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Amity Shlaes: Free Markets Can Appeal to the Working Class

It takes a Coolidge. You can’t get the votes, idiot.

That’s how policy analysts rebut anyone who suggests that the best Republican platform is the old one. They say the era of advancing the abstractions of traditional liberty, austere government, and low taxes is past; to win, Republicans have to act like Demo­crats, offering social programs, child credits, and cooperation with labor unions. Or, as Julius Krein, the editor of American Affairs, put it in a recent William F. Buckley Jr. Program event at Yale: “The Democrats represent the ascendant economic winners. I don’t think that another lecture on Hayek is going to change that for anybody.” Markets come second, and federal spending doesn’t matter anyhow — modern monetary theory assures us of that. This is the moment of Hillbilly Elegy, not Free to Choose.

But evidence from another era — the 1920s, especially the presidency of Calvin Coolidge — suggests that sticking to free markets can get Republicans votes, even from the working class. And, far more important, sticking to markets can yield an economy that benefits those workers — along with everyone else.

The mood of the nation in 1923, the year Warren Harding died and Coolidge succeeded him as president, was strikingly similar to that of today. Progressivism was on the march, even within the Grand Old Party. The 1920 Republican platform, emphasizing free markets at home, already looked retro. Progressives were in the process of founding their own party, ripping away a daunting share of the Republican constituency. Coolidge’s prospects for winning election in 1924 were far from assured. Harding had besmirched the presidency and the free-market ideal itself with Teapot Dome, a scandal in which the president’s cabinet and friends favored friends in the privatizing of oil-rich government lands. Only high earners paid federal income taxes then, so the GOP’s income-tax-cut plans were ridiculed just as capital-gains treatment for carried interest is today: sops to the rich. Nor was all well in the economy: Commodity prices had plunged, with many farmers facing foreclosure.

As a new president, Coolidge had the chance to retool his party, introduce compassion, disavow magnates as robber barons, aid farmers, and woo back some Progressives. In the race for economic primacy, America had moved ahead of Britain, but sustaining first place was anything but sure. In Britain, politicians were opting for what today’s politicians would call social-democratic moves: London’s compassion included the then-new dole, an unemployment payment. Perhaps American Republicans, too, should opt for markets with a human face. That was the bet of Republican comers such as Herbert Hoover. Hoover, a technocratic consultant, a sort of pre-Romney, publicly ridiculed proponents of pure laissez-faire philosophy.

The other choice for the man moving into the White House was to push the old, frosty, abstract Republican program: austerity cuts, spending vetoes, tax cuts for high earners, and support of freer markets. The party could then explain — a tough challenge — that the results would trickle down to the lower earner. Having observed the absurdities of Prohibition enforcement in real time, Coolidge had no intention of writing further “pro-family” laws. The better policy for firming up American primacy, Coolidge wagered, was to opt for old and cold. Coolidge was therefore also wagering that even blue-collar workers would understand.

The accidental president started his work by pushing a policy Republicans wouldn’t dare to articulate today: austerity. “I am for economy, and after that I am for more economy.” The farm lobby expected that Vermont-born Coolidge would accept the McNary-Haugen bill, a bipartisan agricultural-subsidy measure voted through by both houses. But Coolidge vetoed McNary-Haugen twice, along with dozens of other “compassionate” laws.

Presidents who lead by example get more support for their policies. At the White House itself, Coolidge also modeled austerity, going so far as to lay off a housekeeper, Mrs. Jaffray, who had been there since William Taft. Her habit of frequenting costly specialty shops irritated the chief executive. Beguiled by the then-young concept of the economy of scale, Coolidge sent his staff to shop at a supermarket. He advertised his commitment to business and markets everywhere, right down to his pets: When Coolidge received a gift of twin lion cubs, he named them not “Champ,” “Bo,” or “Barney” but “Tax Reduction” and “Budget Bureau.” By the time Coolidge left office, he had, through upright behavior, wiped the Harding stain on the presidency clean away.

With his Treasury secretary, Andrew Mellon, Coolidge mounted a tax-cut campaign. To get his first income-tax cuts, Coolidge had to give Progressives a concession, instantly dubbed the Peeping Tom rule: Under the new law, authorities affixed the amount of taxes that individuals paid beside their names on the walls of post offices across the land. (The New York Times helped out the class warriors by publishing an alphabetical list of taxpayers and their payments.) Once the 1924 cut was law, Coolidge managed another, taking the top rate down to a Reagan-like 25 percent. The unions? Coolidge mostly ignored them.

Coolidge practiced this policy not because he didn’t care for the disadvantaged but because he did. He believed, and the evidence began to show, that lower taxes on high earners would cause them to do the best thing one can do for workers: provide more jobs. Coolidge supported federal spending on education from time to time, and explicitly en­dorsed subsidy for the medical school at Howard University. He loudly affirmed blacks’ right to run for office and signed a law that ensured all Native Americans were citizens. But Coolidge did not infantilize voters or ghettoize groups with direct payments.

Voters warmed to Coolidge’s strategy of cold. In 1924 the Progressives mounted their own candidate, Bob La Follette, who won a Perot-esque 17 percent of the vote (the Democratic candidate, John W. Davis, garnered 29 percent). Coolidge won an absolute majority, 54 percent, and, now elected in his own right, doubled down on budgeting and low taxes. The economy grew strongly in the 1920s. Unemployment stayed low and union membership declined, as did the Ku Klux Klan. Most Americans, including those hillbillies who went north to work in Detroit, benefited: The 1920s were the years when the factory work week went from the traditional six days to five. The shift was possible owing not to unions but to productivity gains. In short, the wealth really did trickle down. The class-war cartoon of America’s economy faded. In his 1926 tax law, Coolidge even managed to get through a section repealing the creepy Peeping Tom provision.

Coolidge had his warts: His support for tariffs, especially those imposed on beleaguered Cuba, hurt the cause of democracy. (If you wanted to twist this argument hard enough, you could argue that Coolidge set the stage for the rise of figures such as Fidel Castro.) But Coolidge backed free markets strongly enough for America to pull farther ahead of Britain. By the late 1920s, the word “dole” had become a pejorative so strong that even President Roosevelt would eschew it. America of the balanced budget had gained a firm purchase on the No. 1 spot among economic powers.

The first takeaway here is that even ur-Reaganite policy can succeed even in a progressive moment. Second, character does matter — in individual leaders’ comportment more than in allegedly pro-family legislation. Third, “hillbilly policy” disses hillbillies. The current hillbilly narrative notwithstanding, Americans are essentially alike in their desire to see their children do better than they have. Education and opportunity, not universal-income payments layered on top of other forms of welfare, are still the answer there. Yet Republican strategists insist on crafting ultra-targeted faux-federalist fusion “nudge” packages à la Cass Sunstein in the name of securing votes.

The irony here is that the American invincibility that Coolidge helped to establish appears to obviate the urgency for Coolidge-level fiscal discipline today. But only appears to. That’s because one day soon, the dollar, and with it our economy, is likely to be challenged by a serious competitor. The prima facie evidence that distrust in the dollar already looms is the improbable rise of  Bitcoin. A more credible dollar challenger will emerge one day. Then simple, small-“r” republican values will be worth their weight in not only Bitcoin but also euros or gold. And then the party that has ostentatiously abjured these principles won’t get the votes.

Amity Shlaes is the author of The Forgotten Man and its sequel, Great Society: A New History.

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Posted: December 17, 2020 Thursday 09:30 AM