James Rolph Edwards
Economics
MSU-Northern
My thanks to Gary Knarr, History, MSU-Northern for his valuable assistance in the preparation of this paper.--JRE
Max J. Skidmore's essay, "America's Twentieth Century: Individualism, Freedom, and Community from Theodore Roosevelt to Bill Clinton," in the spring 2000 issue of The Montana Professor, expresses fairly well the orthodox interpretation among the modern left liberal cognoscenti, of the political, economic, and ideological events and trends in 20th century America. This strikes me as not just a demonstrably false interpretation, however, but as essentially a rationalization for the policies of extended governmental coercion and control and progressively diminished human freedom these intellectual and political elites have instituted. Indeed, those policies and the ideology behind them have had tragic social, political and economic consequences. As such, Skidmore's paper necessitates a critique and an alternate interpretation of this history.
Two ideological strains, both originating in England, were important in the founding of the American republic. One was civic Republicanism, a doctrine of representative democracy with enlightened and civically active citizens, about which Skidmore thinks highly. The other, and arguably more important, was what must now be termed Classical liberalism (or libertarianism), to distinguish it from its modern statist antithesis, whose advocates stole the name. Classical liberalism was and is the philosophy of natural individual rights, and of a government of, by, and for the people that is (and must be, since it will be run by flawed and human individuals drawn from the population itself) constitutionally constrained to using its powers only to protect those rights, and for little else. This sort of "negative state," so well described in the second paragraph of the Declaration of Independence and in Jefferson's first inaugural address, and so well embodied in the constitution, is largely limited to providing national defense and preventing citizens from harming each through coercion, theft, or negligence, and to taxing them only enough to gain the resources necessary to accomplish those things. Otherwise it leaves people free to act for themselves and interact voluntarily, rising or falling on their own merits, each earning just what other people are willing to pay them for what they willingly supply.
Skidmore's essay is, above all else, simply another shot in a long war by statists of all stripes to discredit the classical liberal doctrine of limited government and justify the massive expansion of coercive governmental regulation and control over private, voluntary activities that has occurred since the Civil War. This is so though he refers to classical liberalism only obliquely once or twice, never mentioning it by name or clearly stating its tenets. It does appear explicitly, however, in the form of his polemic against the "individualist ideology" he asserts to be such a widespread public attitude to this day (don't I wish). He attributes individualist belief to our revolutionary heritage and accuses it of becoming so powerful nowadays as to "submerge our commitment to civic republicanism."
Skidmore's argument goes like this: the individualist ideology of hard work and self sufficiency was useful in taming the wilderness and developing the emerging urban areas. Cooperative action, however, was equally important. Indeed, the complex modern world increasingly requires programs that are far beyond the ability of individual effort--individualism--to accomplish. The railroads and canals that were so vital in unifying the country were the result of personal effort to be sure, but reflected an even greater commitment to the use of governmental power.
Governmental power was also necessary to the conquering of the continent, and to the protection of property rights and provision of a monetary system that were necessary to create a capitalist economy./1/
Note the logic, or rather illogic here: in Skidmore's statement, individualism as an ideology glorifies individual effort, hard work, and self sufficiency, but precludes cooperative effort. As such, its value and correctness is refuted by (a) the necessity of such cooperative action for the accomplishment of projects beyond the capacities of individual effort, and (b) the historic importance of governmental actions, both in the form of investments in economic infrastructure and in providing the institutional environment in which free and voluntary private interactions can take place effectively.
Let me begin with the lesser fallacies here, and work my way to the greater. First, contrary to Skidmore, the vast majority of railroads were built privately, and not subsidized. When the state governments did initiate programs of canal or railroad subsidization they immediately generated corruption and bribery as various groups competed for the subsidies. The federal government actually engaged in very little such infrastructure investment until the Civil War, and when (with the Southern opponents of such subsidies out of the union) Congress did subsidize the building of the transcontinental railroads in the late 1860s, the corruption and waste of resources it generated was massive./2/ Was transcontinental subsidization necessary? No. All of the subsidized, corrupt transcontinentals (pardon the redundancy) were poorly built in a rush to obtain the land grants, and went broke. Beginning in the early 1880s, however, James J. Hill built the Great Northern Route from St. Paul Minnesota across Montana and over the Marias Pass through the Rockies, reaching Puget Sound in 1893, without a land grant or a cent of federal aid. Unlike the others, his railroad never went broke. Douglas North, who won the Nobel Prize in economics in 1993 for his work in economic history, has done the math and shown that, even under the most charitable assumptions, government infrastructure investments were not a quantitatively major factor in U.S. 19th century economic growth./3/
Skidmore's assertion that government provision of military protection, contract enforcement, property rights protection, and money was necessary for national development and the operation of capitalism, and that this refutes individualism, is confused. These kind of governmental actions are precisely the kind of negative state functions that classical liberal individualism assigns to a government created by a social contract./4/ Their purpose is precisely to protect persons and their property and provide an environment in which individuals can act and interact freely on the basis of their own chosen values, without compulsion or theft from each other or from the state. The observation that these governmental actions were necessary and beneficial is no refutation at all of individualism properly understood.
