Archive for the ‘financial’ Category

Cokie Roberts blurts out the truth

Sunday, August 7th, 2011

I watch the Sunday talk shows, usually flipping back and forth between them. I was struck today by a comment made by Cokie Roberts on ABC’s This Week. In the discussion of the S&P downgrade of US Treasury bonds, she was arguing with a tea party affiliated Congressman from Utah named Chaffetz and she made the following statement: (The comment begins at 8:55)

The reason why they (S&P) like France and England is because they have parliamentary government, because the majority gets what it wants. There is no divided government where both parties have to agree.

I thought that an astonishing but revealing statement. First, Britain and France have not been exemplars of fiscal probity the past 50 years, with the exception of Margaret Thatcher’s era. She even mentioned that England now has an austerity program. Also, she didn’t mention that Obama had undivided government for two years and spending increased 24%. In fact, there has been no national budget for two years, probably because the Democrats did not want to expose their plans prior to the 2010 election.

Her second comment was also revealing:

The problem is with the US Constitution.

There, in a nutshell, is the Democrats’ complaint. The Constitution restricts the ability of one political party to spend at will without regard of the consequences. God knows we have had excessive spending since 1965 in this country with the Constitution intact. But, for Democrats, that has not been enough. I don’t think I have seen a more revealing comment.

How the Left Lies to Itself

Saturday, August 6th, 2011

Here is the latest post on Political Animal, a leftist blog sponsored by Washington Monthly, a leftist magazine.

Political Animal
Blog

August 06, 2011 11:05 AM
A timeline of events
By Steve Benen

Let’s take a stroll down memory lane, shall we?

1980: Ronald Reagan runs for president, promising a balanced budget

1981 – 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

Reagan did not have a Republican Congress during his two terms. He did have a Republican Senate for his first six years. Bob Dole was Majority Leader, which was no help in cutting spending.

Lie #1

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

Bill Clinton passed a tax increase which Republican predicted would slow economic growth. Bush had also raised taxes at the insistence of Democrats and a recession cost him re-election.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

The fact is that Republicans took over both houses of Congress in 1995, the House for the first time since the post-war era. The stock market took off and revenues poured in from a good economy and the internet bubble which burst in 2000.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

In fact, the national debt kept climbing and the “surplus” was on paper only. Bush inherited the recession that followed the bursting of the internet bubble in 2000.

2001 – 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

The Bush deficits were declining the last two years of his term and the Democrats took over Congress in 2007. The Bush deficit in his last year was 10% of the present deficit. Notice Steve Benin doesn’t provide numbers.

That shows the deficits Obama inherited. Notice the increase after the Democrats took Congress in 2007.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

This is a matter of policy choices. I am no fan of Bush in the spending department. He should have vetoed some spending bills that Hastert told him to sign. It was no fluke that Hastert’s district, after he retired from Congress, was won by a DEmocrat.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

The condemnation was of his plans to spend wildly.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

No one with any economic knowledge would believe that Obamacare and Cap and Trade would lower the deficit. The most serious effect Obama has had thus far is the avalanche of regulation that has descended on business making anyone with money unwilling to invest. That is where jobs come from and the economy is stalled.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

The economy may have begun to recover on its own, which is what usually happens in the absence of an activist government. Then came the impact of Obama’s and Pelosi’s spending.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

An exaggeration.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

The left does not understand that government does not create wealth. Raising taxes in a recession is what Hoover did. I wouldn’t think they would want to copy him but they learn nothing.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

This is another lie. Obama and Boehner were close to an agreement and then Obama insisted on tax increases after agreeing not to do so. He responded to complaints from the left which is fixated on tax increases.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Another lie. The S&P report said the debt levels are too high and the agreement did not do enough to cut spending.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

There have been several instances since the mid 1990s in which I genuinely believed Republican politics couldn’t possibly get more blisteringly ridiculous. I was wrong; they just keep getting worse.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

There was a time when Democrats understood economics. Those days are over. They have convinced themselves that money grows on trees. They are destroying this nation’s finances, with help from many Republican professional politicians. The only hope is the tea party and turning Obama out in 2013.

The following essay expresses my feelings better than I can.

