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?
In recent years, Coolidge has become a hero of fiscal hawks, the very embodiment of thrift and austerity.
And for good reason: Coolidge was, in fact, a champion of low taxes and even lower spending. But pigeonholing his politics is a mistake. While he believed firmly, almost devoutly, in the primacy of the private sector, he also understood that government had a vital role to play, especially when it came to managing the business cycle.
Like many of his contemporaries, Coolidge believed that government spending could spur recovery. In particular, he endorsed the notion that publicly funded construction projects could jumpstart a stalled economy.
“The idea of utilizing construction, particularly of public works, as a stabilizing factor in the business and employment situation has long been a plan of perfection among students of these problems,” he said in a 1925 speech to the Associated General Contractors of America.
Surprising words for a rock-ribbed champion of small government. But not wholly out of character, either. Note, first, that Coolidge was making an argument about timing, not the overall volume of public works.
If in periods of great business activity the work of construction might be somewhat relaxed; and if in periods of business depression and slack employment those works might be expanded to provide occupation for workers otherwise idle, the result would be a stabilization and equalization which would moderate the alternations of employment and unemployment.
Coolidge, in other words, wanted to free public works from the artificial constraints of an annual budget cycle. By ramping up construction during recessions, and scaling it back during booms, the government could smooth the business cycle without spending more money over its duration.
Indeed, Coolidge stressed that countercyclical spending would actually save the government money. “When everybody wants to do the same thing at the same time, it becomes unduly expensive,” he said. “These conditions reverse themselves in times of slack employment and subnormal activity, with the result that important economies are possible.”
The Coolidge case for countercyclical spending might be described as proto-Keynesian, but it fell short of a full-fledged argument for stimulating aggregate demand through activist fiscal policy.
Still, it demonstrated a flexibility in Coolidge’s thinking that might surprise his admirers. Coolidge understood -- even if some of his modern-day champions don’t -- that sometimes budgets need a little less “control” and a little more reckless abandon.
(Joseph J. Thorndike, a contributor to the Echoes blog, is the director of the Tax History Project at Tax Analysts and a visiting scholar in history at the University of Virginia. The opinions expressed are his own.)
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