That brings us to the worst fallacy here, which is his apparent claim that individualism precludes cooperative action. That is, individual initiative can never express itself through cooperative action, or organization of willing persons to obtain common ends. But who, among the intellectual advocates or practitioners of individualism ever gave it this interpretation? Was it Locke, Turgot, Mill, Spencer, Sumner, Mises, Rand, Machan, or Nozick? Did the ordinary people who thought of themselves as rugged individualists believe that, as such, they also had to be hermits, or at least eschew cooperative social interaction? I utterly defy Skidmore to document this claim. On the personal level, individualism simply refers to a certain commitment to rationality, independence of opinion, the acceptance of personal responsibility for one's actions, and to self sufficiency interpreted not as social isolation, but as a commitment to supply goods and services on the market having a value at least equivalent to what one consumes: in other words, to "earn one's way" in life rather than be subsidized by, and hence dependent on, others, particularly government.
At the level of social analysis, individualism opposes holistic perspectives which treat societies, cultures, ethnic groups, races, and nations as conscious beings that have purposes and act for themselves, and claims that individuals exist only for the good of the collective. Individualism claims instead that only individuals think, choose, and act. Such social groups are only aggregates of individuals united by common geography, language, beliefs, heritage, or purposes, but having trait combinations and value scales that are individually unique and distinct. In this view, people ideally create government precisely to provide the conditions in which individuals are free to choose and pursue their own ends, to learn and develop from their personal successes and failures, and to interact with others (to the extent each desires) on a mutually voluntary basis. As such, individualism is actually a philosophy of mutually voluntary cooperation and exchange in a social division of labor, motivated by potential productivity and utility (satisfaction) gains to all concerned, which stem from comparative advantages and differential evaluations that are rooted, more than anywhere else, precisely in human individuality./5/
Skidmore's stunted and insulting concept of individualism must be recognized for what it is: a straw man. But what does he intend to gain by knocking down this particular straw man? Through his statements in favor of civic republicanism, Skidmore would have the reader believe that the issue is individualism versus social cooperation, with him favoring the latter. What is actually advanced by denigrating individualism, however, is not voluntary social cooperation and civic participation, but precisely coercion and compulsion by the state, in place of mutually voluntary social cooperation. Consider, for example, Skidmore's discussion of business corporations.
Among the key rationales offered by statist liberals for the ongoing (though sometimes halting, and even temporarily reversed) increase in the relative size of government over this century, transcending the original constitutional limits on its authority, and the associated extension of governmental coercion and compulsion over U.S. citizens, is that this was necessary to limit and control the growth of private power in the form of business corporations./6/ But why do we need any such explanation when we know, from all of human history and from personal experience, that many persons simply enjoy coercing and compelling others to get their way, feel constrained in any social regime that requires voluntary cooperation, and will work long and hard to accumulate and remove the institutional and attitudinal constraints on the exercise of arbitrary political power? The Russian born philosopher and novelist Ayn Rand, who fled to America, explained it well:
Every movement that seeks to enslave a country, every dictatorship or potential dictatorship, needs a scapegoat which it can blame for the nation's troubles and use as a justification of its own demands for dictatorial powers. In Soviet Russia, the scapegoat was the bourgeoisie; in Nazi Germany, it was the Jewish people; in America it is the businessmen./7/
Gathering the scattered threads, Skidmore's discussion of corporations goes like this: before the revolution the greatest danger to human freedom came from government, the founders crafted the constitution to restrict governmental power. In this they erred because they could not foresee the unprecedented power that corporate industrialism would create and unleash. Teddy Roosevelt was the first president to recognize that the threat to the individual--to individualism--came from outside government, and that only government had the potential power to control and negate this threat to individual freedom and self-determination./8/
Referring to the work of economists Adolph Berle and Gardner Means, Skidmore says that the new industrialism had not only created power that had never existed before, but the corporation concentrated that power in hands with virtually no public responsibility. Ownership of corporations was widely dispersed (through stock shares), but the stockholders had surrendered control of their wealth to a managerial elite. The modern corporation had become a form of non-statist or nongovernmental, socialism. Corporations were quasi-public entities, and as such, had to be subject to public (i.e., government) controls./9/
There seem to be two related threats to individuals and "individualism" (using Skidmore's definition, not mine) alleged in these scattered and hazy remarks. First, managers of large corporations have "power" over individuals requiring governmental "power" to negate. Indeed, in the absence of governmental "power," no other social mechanism acts to control or limit the behavior of corporations, including even their owners. Second, as a collectively owned organization, the corporation is inherently socialist and anti-individualist.
On the first matter, let us begin by asking just what type of "power" it is that corporations have over individuals. As business organizations, corporations at various times offer three things to individuals: products, jobs, and ownership shares. Transactions in any and all of these things are matters of voluntary and uncoerced contract, however, in which either party is free to accept or reject the terms of contract offered by the other, and accepts those terms only if they value what they are getting in exchange more than what they are giving in exchange. No physical coercion or compulsion is involved in any of these transactions nor in any enduring relationships (including employment) they give rise to.
If such coercion between private parties ever does occur, it is the legitimate responsibility of government to stop it and punish the offending party, as classical liberalism recognizes. It is an entirely different matter, however, when government intervenes to forcibly alter the terms of voluntary contract between private citizens, redistributing wealth and benefiting politically favored parties by harming the others. Acts of government--even democratic government--are acts of physical coercion, and the option to act differently than the government orders does not exist. It is no accident that Skidmore and other statist liberals equate economic with political power; the efforts of firms to persuade people to engage in voluntary exchange by offering them things they value with the power of government to coerce people against their wills at the point of a gun. They have to justify their coercion, to themselves most of all.