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Statistics and Poverty

Monday, July 18th, 2011

I am repairing a gap in my education by reading Thomas Sowell’s classic, Vision of the Anointed, which was written in 1992 but is still, unfortunately, as valid a critique of leftist thought as it was then. As an example of his methods, he constructs an experiment in statistics. This concerns poverty and inequality and, in particular, the poverty of leftist thinking.

He imagines an artificial population that has absolute equality in income. Each individual begins his (or her) working career at age 20 with an income of $10,000 per year. For simplicity’s sake, we must imagine that each of these workers remains equal in income and at age 30, receives a $10,000 raise. They remain exactly equal through the subsequent decades until age 60 with each receiving a $10,000 raise each decade. He (or she) then retires at age 70 with income returning to zero.

All these individuals have identical savings patterns. They each spend $5,000 per year on subsistence needs and save 10% of earnings above subsistence. The rest they use to improve their current standard of living. What statistical measures of income and wealth would emerge from such a perfectly equal pattern of income, savings and wealth ?

Age Annual Income Subsistence Annual Savings Lifetime Savings
20     $10,000                 $5,000          $500                               $0
30    $20,000                  $5,000       $1,500                      $5,000
40    $30,000                  $5,000       $2,500                    $20,000
50    $40,000                  $5,000       $3,500                    $45,000
60    $50,000                  $5,000       $4,500                    $80,000
70              $0                   $5,000               $0                   $125,000

Unfortunately, even with an Excel spreadsheet, I cannot get these numbers to line up properly.

Now, let us look at the inequities creates by this perfectly equal income distribution. The top 17% of income earners have five times the income of the bottom 17% and the top 17% of savers have 25 times the savings of the bottom 17%. That is ignoring those with zero in each category. If the data were aggregated and considered in “class” terms, we find that 17% of the people have 45% of the all the accumulated savings for the whole society. Taxes are, of course, ignored.

What about a real world example ? Stanford California, in the 1990 census, had one of the highest poverty rates in the Bay Area, the largely wealthy region surrounding San Francisco Bay. Stanford, as a community, has a higher poverty rate than East Palo Alto, a low income minority community nearby. Why ? While undergraduate students living in dormitories are not counted as residents in census data, graduate students living in campus housing are counted. During the time I was a medical student, and even during part of my internship and residency training, my family was eligible for food stamps. The census data describing the Stanford area does not include all the amenities provided for students and their families, making the comparison even less accurate.

Statistics on poverty and income equality are fraught with anomalies like those described by Professor Sowell. That does not prevent their use in furthering the ambitions of the “anointed.”

The Social Security “Trust Fund”

Thursday, July 14th, 2011

In the talks about raising the debt ceiling, or not, president Obama made a Freudian slip that will permanently affect the reform of entitlements. Social Security was supposed to have a trust fund that would guarantee payment for another 30-40 years. Ask any Democrat, especially one who is opposed to reforms that convert part of the account to a private investment account.

Obama said he “could not guarantee” that Social Security checks would go out after August 2 of the debt limit had not been raised. That is the end of the trust fund fiction.

In 1960, the Supreme Court ruled that workers do not have a legal right to their Social Security benefits. Congress can cut them any time it wants, which it’s done several times. And, because there are no ownership rights, if you die the day you retire after making a lifetime of payments into Social Security, your heirs get nothing.

That was 50 years ago but the truth may finally sink in now.

Debt, interest rates and gotterdammerung

Thursday, July 7th, 2011

The debt limit talks seem to go on forever. Obama and the Democrats seem oblivious to the danger. All they think of is re-election. All is politics. Our present day ruling class seems even worse than those who saw the Civil War come and the Panic of 1893 and 1903. The last presidential administrations that seemed to understand economics were those of Harding and Coolidge and Eisenhower. Both preceded the “Great Society” of Lyndon Johnson that began the race to the bottom.

What we have had since Reagan is a Congress, and often a president, who ignored all rules of economics and saw government spending as the key to re-election. We are about to pay the price.

Here is an analysis of the effect of interest rates on our debt.

