It’s still the economy, stupid!

I hope my readers will forgive me if I digress just a little (again!) from Calvin Coolidge in order to remark on the current race for the GOP nomination.

Some commentators have opined that Mitt Romney may be in trouble to the extent that economic numbers start looking better. With some reason, they make the case that his candidacy is built largely on his strength on the economic front – the ideal CEO fixer-upper for an economy that’s been in the doldrums for some years now. And presto! as soon as some jobs numbers tick upwards, not only does president Obama suddenly look a lot less vincible (is that a word? probably not), but social conservative dreamboat and vest model Rick Santorum is looking a lot better all of a sudden.

I think that’s all foolishness, and if Romney is smart (he’s supposed to be), he’ll still make the case that one swallow does not a summer make, and that, regardless of one or more positive quarter, the direction of the economy is still wrong, will continue to slide in the wrong, statist direction under Obama, and needs to be turned around. He may need to throw a bone or two to social conservatives, but he should be stressing that America can’t afford to dawdle away precious time on questionable social issue battles while a tide of red ink and unrestrained big government spending are still steadily rising, the president’s sleight-of-hand budget proposals notwithstanding.

Calvin Coolidge was basically a one-issue president – the issue being a laser-like focus on budget discipline and on cutting the debilitating debt incurred during WWI. Since not everyone appears to have grasped that today’s debt crisis is every bit as severe as that of the early 1920s, Gov. Romney will need to summon more clarity and conviction on this issue in order to make his point clearly understood. This will serve him well against a president who does not have an economic plan that goes beyond tax-and-spend.

Tightwads vs. Spendthrifts

Here’s an excellent and still timely 2006 article by Burton W. Folsom over at The Freeman on the changing presidential attitude towards debt over the years. If you have no time to check out the article, note George Washington’s statement to

ā€¯avoid the accumulation of debt. . . by vigorous exertions in time of peace to discharge the debts which unavoidable wars have occasioned, not ungenerously throwing upon posterity the burthen which we ourselves ought to bear.”

By way of contrast, Folsom characterizes the attitude of contemporary presidents (of either party) as

“‘Tis better to have spent and lost than never to have spent at all.”

Our man Coolidge is of course mentioned among the good guys, those presidents who managed to turn in budget surpluses for most of the years between 1791 and 1931.

Dateline Northampton, June 19, 1931

80 years ago on this day, Calvin Coolidge devoted his daily column to a subject near and dear to his heart ( as it ought to be to ours), namely, government debt.He scarcely could have anticipated the day when the national government would be debating ever more extravagant debt ceilings. I wonder if his thinking really is so old-fashioned and outmoded or whether we might do well to follow his advice regarding the virtues of thrift and economy.

As the income and earning power of the people decline, due to depression, governmental debts and expenses become a real problem. We have been going through an era when nearly all the public debts except those of the national government have been increasing. The expectation was that the general expansion of business would make it easy to pay them. Now the opposite condition prevails.
Ba retiring and refunding its debt the national government is saving nearly half a billion dollars annually in interest. The only other course would have been more extravagant spending or reduction of taxes. Either one of these would have aggravated the present serious situation of the Treasury.

When money is borrowed by a government or an individual to pay current expenses it means living on capital. If carried far enough, disaster results. When debts are paid it means capital is restored. If carried far enough, prosperity and plenty follow. Some of our municipalities borrowed too much in the day of plenty and are not able to meet their obligations. The national government economized some, though not enough, in the day of plenty and is now able to get credit to take care of the day of adversity.

Dateline Northampton, Feb. 18, 1931

In his daily column of Feb. 18, 1931, a scant 80 years ago today, Calvin Coolidge reiterated his belief that the repayment of debt must take precedence over other other considerations, such as further reducing taxes. It is a message that Republicans might do well to heed today.

We still have a small body of thought that considers the national debt has been reduced too fast. It is claimed that the surplus should have been applied to a reduction of taxes. By the same reasoning it would be proven that taxes should be kept down and money borrowed to meet running expenses. It was a great saving to the taxpayers to reduce the debt when the value of the dollar was low. It takes about twice as much cotton, corn, wheat, copper and other materials now to make the same payments as it did two or three years ago.

If it is argued that liquidation of the debt disturbed financial conditions one answer to that is that for every dollar the national debt was reduced state and local governments increased their debts over a dollar.

Besides these reasons any one who knows the enormous pressure on the Congress by organized minorities knows that if the revenues had not been used to reduce the debt they would have gone into additional expenditures rather than tax reduction. Great interest charges have been eliminated. Sound finance calls for payment of debt and makes the revenues of each year meet the expenditures.

On a contemporary note, Nick Gillespie and Veronique de Rugy detail in their very worthwhile article, The 19 Percent Solution, that the main driver of a veritable spending explosion projected by the CBO over the next decades is interest spending, which will grow from 1.4 percent of GDP (or $204 billion in 2010 dollars) to an astonishing 41.4 percent of GDP (or $27.2 trillion in 2010 dollars) over the next 70 years. Even in the short run, it will balloon to 7 percent of GDP by 2030. As every businessperson knows, deficit spending today triggers an avalanche of interest down the road. Coolidge was right that debt reduction is the best strategy to save taxpayers money in the long run.