Of course more than just the capacity of private persuasion may be at issue. In their nature, some corporations may indeed become very large: both in terms of the absolute value of their assets and in terms of the fraction of total market supply of a particular product they provide. A firm may gain such a large market share by internal growth due to production innovations and cost reductions allowing it to sell to willing customers at a lower price than its competitors, by being the early innovator of a new and superior product, or through merger or cartel formation with other suppliers. In the latter case, the firm or cartel has the option of restricting its output and reducing market supply such that, for a given set of consumer preferences (demand), it can sell the smaller quantity at a higher price per unit, making a greater profit than before. Remaining transactions will still be mutually voluntary, but both the consumers who are priced out and those paying the higher price (but accustomed to the lower one) will feel injured. It is to this possibility that people often refer when they speak of the threat to individuals posed by the "power" of large corporations.
Is such "power" unconstrained by any other social mechanism in the absence of government intervention? Hardly. However large any single firm may be, it will be minuscule relative to the overall capital market. People in that market are always shifting scarce resources away from employments and markets earning lower than normal rates of return on investment and into employments where higher than normal rates of return are earned. When a large firm in a particular market reduces its own output and sales, pressuring price and profit rates to rise, smaller firms in the market are motivated to increase their output, adding plant capacity and taking a larger share of the market, causing the product price and profit rates to fall again. New firms are also attracted into the market (whether smaller firms are already there or not), adding to supply.
Examples abound. Ford Motor had a large majority share of auto production and sales by 1921. When it shut down completely in 1927 to retool and introduce a new model, GM and other firms increased their production so much and so fast that auto prices did not rise at all./10/ When the American Sugar refining Company was formed in 1887 by merger with firms (the largest being the E. C. Knight Co.) having 98 percent of all refining capacity east of the Mississippi, then reduced its output and raised price in classic monopoly fashion, so much additional capacity was attracted into the market that the price of sugar had fallen back to the competitive level in only three years./11/ The only thing that can stop this process of competitive entry from disciplining large firms and cartels that try to restrict output and raise price is some form of barrier preventing entry by new firms, and nearly all effective barriers consist of exclusive governmental franchises to existing firms, in which the coercive power of the state is literally used to prevent entry. The proper role of government, therefore, if it wishes to protect individual citizens from predatory corporations, is to simply avoid creating and protecting such predatory monopolies and cartels.
It must be added that there is simply nothing inherent in the corporate form of business organization that poses a threat to individuals or to individualism, unless one buys Skidmore's warped concept of individualism in which cooperative action between and organization of individuals is precluded by definition. In fact, the modern business corporation is simply a highly developed method by which entrepreneurs (who are quintessential individualists) and other individuals contractually form, cooperate, and specialize in a social division of labor for common purposes and mutual gain. Its unique and beneficial features are precisely those for which it is condemned. Through stock and bond sales it can amass larger stocks of capital and assets than any other form of private business organization. The large number of owners of the firm necessitates the employment of professional managers. Those who are good at forming organizations and raising capital are not necessarily the best at running them. As for stockholders, there are too many to collectively make decisions, and few of them have either the knowledge or the desire for managerial responsibility. Every economist in the world but Berle and Means seems to have understood that specialization on the basis of comparative advantage in a social division of labor is productive and beneficial./12/
True, there is a principle-agent problem involved in insuring that the corporate managers act to maximize the firm's profits and hence the value of its assets in the interest of its owners. Managers sometimes do feel free to use corporate assets to feather their own nests and shirk their managerial duties. It is not true, however, that private social mechanisms for pressuring managements to act in the interests of owners are absent. They developed as corporations and stock markets developed. Corporations have boards of directors that can fire inefficient managements, and sometimes do. Compensation through stock shares, in addition to salary, can tie a large fraction of executive compensation directly to firm profitability. In addition, low profits due to poor management cause investors to sell and the firm's stock price to fall, creating an opportunity for an outside firm to buy control cheaply, replace the inefficient management, and operate the firm profitably. This creates what is known as the market for corporate control./13/ This constant threat of takeover and dismissal provides strong incentive for corporate managements to operate responsibly.
The hypocrisy of accusing corporations of being unaccountable, and arguing that they must therefore be regulated, when government regulators are not elected, and hence are unaccountable, is simply astounding. This makes it clear that the aim of such arguments is not to produce accountability of those in decision-making positions but precisely to shift the form of human relationships from private contract toward government coercion. The corporate form of business organization is not a threat to individual freedom, self-determination, or private social cooperation; it is precisely one of the highest expressions of those things. The chronic extension of government coercion of businessmen that statist liberals promote does not preserve and extend individualism, freedom, and social cooperation. It occurs at their expense. Statist liberals hate the corporation, in my opinion, not because it amasses private power that threatens individualism, but precisely because it allows private cooperative operations on scales that only governments could undertake before, and thus reduces the very need and rationale for coercive government action.
Teddy Roosevelt, President from 1901 to 1909, is clearly Skidmore's favorite president, and we soon learn why. In Skidmore's view, he was the first national leader to see the growing threat from private corporate power. Though he believed in individualism, Skidmore tells us, TR thought that government should be powerful in order to regulate private strength. He restored railroad competition in the Northwest by bringing suit to dissolve the Northern Securities Company, and took legal action against the beef, oil, and tobacco trusts. He used governmental power in behalf of labor, and he was also the first great environmental President, using an 1891 law to place over 150 million acres of Western land into reserves. Defeated in his independent bid to regain the Presidency in 1912, however, his progressive supporters found the Democrat Woodrow Wilson to be one of their own. Under Wilson came numerous progressive acts, including the Federal Reserve Act of 1913 and the 16th and 17th amendments.