We have seen very low interest rates as a result of the fact that the Federal Reserve has been buying Treasury debt. What would happen if that debt had to be sold to others at a price determined by a market in interest rates ? Note the 1981-1990 scenario. It adds $5 trillion in debt by 2021, only ten years from now.

Instead, let’s look at an “alternative scenario” with the books uncooked by CBO.

You could look at the pdf file. Or you could look at some simple projections.

CBO estimated that 1 percent higher interest rates each year could increase deficits by $1.3 trillion over ten years. CBO also estimated a few other “rules of thumb” to show how changes in inflation and economic growth have significant impacts on budget forecasts. The projections show that lower economic growth of just 0.1 percentage point each year could increase deficits by $310 billion over ten years, while 1 percentage point higher inflation each year could add almost $900 billion to deficits.

The alternate scenario chart shows the debt going to 250% of GDP, about where Japan is now. Japan has had a “lost decade” that has lasted 20 years.

We will have a Greece style collapse before then, probably led by public employee unions.

Why I liked Coolidge and why we are not recovering

Friday, June 3rd, 2011

I spent the past six months reading about Calvin Coolidge. I was interested in why the 1920s were a period of great prosperity and why the severe recession/ depression of 1920-1921 was so short. At its peak, there was 25% unemployment. Gross domestic product dropped by 6.9% in one report.

The recession of 1920–21 was characterized by extreme deflation — the largest one-year percentage decline in around 140 years of data.[2] The Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13% deflation, and Romer estimates 14.8% deflation. The drop in wholesale prices was even more severe, falling by 36.8%, the most severe drop since the American Revolutionary War. This is worse than any year during the Great Depression (adding all the years of the Great Depression together, however, yields more severe deflation). The deflation of 1920–21 was extreme in absolute terms, and also unusually extreme given the relatively small decline in gross domestic product.[2]

The Harding-Coolidge administration took office in March 1921 and the recession was over in months. Why ? Governments were smaller then and had less influence on the economy. The Wilson Administration has been widely described as the equivalent of a fascist regime with its war time controls and economic meddling. Again from the Wikipedia article:

Interpretations of the end

Austrian School economists and historians argue that the 1921 recession was a necessary market correction, required to engineer the massive realignments required of private business and industry following the end of the War. Libertarian Austrian School historian Thomas Woods argues that President Harding’s laissez-faire economic policies during the 1920-21 recession, combined with a coordinated aggressive policy of rapid government downsizing, had a direct influence (mostly through intentional non-influence) on the rapid and widespread private-sector recovery.[12] Woods argued that, as there existed massive distortions in private markets due to government economic influence related to World War I, an equally massive “correction” to the distortions needed to occur as quickly as possible to realign investment and consumption with the new peace-time economic environment.

Daniel Kuehn’s recent research demonstrates that Woods gets many of the facts of the 1920-21 recession wrong.[13] The most substantial downsizing of government was attributable to the Wilson administration, and occurred well before the onset of the 1920-21 recession. The Harding administration raised taxes in 1921 by expanding the tax base considerably at the same time that it lowered rates. Kuehn also points out that Woods underemphasizes the role the monetary stimulus played in reviving the depressed economy. Since the 1920-21 recession was not characterized by any aggregate demand deficiency, fiscal stimulus was entirely unwarranted.
[edit]

I would tend to doubt the “recent research” that tries to include Keynes’ theories in the explanation. The issue of Fascism is more interesting. The National Recovery Administration was probably the most openly fascist bureaucratic organization that the US government ever instituted. It was eventually overturned by the Supreme Court, prompting Roosevelt’s “court packing” scheme. (A very sympathetic version by PBS).

What then, led to the Depression and what is leading to the present frightening echo of 1933? Here is a very frightening chart.

Here is a chart showing the price/earnings ratios of cyclical stocks vs “defensive stocks.” What it shows is that cyclical stocks, that can be expected to respond to economic conditions, are very, very cheap. That looks like most people do not expect recovery any time soon. Why ?

This is a very frightening chart. It has been for months as no prior recession has shown this deep a fall in employment and this slow a recovery. Now, if you look at the end of the red line, you see that employment is not recovering at all. The line is flat.

