Echoes Dispatches From Economic History

Amity Shlaes & Joseph J. Thorndike

History Suggests Debt-Ceiling Fights May Be Good for Us: Echoes

over 3 years ago
Inexorable Rise

A sanctimonious president refuses lawmakers the cuts they demand. The federalists in Congress grow cocky. They'd rather force a bond-market crisis than raise the debt ceiling or erode states' rights.

"I'm not worrying," the firebrand Virginian leading the opposition to the president says, and charts his own version of the budget. "I'm sticking to my guns. We've got a prairie fire started among the people in favor of cutting the budget."

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Amity Shlaes & Ilan Kolet

Post-Crisis, A New Mission for the IMF: Echoes

over 3 years ago
Crisis Management

The IMF, discussed here this week, was key in preventing a much broader economic crisis after the financial turmoil of 2008. Year-to-date IMF credit outstanding, which measures active borrowing, among other things, has since increased to record levels. The fund has revamped its lending program and was able to quickly approve loans for countries in distress, most notably Greece and Ireland.

Once the global economy regains strength, how should the role of the fund evolve? And what can it do to prevent burgeoning bailouts in the future?

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Joseph J. Thorndike

Are Tax-Free IMF Salaries Inflated?: Echoes

over 3 years ago

The International Monetary Fund has long been considered a good place to work. Salaries are high and benefits are plentiful. Ask Christine Lagarde, who's getting a pay package worth about $550,000 in her new role as managing director.

Lagarde's pay has drawn some scrutiny to the IMF's perks, and not for the first time. Critics have complained for decades that the fund's employees (and their counterparts at the World Bank) are allowed to live large at taxpayer expense.

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New Hampshire Conference

Men are from Mars, but the IMF is from Venus. Or should be. That’s the message the International Monetary Fund’s new managing director, Christine Lagarde, delivered when she was campaigning for the job.

"If I were elected as managing director," Lagarde said, "I would stand on my feet as a woman, not necessarily with a pair of trousers, and certainly with a level of testosterone that would be lower than many in the room today."

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Nikolai Krylov

Is Government Spending Historically High?: Echoes

over 3 years ago
Federal Spending: The Long View

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.

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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.

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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?

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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.

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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.

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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.

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Amity Shlaes & Ilan Kolet

The Coolidge Prosperity by the Numbers: Echoes

over 3 years ago
Misery Through the Ages

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.

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Disposable Personal Income

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."

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Amity Shlaes

Correcting the Coolidge Record: Echoes

over 3 years ago

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."

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Joseph J. Thorndike

How Calvin Coolidge Saved the Income Tax: Echoes

over 3 years ago

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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(Corrects Coolidge quote in fourth paragraph.)

Americans like the idea of a business president. Someone who can grow the economy seems especially desirable these days, with all the talk of a jobless recovery and double-dip recessions.

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Amity Shlaes & Ilan Kolet

Should We Blame Grandpa for Teen Joblessness?: Echoes

over 3 years ago
Robbing the Cradle

As we mentioned earlier this week, increases in the minimum wage may be one factor pushing teenagers out of the workforce. Another factor to consider may be the increase in employment among older Americans.

As this graphic shows, the labor-force participation rate for those 65 and older has nearly doubled since reaching a low of about 10 percent in the mid-1980s. It peaked earlier this year at 18 percent. The last time senior participation rates were this high was in the late 1960s.

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Mathematicians and economists like to highlight the minimum wage as a cause of underemployment because they can lean on arithmetic and basic microeconomics to make their arguments.

There's less evidence  available when it comes to the squishier factors that may hinder employment. One party undertaking the difficult task of quantifying such factors is the U.S. Chamber of Commerce.

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Amity Shlaes

Do We Actually Have a Labor Shortage?: Echoes

over 3 years ago

We have it backward. There is a labor shortage, not a surfeit. That's what my colleagues at the Council on Foreign Relations' Center for Geoeconomic Studies suggest this week.

For more, check out their site.

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Joseph J. Thorndike

Can Tax Credits Create Jobs? Don't Bet On It: Echoes

over 3 years ago

In her post this week, Amity Shlaes reminds us that when it comes to labor costs, “margins matter.” By raising the cost of labor, minimum-wage laws curb hiring. If that’s true, then government policies to reduce the cost of labor should boost employment, right?

If only.

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Amity Shlaes

Blame Minimum Wage for Youth Joblessness: Echoes

over 3 years ago

Margins matter. That’s what New Hampshire lawmakers were really saying to their governor, John Lynch, last week when they overrode his veto of legislation that limited increases in the minimum wage.

The law ties the New Hampshire minimum wage to the federal wage of $7.25 an hour. The effect is to guarantee New Hampshire employers an advantage of somewhere between $0.15 and $1.00 an hour over employers in other New England states, where minimum wages range from $7.40 an hour in Rhode Island to $8.25 an hour in Connecticut.

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About Echoes

Echoes is Bloomberg View's economic history blog. It is edited by Stephen Mihm, an associate professor of history at the University of Georgia and the author, with Nouriel Roubini, of "Crisis Economics: A Crash Course in the Future of Finance," and of "A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States."