The central issue here I take to be the primary thrust of governmental policies, both federal and state, in the Progressive era with regard to monopolies and cartels. As such, I will focus narrowly on that, ignoring side issues such as land reservation. The story most historians have told, so much so that Skidmore presumes his readers see things that way, is that as the nation industrialized in the latter half of the 19th century, huge firms run by ruthless robber barons arose through internal growth, merger, and trust formation, to dominate their industries to the point of eliminating competition. Progressive politicians, responding to the public outcry, then instituted the anti-trust laws and business regulation to protect the public from the resulting monopoly practices. This latter claim, that progressive government policies arose in a genuine public sector response to a spontaneous public demand for relief, and that policy was actually aimed at protecting the public, is known within the economics profession as the public interest hypothesis.
This entire interpretation is highly dubious, however. It presumes that the argument I made above, that the capital market disciplines even the largest firms as long as the government allows open entry, is false. It presumes that the giant firms such as Standard Oil, American Tobacco, U.S. Steel, et al. were in fact able to restrict outputs, raise prices, and exclude entry from competing firms, and did so. And it presumes the public interest explanation of government policy. Was all or any of this true? Careful examination of the evidence does not support these presumptions. Historian Gabriel Kolko, in a famous work published in 1963, carefully examined the economic data on industry after industry in the progressive period, such as the steel, oil, automobile, telephone, and meat packing industries. Kolko found that the best efforts by the dominant firms to limit production, raise and stabilize prices (which requires preventing entry by new competitors), had failed and competitive conditions remained./14/
Similarly, Dominick Armentano, examining the historical background and economic development of the firms and industries involved in the classic early antitrust prosecutions of Standard Oil, The American Tobacco Company, and U.S. Steel, found that the accused firms had not been guilty of the classic monopoly practices of restricting output, raising prices, and stabilizing them at high levels. They had done just the opposite. Nor had they been able to prevent entry by competing firms./15/ Likewise, DiLorenzo recently presented evidence that industries accused of being monopolized in the 1880s were in fact increasing their output and reducing the prices of their products more rapidly than was happening in the rest of the economy./16/ Efficient competitors benefit the public by improving products and reducing costs, allowing higher outputs and lower prices. Then and now, most complaints of "monopoly" came not from the general public, who benefited from the actions of the more efficient firms, but from the less efficient competitors.
Both the more efficient and less efficient firms may have incentives to turn to the political process for relief, however. The former may want government protection to cement a dominance they have obtained through superior efficiency, but might otherwise lose to future more efficient competitors. The less efficient firms may wish to use congressional legislation or the law courts to punish their more efficient competitors and gain an edge in the market, as in the recent complaints of Apple and Netscape against Microsoft. Politicians of a statist inclination, eager to gain, maintain, and exercise power, can use such motives to co-opt businessmen in their own eventual destruction, by simply offering legislation benefiting whichever group is willing to offer the most in bribes, campaign contributions, and ideological support. The public need only be convinced that the legislation is necessary to protect them and they will accede, even if it extends governmental power in ways that erode constitutional limits and human freedom. Gabriel Kolko understood part of this. His explanation of progressive legislation was that dominant firms, having failed to suppress competition through market methods, turned to the political process to gain control of their markets through regulation, a tactic economists now term rent-seeking.
The Interstate Commerce Act, passed in 1887, is an excellent example of this process. The act created the Interstate Commerce Commission, to regulate the railroad industry, ostensibly to protect the public--particularly farmers--against monopoly practices. In fact, many railroad cartels and price conspiracies existed, but most were ineffective. Some egregious abuses did occur, such as the Big Four railroad cartel in California that was able to charge high rates by paying the California legislature to restrict entry into the market (it helped that Leland Stanford, president of the Northern Pacific, was actually Governor of California). Add to this the corruption of the federal transcontinental subsidies, and the public was angry with the railroads. Nevertheless, the relevant historical price series show that railroad rates fell relative to crop prices over the entire post Civil War period, rising for three years only during the depression of the 1890s, after which they began failing again./17/
Did the act protect the public from monopoly abuse? Kolko found its effect to be precisely the opposite. This is confirmed by Paul MacAvoy, who found that the specific provisions of the act had the immediate effect of strengthening the private railroad cartels and allowing them to charge higher rates./18/ World War I mobilization gave the progressive liberals in government an excuse to go even further in violating the constitution, and the government nationalized the railroads. Forced by public opinion to return them to private ownership afterwards, however, policy turned back in a mercantilist direction. Congress passed, and progressive hero Woodrow Wilson signed, the Transportation Act of 1920, officially cartelizing the railroad industry, complete with entry restrictions, detailed regulations to prevent internal competition, and legally fixed price minimums, below which shipping rates could not be set.
This is not the end of the story. Contrary to the hopes of the cartelizers, the Transportation Act of 1920 almost destroyed the railroad industry because the price minimums prevented them from competing effectively with the new, unregulated and competitive trucking industry, which therefore took a large share of the business. But in the 1930s, the dominant trucking firms got tired of struggling to maintain their large market shares competitively, and began lobbying in Washington DC to be brought under ICC regulation. The result was the National Motor Carrier Act of 1935, which brought the trucking industry under ICC authority, imposing entry restrictions to interstate trucking, along with detailed regulations over industry practices to protect the cartel from internal competition./19/ This should make clear the actual motives and effects of most "progressive" legislation.
