Ruminations, January 25, 2009

Depression relevance

Once upon a time, the U.S. had hit pretty bad economic times. The Federal deficit was nearing record proportions. Unemployment went from 2.3% to 20%. The price level had declined by 40% in a single year. The Production Index declined from 125.3 to 99.7. Farm bankruptcies were up 20%. The Gross National Product (GNP) plunged 13%.

A new president took office and delivered a plan to Congress.

1)       National debt reduction

2)       Tax reduction

3)       Federal spending reduction

4)       Immigration restrictions to protect American jobs

5)       An emergency tariff to protect American industry and farm commodities.

6)       Farm relief legislation

Congress acted and federal spending was cut in half; taxes were cut by a third. The result? In a little over a year, unemployment went from 20% to 3.2% and the Production Index went up to 145.3. In a few years, the stock market tripled. The GNP grew almost 16% in the first year and continued to grow. The President’s plan worked. It worked so well and that depression ended up being such a minor blip that no one remembers President Warren Harding and how he fought the 1920-21 depression.

What we do remember is President Franklin Roosevelt as the depression-fighting president. Roosevelt acted by tripling taxes and stimulus programs abounded (Federal spending doubled in Roosevelt’s first year and had tripled by 1940). During Roosevelt’s pre-war tenure, unemployment averaged 18.6%.  In short, although the GNP did grow, his actions were not wholly successful. The Depression lingered during his entire first two terms.

Of course, times were different in 1921 than in 1933. And things are still different in 2009. Just because something worked or didn’t work in 1921 doesn’t mean it will have relevance in 2009. Also, things that worked or didn’t work in 1933 also may not have relevance in 2009.

However, one would hope that in a time of economic crisis, our leaders would examine the administrations of all presidents who dealt with economic turbulence. There may be some lessons and some relevance in some of their actions.

Power of persuasion

Several years ago, I enrolled in a cost accounting course offered by the American Management Association in New York City. The course ran several weeks and was quite comprehensive.

At one point, late in the course, we broke into teams to resolve some hypothetical problem. We had several questions to answer for our exercise. I don’t know if it was because I seemed to have more knowledge of the subject, verbalized issues during discussions or had an air of confidence but I became the leader of our group. I had an idea for each of the half dozen or so questions that we had to answer and, after discussion, everyone on my team agreed that my answer was the best. When we met with the entire class, our instructor provided the right answers; every answer our team had – and I mean all of them – was wrong.

There is a good lesson, besides humility. Just because one has more knowledge, verbalizes issues at length and has an air of confidence doesn’t mean that he or she knows all – or any – of the right answers.

President George Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke made an effort to lead this country from the economic doldrums. President Barack Obama is about to lead this country through the continuing perilous times. Bush and his staff and Obama and his staff seem to be knowledgeable, have verbalized issues at length and have an air of confidence in their proposals. It doesn’t mean they’re right. I hope they are but we should not accept their answers without a fight when and if we think their answer is wrong.

Professionals in government

During the Bush Administration, it sometimes seemed as if a war was going on between the State Department and the Administration. Leaks and working at cross-purposes often seemed like the operational norm at State.

This was not just an impression that conservatives had, it was widely recognized. Last week, Secretary of State Hillary Clinton addressed members of State on her first day in office. She told them: “This is a team, and you are the members of that team. There isn't anything that I can get done … or the President can get done … unless we make clear we are all on the American team. We are not any longer going to tolerate the kind of divisiveness that has paralyzed and undermined our ability to get things done for America.” (My emphasis).

Was this a one-off occurrence that existed only in the Bush Administration that Clinton was trying to correct? Hardly. Former president Harry Truman writing in his memoirs had this to say: "Every President in our history has been faced with this problem: how to prevent [government] career men from circumventing presidential policy."

We wish the new President and his Secretary well in dealing with the career men and women in State.

A mirror

An editorial in a foreign newspaper last week said that President George W. Bush got stubbornness confused with principles.

I started thinking about it and I got confused. Then it came to me – the difference between principle and stubbornness: When I stick to my beliefs and will not change them – that’s principled. When you stick to your beliefs and will not change them, that’s stubbornness.

So whether or not George Bush – or Barack Obama – is principled or stubborn depends on your point of view. And it says more about the speaker than it does about the subject.

What a good editor can do

If you’re president you need a good editor to word-smith your verbiage. You can steal ideas from former presidents but you need the brevity and rhythm to be quoted. To wit, here is the same idea from two former presidents:

Warren Harding, 1916: "In the great fulfillment we must have a citizenship less concerned about what the government can do for it and more anxious about what it can do for the nation."

John Kennedy, 1961: “Ask not what your country can do for you, ask what you can do for your country.”

Today we quote John Kennedy for his idealism and criticize Warren Harding for his lack of idealism.

Quote without comment

The late economist Milton Friedman: “If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.”

Robert J. Kulak

West Hartford, Connecticut