they didn't seem to work: in the 1970s, the economy performed very poorly, with both high inflation and high unemployment. In 1978, Nobel Laureate Robert E. Lucas Jr. and his distinguished co-author Thomas J. Sargent wrote an influential, devastating critique of these policies called "After Keynesian Macroeconomics."
Correcting the Coolidge Record: Echoes
Jim Cooke, a Coolidge impersonator and presidential expert, wrote in to note that my previous Echoes post had Coolidge slightly wrong.
Coolidge said: "The chief business of the American people is business" and not, as the column said, "The chief business of America is business."
How Calvin Coolidge Saved the Income Tax: Echoes
For Calvin Coolidge, taxes were a necessary evil. And they were most evil when they weren't necessary.
“The collection of any taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny,” he declared in his first inaugural address.
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Echoes Contributors
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Joseph J Thorndike
Thorndike is the director of the Tax History Project at Tax Analysts and a visiting scholar in history at the University of Virginia.
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John B Taylor
Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution. From 2001 to 2005, he served as the Under Secretary of the Treasury for International Affairs.
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Ilan Kolet
Kolet is a data editor in the Ottawa office of Bloomberg News. From 2002 to 2010 he served as a senior economist at the Bank of Canada covering the U.S. economy and commodity prices.
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