Another egregious example concerns the electrical utility industry, which had its beginnings before the turn of the century when large eastern cities began to be wired for lighting. The progressive historical story is that electrical generation and distribution is a natural monopoly, and that natural monopolies must be regulated to protect the public by having state rate commissions set rates to prevent monopoly pricing. In fact, though local markets were, in their nature, rather concentrated. The state utility monopolies that exist everywhere nowadays were creations of the state laws that were passed early in the 20th century and existed almost nowhere before those laws. Private cartelization efforts in local markets repeatedly failed, attracting entry when prices were raised./20/ The lobbying by the electrical firms for the laws granting and regulating utility monopolies and legally preventing competition is another example of the process of political rent-seeking.
Did these laws protect the public from monopoly practices by keeping electricity prices low? George Stigler and Claire Friedland, in a famous 1972 paper, compared electricity rates and rates of return on investment of firms in regulated and unregulated states from 1917 to 1922, and found that all differences between their rates over time were accounted for by other determinants than regulation. That is, regulation had no effect on prices or rates of return in the industry./21/ This refuted the public interest claim for such legislation, since that theory implies that monopoly rates would have existed before the utility legislation, and both prices and profit rates would have fallen after the legislation. Apparently unaware of Kolko's work, Stigler went on to specifically reject the public interest theory and develop, instead, a theory that regulation is sought by and protects private interests./22/ This theory, known as the economic theory of regulation, has since stimulated a vast theoretical and empirical literature, and for his seminal contributions Stigler was awarded the Nobel Prize in economics in 1982.
The story of airline regulation is similar to that of the railroads, trucks, and electric utilities. Under competitive pressure during the depression, the industry formed the Air Transport Association and lobbied for federal regulation. In 1938 Congress obliged by passing the Civil Aeronautics Act creating the Civil Aeronautics Board. The nineteen existing "trunk" lines carrying passengers were granted certificates of operation. The CAB created and enforced a legal cartel, regulating rates, routes and business practices, and for the next forty years no entry of new firms was allowed by the federal government into the scheduled interstate air passenger business, even though demand increased rapidly./23/
The medical cartel created by state legislation lobbied for by the AMA, under pressure of competition from practitioners of holistic medicine in the late 19th and early 20th centuries, is another good example. The state laws forbid practice of medicine by anyone not certified from AMA operated medical schools. AMA control of entry into those schools has allowed the medical cartel to keep the supply of medical doctors artificially scarce, the price of medical services artificially high, and doctors' incomes perpetually higher than other professionals with similar degrees of invested human capital ever since./24/ And of course, the resulting lack of low cost medical care has been repeatedly blamed by statist liberals on the free market and used as an excuse for additional coercive governmental interventions into the medical market, including Medicare and Medicaid. Or what about the telephone monopoly sought by Bell Telephone after 1900 in the face of growing competition from independents?
And let us not forget the Federal Reserve, since Skidmore proudly lists its creation among the progressive "reforms" of the Wilson administration. The official story is that the nation suffered from monetary instability in the decades after Jackson withdrew deposits from the Second Bank of the U.S. in 1836, and that following the sharp recession of 1907, a monetary commission was set up to recommend reform. The Commission reported in 1912, and Congress enacted the Federal Reserve Act in 1913. All a very nice public interest mythology. In fact, the richest banking interests in the U.S., the Morgans, Rockefellers, and Warburgs, sent representatives secretly to Jekyll island off the coast of Georgia in 1910 to write a law creating a central bank that would cartelize the money supply mechanism in their hands. Also attending was A. Piat Andrew, Assistant Secretary of the Treasury, which shows the complicity of the government in the intended cartel from the beginning.
The bill was introduced into Congress by Senator Nelson Aldrich, who was in the pocket of J.P. Morgan, and whose daughter Abby was married to John D. Rockefeller. It did not initially pass, but the bill that later passed and was signed by "progressive" hero Woodrow Wilson was identical in all essential respects./25/ And who headed the monetary commission that recommended the Federal Reserve Act? U.S. Senator Nelson Aldrich. Were those behind the Jekyl Island meeting able to control the Fed? The President of the New York branch, who dominated Fed decision making in the 1920s, was Benjamin Strong, who was the Morgan representative at Jeckyl Island. The Fed is extremely powerful and profitable, since it is allowed by law to earn interest on securities it purchases and loans to commercial banks it makes with base money that it creates at will from thin air, in any amounts it desires. Congress does not object in the slightest because the Fed shares this loot with the Treasury, literally turning back part of its revenue, and is willing to purchase federal government securities issued to finance deficit spending, and thus monetize government debt. Was it necessary to create this cartel? No. In the period in which we lacked a central bank, U.S. economic growth was extremely rapid, and the U.S. became, simultaneously, the greatest manufacturing and agricultural nation on earth.