Calvin Coolidge has been criticized in history for his pro-business sentiments expressed in words. He is alleged to have said, “The business of America is business.” In fact, that is not an accurate quote but the sentiment he expressed was similar. He was also quoted as saying something like “A man who builds a factory, builds a temple and those who work there, worship there.” He has been widely criticized for those statements, as if praising business was immoral.

What we have now is a president who makes statements like, “So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.”

We have a president who tells would-be entrepreneurs that “I do think at a certain point you’ve made enough money.”

Does anyone still wonder why the economy under a president who seems hostile to business is failing while the economy under a president who supported it and wasn’t ashamed to say so, boomed.

Some have blamed Coolidge for the 1929 crash but it is pretty clear that the problem was similar to the problem of the real estate bubble in 2005. The Federal Reserve kept interest rates too low for too long. In 1928, Coolidge did not feel he had the right to intervene with the Fed and Benjamin Strong who was the president of the New York Fed died in October of that year. The Dow doubled in 1929. That was the speculative blow-off that ended in the crash. In 2005, Alan Greenspan still believed that a real estate bubble was preferable to a correction from the 1990 internet bubble. George Bush may have had more ability to intervene but all the safety mechanisms, which had not existed in 1929, still failed.

We are on the path to another Depression. One small indication. I do reviews of workers compensation claims. One would expect that, early in a severe recession, claims would go up as workers anticipate layoffs and try to file claims. There was a bit of that but it is over. Employment in California is down so far that the State Compensation Insurance Fund is laying off doctors and closing offices. Claims are way down because employment is falling rapidly. Workers may be afraid to file claims now.

Coolidge Summing up

Sunday, May 15th, 2011

Coolidge believed that the wedding of government and business would lead to socialism, communism or fascism. Hoover considered Henry Wallace a fascist for supporting the McNary-Haugen bill. Hoover, ironically, was to bring on the Depression by progressive measures that might have been called a form of fascism. The farm bill would be re-introduced under Hoover and die. Only during the New Deal would it find enough support to become law. The summer of 1927 was peaceful and prosperous. It was the summer of Babe Ruth’s 60 home runs. The Yankees would win the World Series and end up with a winning percentage of 0.714, still unsurpassed. In September, Gene Tunney defeated Jack Dempsey in the fight marked by the “long count.” The “Jazz Singer” came out that fall, the first talking feature picture. Charles Lindbergh flew the Atlantic in May of 1927. He and Coolidge were much alike yet different. Both were shy and diffident but Lindbergh was happy to cash in on his fame while Coolidge refused all offers after he left office.

Coolidge arranged for Lindbergh to return to the states aboard a US cruiser, Memphis, where he was met by a crowd and by cabinet members, then there was a huge parade through New York City. Lindbergh and his mother stayed with the Coolidges at the temporary White House where Dwight Morrow, close friend of Coolidge from Amherst, introduced the young aviator to his daughter Ann. Aviation stocks, along with many others, soared and the Dow Jones Average by year end was at 200, the record high.

In his December 6, 1927 State of the Union message, he mentioned an economic slowdown and asked for the same things he had been requesting; sell Muscle Shoals, help farm cooperatives and keep spending down. In May of 1928, he complained to reporters about Congressional spending. “I am a good deal disturbed at the number of proposals that are being made for the expenditure of money. The number and the amount is becoming appalling.” He managed to get another tax cut passed including a cut in the corporate tax rate. The surplus that year was $398 million.

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The Presidency of Calvin Coolidge- III

Friday, May 13th, 2011

La Follette ran for president in 1924, as feared by the Republicans, but on the Socialist ticket and got little support from mainstream voters. His issue was “control of government and industry by private monopoly.” Coolidge ran a low key campaign and, as he had done in Massachusetts, did not name his opponents. His speeches were not in campaign style but on general subjects like “What it means to be a Boy Scout,” and “The duties of citizenship” including, of course, the obligation to vote. He used radio addresses very effectively long before Roosevelt adopted the medium. Coolidge’s voice, unlike most politicians of the era, was well suited to radio but could not reach the back of large crowds. In a 1927 poll on radio personalities, Coolidge came in fourth, after three musicians.

