Do Americans really want 'Coolidge prosperity' again?
In search of a model to understand the Reagan administration, observers have overlooked the most obvious example: American statecraft of the 1920s. President Reagan has himself supplied the cue, citing Calvin Coolidge as an exemplar for enlightened tax policy. "He cut the taxes four times," Reagan exulted, and "we probably had the greatest growth in prosperity that we've ever known." More than any presidential comment to date, this flashback to the 1920s starkly reveals the Reagan approach to domestic policy and its meaning for our own time.
During the 1920s, Reagan correctly believes, "supply-side" economics and probusiness government were thoroughly tested. Yet the policymaking of that era not only ended in the calamity of depression but also failed to spread prosperity widely in the "boom" years preceding the Great Crash. Instilled with a morality of self-blame and lacking outlets for common dissent, most Americans of the Coolidge era acquiesced in a system that offered the hope but not the reality of prosperity.
Even before the four tax cuts extolled by President Reagan, federal levies were hardly a restraint on the accumulation of riches. In 1923, the year Coolidge assumed the presidency, 90 percent of Americans receiving income paid no federal income tax at all. To incur a liability of but 10 percent of taxable income an individual had to earn $25,000, equivalent to $125,000 at today's prices. Those who earned a million dollars (equivalent to five million today) owed the government 41 percent.
It was banker Andrew Mellon, Coolidge's secretary of the treasury and one of the world's richest men, who engineered successive reductions in these already modest rates. Dubbed "tax relief for millionaires" by contemporary critics, the Mellon cuts saved about $170,000 per year for million-dollar earners, compared to $30 for people earning $5,000 (equivalent to $25,000 today). Under Mellon's tax program, no one owed as much as 10 percent unless he or she earned $50,000 or more ($250,000 today); million-dollar earners owed 24 percent.
Foreshadowing Reagan's position by 60 years, GOP leaders of the 1920s insisted that largess to the rich would benefit all Americans by increasing the size of the economic pie. We should not be deceived into worrying about inequities in the distribution of wealth, declared Secretary of Commerce Herbert Hoover in 1922: "There is vastly wider field for gains to all of us . . . from increasing the volume of product . . . than will ever come to us even if we can think out a method of abstract justice in sharing which did not stifle production of the total product."
The benefits of the supply-siders' millenium achieved during the 1920s, however, never reached most Americans. As Calvin Coolidge gave way to Herbert Hoover in 1929, Will Rogers quipped, "Prosperity -- millions never had it under Coolidge, never had it under anybody, but expect it under Hoover."
During the years of Coolidge prosperity from 1923 to 1929, business corporations reaped unprecedented riches as profits soared by 62 percent. But wages only inched up by 7 percent, achieving one- ninthm the rate of increase in profits. In these six years, the proportion of the nation's income controlled by the top 5 percent of recipients increased from 23 to 26 percent, a proportion that has since declined to 16 percent. In 1929, 65 percent of all American families had incomes of less than $9,000 in 1980 dollar equivalents, an amount that barely exceeds the official poverty level for a non-farm family of four; 41 percent of the 1929 families had incomes of under $6,000 in 1980 dollars, an amount far below the poverty line. Today, in contrast, less than 20 percent of American families have incomes under $9,000 and less than 8 percent have incomes under $6,000.
Americans excluded from Coolidge prosperity had little recourse beyond the hope of a future turnabout in their economic fortunes. Republican ideology precluded government assistance for job creation, income security, or worker protection, and the opposition Democrats offered only a weak version of me-too politics. Labor unions were in retreat, radical organizations had been crushed during the patriotic outbursts of World War I, and attempts to form a third party had ended with the losing candidacy of Robert M. La Follette in 1924.
The conventional wisdom, moreover, promoted by both government and business, insisted that opportunities were readily available to any hard-working individual, and that economic failure signified a flaw of character rather than any failing of the status quo.
Ronald Reagan's enthusiasm for policymaking 1920s style and his misconstrual of economic history indicate more than a commitment to programs of prosperity for the few. Like leaders of the Coolidge era, he seeks to advance a vision of morality that identifies economic success with rectitude and failure with male- faction. Harking back to the 1920s, he seeks to free capital from restraint while simultaneously narrowing the margin of security provided by social programs, imposing restrictions on personal behavior, expanding political surveillance, and constraining access to the legal system. Despite his fondness for the rhetoric of personal freedom and initiative, President Reagan's plans for the great majority of Americans mean a return to the constricted expectations and limited autonomy of the 1920s.