This list of government protected monopolies and cartels created during the heyday of progressivism could be added to enormously, but enough is enough. Let us simply dispense with the notion that the central tendency of policy in the progressive era, either at the state or federal levels, was to oppose monopolies and cartels for the benefit of the public. In fact, the progressive era marked the return of mercantile rent seeking, involving the systematic creation of monopolies and cartels by government for the benefit of the special interests at the expense of the general public./26/ In this, progressive doctrine served a vital function, for without the public interest rationales for such legislation, propagated through the government K-12 schools nearly everyone's children must attend, and by statist intellectuals in the media and academy, the public would never have accepted these policies.
Skidmore has very little to say about the 1920s, and all of that disparaging. Perhaps this is because the decade offers little support and much contradiction for progressive liberal beliefs. Presidents Warren Harding and "silent" Cal Coolidge did not fit the progressive mold, and both supported Treasury Secretary Andrew Mellon in a series of federal tax reductions that extended over much of the decade./27/ More importantly, the economy was demobilized after WWI, and the functions and size of the federal government declined massively. From 22 percent of GNP in 1919, federal spending fell to as low as 2.9 percent in 1926. The result was rapid real output and income growth over the decade, averaging over 3.6 percent per year despite one very large recession in 1920-1922, and two very small recessions in 1924 and 1927. For comparison, average real output growth was 3.3 percent in the 1970s, 3.1 in the 1980s, and 3.1 in the 1990s./28/ The roaring '20s really did roar.
The 1920-1922 recession is important to mention for two reasons. First, it was very deep, involving an 8.1 percent decline in output in 1921 alone. Second, however, it was short, Its causes were certainly known: the Federal reserve contracted the money supply to stop the inflation it had generated through debt monetization and rapid money growth during the war. But once the recession was on, the government did essentially nothing to intervene beyond stabilizing the money stock. Prices fell, increasing the purchasing power of money, and wage rates fell, restoring the real wage to employable levels, and the recession promptly ended./29/ This appears to have been a highly effective policy that contrasts strikingly to those followed in the great depression, as I shall show. Real output grew 15.8 percent in 1922 alone, and 12.1 percent the next year, rates we have never seen since.
Skidmore does have a lot to say about Herbert Hoover, who succeeded Coolidge. In his view, Hoover dogmatically adhered to a political and economic philosophy based on a relatively unregulated and profit-based free enterprise, which Hoover himself called true (i.e., classical) liberalism. He opposed socialism (clearly a horrible sin) and believed government should not be involved in the distribution of goods or services. Hoover's answer for economic difficulties, according to Skidmore, was to instill the public with confidence, a defect for which Skidmore later praises Franklin Roosevelt. Hoover exercised leadership when the depression began, but he refused, in Skidmore's own words, to "call for coercion of the economy."/30/ Well, we certainly know on which side of that issue Skidmore is.
As it turns out, Hoover does indeed deserve a great deal of discredit for the occurrence and magnitude of the depression, though not at all for the reasons Skidmore claims. One of the greatest myths of this century is that the depression was a failure of the free market, and that government intervention and paternalism was demonstrated to be necessary as a consequence. Part of this myth is the claim that Hoover followed a laissez faire policy, a belief that Hoover himself encouraged in later years, perhaps in shame over what he actually did. In fact, two governmental interventions into economic activity initiated the depression. The Federal Reserve, attempting to stop the stock market speculation that had been set off by its low interest rate policy in the late '20s, raised the discount rate and began contracting the money stock in late 1928 and early 1929./31/ By summer, real output and employment were already beginning to decline, well ahead of the stock market crash in the Fall. Late in the year, Hoover made a huge mistake. He announced that he would sign the Hawley-Smoot tariff bill then going through Congress. Almost immediately, this huge increase in the taxes applied to imports caused retaliation. Other nations around the world raised barriers to American exports. The U.S. stock market, which had begun to recover from its initial decline, began failing again, correctly capitalizing the effects of the incipient trade war on future output and income into asset values.
The trade war set off by Hoover and the Republican protectionists in congress magnified the effects of the monetary contraction the Federal Reserve had begun. Large fractions of U.S. crops were being exported at the time, and many farmers were heavily indebted to the rural banks. When their overseas markets were cut off, farmers could not pay their debts, and the rural banks began to go broke. Since much of the money supply consists of dollar denominated saving and checking deposits, money was extinguished as the banks went under. Between 1929 and 1933, when Franklin Roosevelt temporarily closed the banks, the U.S. money supply contracted by one third, the largest such contraction in history./32/ Aggregate real output in 1933 was 30 percent lower than in 1929, and the unemployment rate was over 19 percent.
Hoover's second mistake, again worsening the situation, was an action for which Skidmore actually praises him. Beginning in November 1929, Hoover repeatedly called business leaders together and pressured them not to reduce wage rates, a policy action that was continued by Franklin Roosevelt. Consequently, prices of the products firms try to sell fell relative to the wage rates they paid, raising the real wage (the purchasing power of the wage) and thus the cost of employment, to excessive levels. Real wage rates had risen by 12.5 percent by the depths of the depression, which was precisely why so many people could not be employed./33/ If the money stock had been stabilized following the initial contraction (which was within the power of the Federal Reserve), and prices and wage rates had been allowed to fall freely, increasing the purchasing power of money and reducing the real wage back to its 1929 value, and if Hoover had vetoed the tariff bill, the depression would probably have ended as quickly as the 1920-1922 recession did.