One of Coolidge’s radio talks had a profound impact on a nine-year-old boy who had put together the crystal set on which he heard the president. It was 1922 and Eugene Fluckey was nine years old. What he heard was “Press on. Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education alone will not; the world is full of educated derelicts. Persistence and determination alone are important.” The boy was so awestruck that he scribbled down the president’s words. He would later become the most decorated submarine captain of World War II and completed 12 war patrols without the loss of a single man in his crew. He was awarded the Medal of Honor and five Navy Crosses. He and his ship, the USS Barb, were known as “the galloping ghost.” Fluckey later told the story, “Silent Cal did not speak often but when he did people listened.”

Some of Coolidge’s refusal to campaign was certainly his depression after the death of his son. Some was a recognition of his own abilities, or lack of them. In his Autobiography, he says, “When he went, the power and glory of the presidency went with him. I don’t know why such a price was exacted for occupying the White House.” Dawes took up the slack and enjoyed campaigning. His delivery was electric. One said of him, ” It was said that he was the only man in the world who, when he spoke, could keep both feet and both arms in the air at once.” His principal themes were LaFollette and the Democrats. For LaFollette, it was “red radicalism.” He spoke out forcefully against the Klan in August but was warned that it could hurt the ticket and he left that topic alone thereafter. Davis, the Democrat, in spite of being warned, attacked the Klan forcefully but nobody was paying much attention. Oddly enough, he would be the opposing counsel in 1954 for Brown vs Board of Education opposing school integration.

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The Presidency of Calvin Coolidge- II

Sunday, May 8th, 2011

Coolidge was more concerned with domestic issues than foreign policy. This had been true of most US presidents since the Civil War until 1917 and it was part of Harding’s “Return to Normalcy” plan. Coolidge knew little about other countries although he was not an isolationist. The true isolationist policy of the US was in the 1930s under Roosevelt who canceled a Hoover sponsored economic summit in Britain as soon as he was inaugurated. Only in 1939 and 40 was Roosevelt converted to the internationalist that is remembered by his supporters and biographers, internationalists themselves. I will have more to say about the slanders of Harding and Coolidge by the political left and the historians later.

Coolidge’s domestic agenda was dominated by a few issues. The first was the emergence of the “Farm Bloc” in Congress. The McNary- Haugen bill was the first of the “farm relief” bills and would dog Coolidge through his presidency as he vetoed it but it kept coming back as the farm bloc grew stronger. The background of the bill is well stated in the Wikipedia article:

World War I had created an atmosphere of high prices for agricultural products as European nations demand for exports surged. Farmers had enjoyed a period of prosperity as U.S. farm production expanded rapidly to fill the gap left as European belligerents found themselves unable to produce enough food. When the war ended, supply increased rapidly as Europe’s agricultural market rebounded. Overproduction led to plummeting prices which led to stagnant market conditions and living standards for farmers in the 1920s. Worse, hundreds of thousands of farmers had taken out mortgages and loans to buy out their neighbors property, and were now unable to meet the financial burden. The cause was the collapse of land prices after the wartime bubble when farmers used high prices to buy up neighboring farms at high prices, saddling them with heavy debts. Farmers, however, blamed the decline of foreign markets, and the effects of the protective tariff. They demanded relief as the agricultural depression grew steadily worse in the middle 1920s, while the rest of the economy flourished.

As the 1920s went on and Europe recovered, the rationale for the bill was less and less credible. Eventually, it would be the basis for the Roosevelt farm policy and has survived in some form until the present. The basic mechanism of the bill was to establish high tariffs for foreign farm products. The high tariffs on manufactured goods were the worst aspect of Republican policies in the 1920s and contributed to the financial instability that led to the crash in 1929. Europe could not sell to the US because of the tariffs and so could not generate the revenue to repay the war loans. That is an oversimplification but it was a factor. The farm bill would add price supports (equal to the tariff on imports) on farm exports to keep prices high. The government organized cooperatives would sell to foreign buyers at the lower world price and the difference would be collected as a tax or “equalization fee” on domestic sales of each export commodity. This would keep US food prices higher than the world price. We see something very much like this in sugar subsidies and in the ethanol tariff the prevents fuel companies from buying cheap Brazilian ethanol.

