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.
But the historical record suggests that a president who is good for business isn't always the same as a president who is a businessman.
This becomes clear when you scrutinize the record of Calvin Coolidge, who shares a birthday with the country, July 4.
Coolidge, who served from 1923 to 1929, was definitely pro-business. He called factories "temples." He famously declared that "the chief business of the American people is business." During the Coolidge presidency, real wages grew. Growth averaged more than 4 percent a year, in real terms. Unemployment stayed below 5 percent. Union membership dropped. The standard of living rose, as people purchased Fords and radios and got their homes wired for electricity.
Most interesting to us today, perhaps, is Coolidge's budget feat. He was a masterful budgeter who dedicated enormous political capital to curtailing spending. Although a child of Vermont dairy land, and the son of a struggling cheese-factory boss, he vetoed aid for farmers with the famous comment, "Farmers never have made much money." The result was something every politician today can envy: The budget was lower when he left the White House than when he came in.
Yet Coolidge was hardly a businessman. He attended Amherst College, a school created for impoverished divinity students. He took philosophy and economics, but not a single course in marketing or accounting. Within months of graduation he was "reading the law" at a firm in Northampton, Massachusetts, and ingratiating himself with local Republicans.
Then Coolidge started climbing the political ladder. He went from mayor of Northampton on to state senator, lieutenant governor, governor, vice president and finally president. Like President Lyndon B. Johnson later, Coolidge became a "master of the Senate," expert in manipulating the legislative apparatus. He reached the presidency without borrowing, or even taking a mortgage. The Coolidges rented half of a Northampton two-family home.
So how did this non-businessman preside over so much business? To Coolidge, "to grow" wasn't a transitive verb. Growth happened by itself when you provided the best entrepreneurial environment. Coolidge represented the mirror image of Johnson. Johnson used his skills to deliver an enormous body of law, including Medicare, Medicaid and other components of the Great Society. Coolidge marshaled commensurate skills to prevent law: "It is better to block a bad law than sign a good one," he once wrote his father. When Coolidge did sign off on new acts, they often pulled government back. In tandem with Treasury Secretary Andrew Mellon, Coolidge lowered the top income tax rate to 25 percent from 46 percent.
Coolidge made policy errors. His biggest in business terms was to support his party's pro-tariff stance. But generally he proved a ferocious defender of markets. One motivation for Coolidge was his conviction that individual integrity and religious faith were as important to growth as government policy. In the same speech that he uttered the famous line about the chief business of America, he said "the chief ideal of America is idealism."
Even as Coolidge was proving that a non-businessman can successfully run the business of government, an example of what damage a business mind can do was waiting in the wings in the form of his commerce secretary, Herbert Hoover.
Hoover in his college years at Stanford University had zeroed in on the field that represented the greatest opportunity in the world economy at the time: mining engineering. He rose to the top of his field before the age of 30, then moved on to investment banking and world-class philanthropy, including helping organize the storied World War I rescue of starving Belgians. In the 1920s, the question was not whether this wonder would become president; it was which party he might honor with the Hoover brand.
Yet on Hoover's watch the economy crashed, the stock market sank and unemployment rose from 5 percent to 10 percent to 25 percent in the summer of 1932. Some of this was purely bad luck: He came in at the wrong moment in the business cycle. And Coolidge may take some of the blame, though not much: Managing the stock market was not something Coolidge viewed as the president's job.
The larger fault lies with Hoover and, specifically, his business activism. Whereas other presidents had left businesses to make their own decisions about pay, Hoover hauled business leaders to Washington and bullied them into keeping wages higher, a trend that slowed re-employment. Although he knew better, Hoover signed the Smoot-Hawley tariff act, which punished U.S. trade partners with higher tariffs at a time when Europe, especially, needed U.S. economic and political friendship. Hoover agreed to a tax increase in a Depression with insufficient consideration. The business ego did what business egos do: Put himself first.
This Fourth of July, and certainly next, U.S. citizens will be vetting presidential candidates. Three of the top Republicans who have so far entered the fray — Herman Cain, Mitt Romney and Jon Huntsman — have staked their campaigns at least in part on their business experience.
The Coolidge story, and the Hoover sequel, remind us that an economy is not a business, and economic leadership consists as much in not doing as in doing.
(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and a Bloomberg View columnist, oversees the Echoes blog. The opinions expressed are her own.)
© Copyright 2011 Bloomberg
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