This pattern of government interventions, ostensibly aimed at ameliorating depression conditions but actually worsening them, continued with the election of Franklin Roosevelt, who took office in l933. In the "New Deal" of his first l00 days, with the complicity of a Congress dominated by his party, Roosevelt enacted a series of programs in the name of fighting the Depression that administered contractionary shocks to the economy, slowing and preventing its recovery. The first of these requiring discussion is the National Industrial Recovery Act of 1933. The stated intent of the NIRA was to cartelize all of American industry through trade associations, in order to force prices up. Wage rates were also to be raised through minimum wage provisions in the law. The idea was supposedly that these input and output price increases would raise incomes. In fact, since cartels raise product prices by constricting output, the effect of the law was to add to the contractionary effect of the depression and to simultaneously contract aggregate demand further by reducing the purchasing power of money./34/ Here again we note, in this and other New Deal policies, the absurdity of the claim that statist liberals are, as a matter of principle, opposed to the formation of monopolies and cartels.
Roosevelt's first Agricultural Adjustment Act (1933) had exactly the same effects on, agriculture that the NIRA had on industry. It accomplished them more directly, however, through mandates literally requiring the killing of millions of farm animals (pigs, for example), and the removal of crop land from production in order to reduce supplies on the market and force prices up. Here again, while the stated effect was to raise incomes, the actual effect was to further reduce production and add to the existing contraction of real output and income. Indeed, the very idea that one fights a depression by further constricting real output in both the agricultural and industrial sectors is so ghastly and stupid as to be nearly beyond belief. Fortunately, the U.S. Supreme court declared both of these laws to be unconstitutional in 1934, in time to limit, but not prevent, their contractionary effects. Instead of recovering rapidly, as the economy had in 1922 and when prices and wage rates had been allowed to adjust freely, real GNP in the depression drifted upward, only slowly, not getting back to its 1929 level until 1936, when the unemployment rate was still over 16 percent.
Other contractionary policies of the New Deal were partly responsible. Roosevelt doubled the income tax in 1933, and raised it again in 1936. No economic theory extant at that time or today predicts beneficial effects in a depression from a tax increase. Even worse was his labor legislation. The Wagner Act of 1935 cartelized major portions of the American labor force by allowing simple majority votes to unionize plants, making the union the monopoly bargaining agent for all the employees, including those who do not want its representation. Millions of workers were thus forced into unions against their wills through massive organizing by the AFL-CIO in 1936. Waiting until Roosevelt was safely reelected that year, the unions undertook a huge series of strikes in 1937, forcing wage rates above the marginal product of labor. The result was a severe contraction in 1938, in which the unemployment rate rose by over three and a half percentage points.
Nothing in this record of government intervention causing and extending the depression can be blamed on free enterprise, or demonstrates any inadequacy to "individualism" as Skidmore claims. To the contrary, what it shows is the stupidity of putting coercive control of a complex economy in the hands of fallible, and perhaps even corrupt and power hungry, political authorities. The very phrase "The Great Depression" is misleading because the depression actually consisted of a series of contractionary shocks, administered by the government to the economy, each before product and employment markets could adjust to the prior shock. Skidmore is right about one thing, however. The enduring desperate conditions of the depression motivated Americans to accept servile dependence on government handouts and coercive income redistributions such as welfare and crop price supports, compulsory social security, government price fixing such as minimum wage laws, and many other restrictions on human freedom that they had never been willing to accept before.
Harry Truman succeeded to the Presidency when Roosevelt died in 1945. Skidmore is correct in saying that he continued and expanded FDR's coercive social and economic interventions. In one respect worth mentioning, this effort was denied him, however. If the War had ameliorated the depression at all, it had done so through massive monetary expansion and price inflation, and by allowing Roosevelt to put eleven percent of the labor force in the military, thus reducing unemployment. During the war, the government put price controls on goods of all types to stop the price increases, and used rationing to deal with the resulting shortages. After the war, the statist liberals dominating the Democratic party openly advocated retaining these wartime price controls. The Republicans, in contrast, wanted the controls removed. Here the left went too far. In the Congressional elections of 1946, the democrats lost badly, and the Republicans took control of both houses of Congress. With the abolition of the price controls the economy, which had been in recession in 1946, began a long and rapid expansion.
Skidmore's discussion of all the Presidents from Eisenhower to Carter is contained in a single paragraph. He is correct in saying that Eisenhower and Kennedy retained and expanded the New Deal social programs. Other than the addition of disability benefits to social security, however, those expansions were relatively minor, and policy sometimes went against the statist liberal agenda in a major way. Convinced by Keynesian advisers that it would increase aggregate demand, Kennedy initiated a huge reduction in tax rates in 1963, telling detractors that "a rising tide lifts all boats." What the tax reduction actually did was stimulate production and employment from the supply side./35/ This policy was enormously successful, causing real output to grow an astonishing 4.4 percent per year on average over the decade. Likewise, Jimmy Carter, influenced by regulation economist Alfred Khan, his Secretary of Transportation, deregulated the airline and interstate freight trucking industries in 1979 and 1980. The massive entry of new firms, price reductions, and improvements in service that resulted benefited the economy enormously in the following decades./36/ This disposes of the notion that those regulatory agencies had been protecting the public.