Coolidge supported a different approach which included rural electrification, modernization of farming with better hybrid seeds and better business methods. I should add that my own family were farmers in Illinois during this period. One farm family sent their son to agricultural college in the 1920s to the amused derision about going to college to learn how to farm from my grandfather. He returned home, revolutionized farming methods in Illinois with fertilizers, hybrid seed and crop rotation and his children now own most of the farmland where my ancestors once lived. Few Congressmen knew anything about farming and Coolidge’s approach did not stop them from sponsoring the tariff bill every year or two. He vetoed it twice.

Another major issue was the Ku Klux Klan. This was more of a problem for Democrats with their base in the “solid South” but it affected Republicans, as well. The Klan in the 1920s was unrelated, except in name, to the organization founded by Nathan Bedford Forrest after the Civil War. The “second Klan” did include some Republicans and was more concerned with immigration and anti-Catholic and anti-Jewish bigotry, both related to immigration. It had been founded in Atlanta in 1915 by Colonel William Simmons. Its attraction was in its pro-farmer and pro-poor native born Americans sympathies. It was anti-Wall Street and had more geographic diversity with active members in Oregon and California as well as in Maine and New York. A Texas Senator and an Indiana Senator were members and a number of governors, including in California and Oregon, had received Klan support. It had about 4 million members at its peak. The GOP convention had a proposed anti-Klan plank in the platform and that would be a fight when the time came.

Prohibition was a disastrous progressive experiment whose pathologies were becoming apparent in 1924. Coolidge said that Congress had passed the law and he would support it but he also added, “Any law that inspires disrespect for other laws– the good laws– is a bad law.” A number of organizations were formed to oppose the Volstead Act as the corruption and lawlessness grew. In support, there was actually a Prohibition Party, which held its convention on the day before the GOP convention and nominated candidates for president and vice-president. As previously noted, a number of Progressives had returned to the Republican Party in 1920 and they also constituted a Prohibition wing of the party. Hiram Johnson had shown how powerful they could be by denying Charles Evans Hughes the presidency in 1916.

Coolidge was more pro-civil rights than Harding had been but it has been largely forgotten in this country that the Democrats were the party of segregation. Woodrow Wilson had segregated the civil service in 1914 after it had been integrated since 1865. Coolidge gave the Commencement Address at all-black Howard University on June 6. He spoke of the progress of American blacks since the Emancipation Proclamation. He noted that, “in 1863, there were four million black Americans, 12 thousand of whom owned their own homes.” “In a little over half a century since, the number of business enterprises operated by colored people has grown to nearly 80,000, while the wealth of the negro community has grown to nearly $ 1,100,000,000.” He continued with a list of material and intellectual progress made since that point. He added, referring to the war, “The propaganda of prejudice and hatred which sought to keep the colored man from supporting the national cause completely failed. The black man showed himself the same kind of citizen, moved by the same patriotism, as the white man.”

The 1924 Convention opened in a placid mood on June 10. Coolidge was in control. Henry Cabot Lodge was a simple delegate and powerless. The country and the party had moved on. The power of the bosses was much diminished from 1920 and many of them were dead. Radio was breaking down the regionalism of the country just as it would eventually dilute regional accents. The Convention was the first to be broadcast on radio, a concept that did not even exist in 1920. The final platform did not mention the Klan but did congratulate the party for the improvement in economic conditions since 1920. They came out in favor of higher agricultural tariffs but not the McNary- Haugen bill. There was no mention of Prohibition or race relations. There was widespread concern that LaFollette would make a third party race on the Progressive ticket.

The Leopold-Loeb murder case competed with the Convention for public interest and newspaper coverage. The only uncertainty was the vice-presidential nomination. There were many names considered. Coolidge, through an intermediary, approach William Borah to determine his interest in joining the ticket. Borah, certain of his superior talents compared to Coolidge asked, “At which end?” Another bit of Washington gossip at the time was that Borah was the real father of Alice Roosevelt Longworth’s only child, daughter Pauline. Alice was none too discreet and Borah had a reputation for womanizing so the child was often called ” Aurora Borah Alice,” among the cognoscenti.

