Practical analysis for investment professionals
01 August 2012

The Calvin Coolidge Approach to Saving America from Debt and Insanity: Just Say No!

These days, politicians the world over run their campaigns on promises of “change” and “taking action.” The theme is universal: “things will be different.” By extension, therefore, politics is all about saying “yes.” But in an era of high debt and low growth, American history affords at least two interesting counterexamples: Warren Harding and Calvin Coolidge, former Republican U.S. presidents who improved the country’s fortunes largely by saying “no.”

At the 2012 CFA Institute Financial Analysts Seminar in Chicago, author Amity Shlaes discussed key lessons from their presidencies, which spanned the years 1921 to 1929. They “led the country out of an economic mess in a period of unprecedented government debt levels — after the Depression of 1920–1921,” she explained, “and left the federal government smaller than when they came into office.”

In light of our current economic difficulties, it’s “an astonishing achievement,” added Shlaes, who is director of the 4% Growth Project at the George W. Bush Institute and author of The Forgotten Man: A New History of the Great Depression. The subject of Shlaes’ talk was her forthcoming biography entitled Calvin Coolidge: The President Who Said No.

As Coolidge’s predecessor, Harding, whom he served as vice president, cautioned in his inaugural address:

The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals . . . but we must strive for “normalcy” to reach stability. All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved. No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.

Even though Coolidge was much more likely to say “no” to requests for spending than Harding, both presidents made great strides in cutting taxes, balancing the federal budget, and reducing unemployment in the United States during the 1920s. “Some presidents are known for their work on foreign policy, others for regulation . . . Coolidge should be known as the economic president who cut and did budgeting,” said Shlaes.

In the first ever film to feature a U.S. president, Coolidge spoke to Americans about why every man pays taxes and said his goal for the people was “to work less for government and more for themselves.” Harding — along with Coolidge as his vice president — reduced the tax rate from 70% to 50%. In 1926 Coolidge, as president, brought the rate down to 25%, which is still the gold standard for tax cuts today.

Calvin Coolidge in First-Ever Presidential Address on Film

Coolidge’s political style and temperament were described as a combination of Scrooge and sourpuss — a man who intentionally kept his face blank and emotionless. “Silent Cal,” as he was known, didn’t like politicians and believed it was better to kill bad bills than to pass new legislation. He vetoed 50 bills during his administration, 30 of them by pocket veto.

Coolidge had weekly budget meetings so that he would be well-equipped to say no, and he berated government departments that overspent or didn’t cut spending. The media called him a “wet blanket, but technically marvelous” president who used “dullness and boredom as political devices,” Shlaes said. He was not telegenic, although he walked the walk and felt a personal responsibility to his fellow Americans for the federal budget. Unlike our politicians today, he understood the crucial importance of “certainty” about government policies and the effects of uncertainty on businesses and individuals.

When asked about the lessons of the 1920s for today’s policymakers, Shlaes said: “I find value in history. In the 1920-1921 recession, unemployment was 15% in some cities in the U.S. . . . Harding and Coolidge cut unemployment by half. They raised interest rates by 300 basis points from low levels and cut government spending also by half. The recession was over in six months!”

Coolidge was “a paradox,” Shlaes concluded, “a Scrooge who begat plenty.” Studying his presidency, she said, has “made me optimistic about our future and what could be achieved if we take the right steps.”

This year, the 2014 Financial Analysts Seminar will be held in Chicago on 21–24 July. Learn more about the agenda and speaker details on our website.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: John Garo

About the Author(s)
Julie Hammond, CFA

Julia Hammond, CFA, is a director in the Educational Events and Programs group at CFA Institute, where she leads the planning for a number of annual and specialty conferences, including the Fixed-Income Management Conference, the Equity Research and Valuation Conference, the Latin America Investment Conference, the Alpha and Gender Diversity Conference, and the Seminar for Global Investors, formerly known as the Financial Analysts Seminar. Previously, she developed strategies for pension, endowment, and foundation fund clients at Equitable Capital Management (now AllianceBernstein), and she has also worked as an auditor for Coopers & Lybrand (now PricewaterhouseCoopers). Hammond served for a number of years as chair of the investment committee for the Rockbridge Regional Library Foundation. She holds a BS in accounting from the McIntire School of Commerce and an MBA from the Darden School at the University of Virginia.

2 thoughts on “The Calvin Coolidge Approach to Saving America from Debt and Insanity: Just Say No!”

  1. tyc says:

    It bothers me and feel a need to ask these questions.

    First, what is “normalcy”? Is it a sense to be in the middle like the normal distribution that many of us have studied? Turning away from economic for a moment and thinking like an equity trader, would normal be similar to mean reversion trade? More generally thinking, does it mean a sense of balance at a specific time? Could it have other means and implications?

    Second, will the economy repeat back to normalcy by itself without people involvement? I doubt the answer is that simple.

    Thus my third question is, how can we identify an individual such as Coolidge (his style isn’t something a management text book would classified under good leadership category)?

  2. Jim Cooke says:

    “In my second term there was considerable speculation as to whether I was likely to change or not. I did not anticipate to change very much. I tried in the conduct of my office to be natural and I didn’t want to change that attitude. Now, there were two or three others that served with me in the conduct of the affairs of the United States and I should have been pleased if they had changed a little. Then I could have changed from saying: ‘No’ to saying: ‘Yes’ to them.”
    – Calvin Coolidge: “More Than Two Words”
    The closest Coolidge comes to advocating an unnecessary expenditure of money is in his address dedicating work about to begin on Mount Rushmore on August 10, 1927

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