Coolidge favored a former Senator from Iowa and federal judge named William S. Kenyon. Kenyon had been a member of the Farm Bloc and a very astute opponent of Harding within the party. He was a progressive but had supported Taft in 1912 and was considered a “regular” although he was pledged to Hiram Johnson at the 1920 convention. Harding had offered him a federal judgeship to get rid of him from the Senate and Kenyon accepted but then became the judge who threw out the Tea Pot Dome oil leases and criticized Harding about the affair. Kenyon was a Coolidge supporter and would have made an interesting VP nominee. The Progressives would be pleased and might be lured from LaFollette if he ran. Unfortunately, Kenyon was not interested. The next candidate was Lowden, who was an excellent reform governor of Illinois and a serious presidential candidate in 1920. He also declined. The convention finally turned to Charles G Dawes, a banker who had an international reputation (and a Nobel Peace Prize) for his “Dawes Plan” for trying to deal with the reparations nightmare.

Dawes nomination was another example of serendipity as the man asked to nominate him agreed to do so because he wanted to run for the Senate in Nebraska and this would give him a chance to be heard in Nebraska on a national broadcast. A W Jefferis was a Nebraska delegate and not particularly a friend of Dawes. The radio in 1924 was a technological wonder and instant fame followed such an opportunity. Dawes was a bit of an independent politically. He had recovered from financial wipe-out in the Panic of 1893 and was Comptroller of the Currency under McKInley in 1901, which position he resigned to run unsuccessfully for the Senate. He served in the Army during World War I as head of the General Purchasing Board and ended the war as a brigadier general. He then took charge of the body responsible for liquidating the American supplies remaining in France at the end of the war. He became famous for his testimony before a House Committee on War Expenditures. The Republican majority was attempting to show that the Democratic Administration had been profligate in purchasing, if not dishonest. Dawes, of course, had been in charge of the purchasing and was outraged in spite of his Republican credentials. He became infuriated with the committee members’ ignorant questions and allegations of profiteering. His scathing and witty answers to the committee made him famous with the public. He was headline news the next day.

Dawes was a man of many talents. He played several instruments and composed music, including a piece in 1911 that eventually, with words, became the song “It’s All in the Game,” in the 1950s. After the 1920 election, he turned down the Secretary of the Treasury position but accepted the new position of Director of the Bureau of the Budget. The Coolidge tax cuts and the Dawes budget controls resulted in the government showing a budget surplus in each year of the Harding-Coolidge presidency. The Bureau of the Budget continued to control government expenditures until reorganized by John Kennedy in 1961. In 1923, Dawes was asked to join a Committee of Experts to rescue the German economy. The result was the Dawes Plan and the 1925 Nobel Peace Prize. Dawes was an outstanding choice for the vice-presidency. Coolidge, who hated to campaign, was greatly complemented by Dawes who enjoyed it.

Meanwhile, the Democrats imploded at their convention over issues like Prohibition and the Klan. The early favorite was Wilson son-in-law William McAdoo. He had an attractive resume but two glaring problems. He was supported by the Klan, although not a member, and he was a “dry.” His principal opponent, Senator Oscar Underwood of Alabama was a “wet” and a fierce opponent of the Klan. He privately believed racism was responsible for much of the poverty of the South. The Klan was powerful in the Democratic Party and Underwood had opposed Women’s Suffrage and Prohibition, both positions unpopular in 1920. Al Smith, Governor of New York, had not entered primaries and knew that the convention decision would depend on the issues of the Klan and Prohibition. Smith’s Catholic religion would also be a huge factor in the election if he were nominated, as he was in 1928. The Convention was to be held in New York, which encouraged Smith’s ambitions.

One of the first nominating speeches, by Forney Johnson of Alabama, speaking on behalf of colleague Underwood, threw down the gauntlet on the Klan. Like Underwood, Johnson was a fierce opponent of the Klan and his speech tore the convention apart. Live radio coverage magnified the effect. A motion to condemn the Klan failed by a single vote. The one positive development was Franklin Roosevelt’s nominating speech for Al Smith, the “Happy Warrior.” It marked Roosevelt’s return to the public scene after his polio rehabilitation. He had been the VP nominee in 1920. After 50 ballots, delegates talked of returning home without a nominee. Smith allies hooted from packed galleries and on the 100th ballot he led with about third of the delegates. Eventually,
on the 103rd ballot, the delegates turned to John W Davis, a distinguished lawyer and former Congressman and his VP nominee, Charles W Bryan Governor of Nebraska. Bryan was the younger brother of William Jennings Bryan, perennial Democratic nominee, famous for his populist politics and his “Cross of Gold” speech.

The Bryan brothers, ever hopeful.

The Democrats were crushed in the election but personal disaster struck Coolidge. On June 30, while playing lawn tennis with his brother, Calvin Jr developed a blister on his toe from playing without socks. He was 16 years old. The blister became infected and he died on July 7, 1924. His father never recovered. My son, who is diabetic, developed a similar blister on his toe when wearing firefighter boots. He works 72 hour shifts and, by the time he finished his shift and went to an urgent care center, he had positive blood cultures. He was hospitalized for several weeks and had a one year recovery including skin grafts and multiple surgeries. He is now back at work but, even with modern antibiotics and other measures, he was very ill and took a long time to recover. Calvin Jr was not diabetic but there were no antibiotics available and sepsis was a fatal complication.

Dawes and Coolidge had dinner together during the boy’s illness. Dawes had lost a 21 year old son to drowning in 1912 and understood the president’s concern although he did not realize the seriousness of the illness yet. As he left, he looked into Calvin Jr’s room. “As I passed the door of Calvin’s room, I chanced to look in. He seemed to be in great distress. The president was bending over the bed. I think I have never witnessed such a look of agony and despair that was on the president’s face.” We forget what the days before antibiotics were like. In the very early days of the development of penicillin, one of Howard Florey’s first patients was a policeman who had pricked his finger on a rose thorn. He was dying of streptococcal sepsis, the same infection that undoubtedly killed Calvin Jr. The amount of penicillin they had been able to isolate was very small. They treated the policeman and he improved but then they ran out of the drug. They tried everything including extracting it from his urine but could not get enough and he died.

Calvin Jr with hanging tobacco leaves.

The president agonized about his lost boy. He signed a book for friend who had also lost a son. “To my friend, in recollection of his son, and my son, who by the grace of God have the privilege of being boys throughout eternity.” Calvin Jr had had a previous serious illness, at age six years old, and required surgery to drain an empyema, a collection of pus in the chest following pneumonia. His father was very worried then, as well, but things turned out well. There is another story of this time in Coolidge’s life. Colonel Starling, the president’s Secret Service bodyguard, on his way into the White House, saw a small boy standing outside the railing looking in. “I asked him what he was doing up so early. He looked up at me, his eyes large and round and sad. I thought I might see the president,” he said. “I heard that he gets up early and takes a walk. I wanted to tell him how sorry I am that his little boy died.” “Come with me, I’ll take you to the president,” I said. He took my hand and we walked into the grounds. In a few minutes, the president came out and I presented the boy to him. The youngster was overwhelmed with awe and could not deliver his message so I did it for him. The president had a difficult time controlling his emotions. When the lad had gone and we were walking through Lafayette Park, he said to me: “Colonel, whenever a boy wants to see me, always bring him in. Never turn one away or make him wait.” There has been considerable speculation, based on some evidence, that the boy’s death left Coolidge in a prolonged depression that affected his presidency.

To be continued

The Budget Deal

Saturday, April 9th, 2011

I think John Boehner struck a wise deal with the Democrats last night. First, the $38.5 billion in cuts is not just a symbol but does begin the process of reducing government. Since only 5 months remain of the fiscal year, it is the equivalent of the $100 billion that was promised last fall to the tea party. More important is the coming debate about the Paul Ryan budget for 2012 and it is time to begin that debate.

The funding of Planned Parenthood was always a hostage for the Republicans to use in negotiations, just as the President used the military as his hostage. The agreement establishes a bill that will have to be voted on by the Senate along with a companion agreement to defund Obamacare. Both of these votes are going to be painful for the 23 Democratic Senators who must stand for re-election next year.

It was a reasonable compromise and now it is time to move on to the Ryan budget.