This deregulation was only a partial reaction, however, against the huge expansion in the regulatory welfare state that came under Democrat Lyndon Johnson and Republican Richard Nixon. They gave us the EPA, OSHA, NTSB, CPSC, and many other regulatory agencies with huge budgets and vast powers. Lyndon Johnson also initiated a massive expansion of compulsory income transfers under the War on Poverty. In 1967, income transfers were 8.4 percent of aggregate personal income in the U.S. By 1996 they had reached 16.6 percent. Did this end poverty? Actually, as the economy grew and average real income increased, the poverty rate had been falling over the entire post-war period, declining to 22.4 percent of the population in 1959, and to 13.8 percent in 1967, the first year of major Great Society expenditures. Yet by 1969 the poverty rate had essentially stopped falling, and from then until 1996, when the radical Republicans eliminated welfare as an entitlement, it drifted upwards./37/ The War on Poverty not only did not end poverty, it stopped it from ending, and for obvious reasons, given the disincentives the subsidies and the taxes required to finance them created. As someone once said, "We can have as many poor people as we are willing to pay for, and we are willing to pay for a lot."
A large number of social pathologies, such as rising divorce and illegitimacy rates, seem attributable, in part at least, to the expansion of compulsory income transfers, and the incentives they embodied, Even the inflation that characterized the period and the rising federal budget deficits after 1969, were clearly mechanisms resorted to primarily to finance the expanding income transfers. Redistributionist politicians recognized that votes could be obtained by offering money to subsets of the public, but that votes were lost by openly taxing to pay for the transfers. This motivated them to offer the programs but to tax surreptitiously. The solution was to run deficits and finance them through borrowing and money creation./38/ Inflation is not only an actual (hidden) tax on cash balances held by the public, but had the added benefit from the left statist perspective--of raising taxes through bracket creep, without a public vote. One could believe in the honesty and good intentions of the advocates of the welfare state had deception in its finance not been so pervasive from the first.
Perhaps the worst effect is simply the moral corruption of the public that results from distributive politics, as nearly everyone struggles to use the political process to loot others for their own benefit, on one excuse or another, recognizing that if they don't, they will simply be victims of those who do. This corruption can be avoided only when government is constitutionally forbidden from deliberately redistributing incomes, and everyone understands that its proper function is to prevent people from stealing from each other, rather than act as an agency through which some steal from others. And is it any wonder, that many of those who do recognize the immoral and exploitative character of modern distributive politics, but choose not to engage in this moral corruption, or who resent being inextricably entangled in it and dependent on such thefts, or who focus all their attention on immediate desires because they genuinely believe the government has taken care of all long term concerns, tend to withdraw from civic participation? Or that the advocates of redistributive politics blame that withdrawal on excessive "individualism"?
And let us not overlook the purely economic effects of distributive politics. Quite aside from the loss of incentive to work, save and invest on the part of both the recipients of the subsidies and those taxed at increased rates to provide them, redistribution is a negative sum game for the simple reason that the process of redistribution is itself very costly. The administrative bureaucracy absorbs, on average, about 65 cents of every dollar taxed and budget to them, redistributing only the remainder. Those personnel and the other resources they employ must be drawn from the private sector, and their value represents private sector production lost as those resources are employed instead to forcibly redistribute a portion of the remaining output. On top of all that is the rent seeking cost, as people employ resources--that have alternate uses in production--in lobbying, bribes and campaign contributions in efforts to obtain targeted income transfers, regulation or monopoly privileges from government./39/ That production too, is lost. These effects, and the costs imposed by the vast expansion of regulation in the same period, severely reduced the growth of productivity and real income in America after 1972./40/
Ronald Reagan, elected in 1980 on a public reaction against rising taxes, reduced them in a phased program beginning in 1983. For this he has been endlessly criticized by statist liberals who praised Kennedy's very similar tax reduction. It had the same effects in generating rapid economic growth. Thus began an expansion which, with a pause for the Gulf War, continues to this day./41/ Yes, federal deficits increased relative to the economy, but this was simply the continuation of a trend of rising deficits that began with Kennedy. In fact the turnaround that eventually led to the recent surpluses began in 1984, before Reagan's first term had ended./42/
Reagan's other achievements were immense. He had the courage to index the income tax brackets to stop bracket creep, and he stopped monetizing debt. Thus he removed the systematic dishonesty in the finance of government, against vitriolic opposition from the statist liberals, who knew what they were losing. The inflation rate, which had reached ten percent in 1980, before he took office, was severely reduced. He increased military expenditures, though they never reached the fractions of GDP they had been under Kennedy./43/ He financed anti-communist guerrilla armies in Angola and Afghanistan. The evil empire could not compete, and collapsed trying. The Berlin wall came down and Eastern Europe and the Baltic states, enslaved by Franklin Roosevelt's perfidy at Teheran and Yalta, and Truman's at Potsdam, were freed./44/ But Reagan never attempted to end, or even significantly diminish, the immoral welfare state, and his efforts at deregulation were minor.
President Bush won the Gulf War, but went the other way on domestic policy. He raised taxes against his own pledge, and in 1990 and 1991 he signed three of the most costly regulatory bills in history: the Clean Air Act amendments, The Americans With Disabilities Act, and the Civil Rights Act. As a direct consequence, the economy recovered so slowly from the recession of 1990-1991 that he was defeated by Bill Clinton in 1992. Thus came into power a man now recognized as corrupt and immoral, the second President to be tried for impeachment in U.S. History. Among his lesser failings, Clinton is a chronic liar, adulterer, convicted perjurer and suborner of perjury, who uses his subordinates, sycophants, and thugs--the Clintonistas--to threaten, slander, and intimidate, anyone who tries to reveal his crimes./45/
Good things have indeed come from the actions of Clinton's administration. His first term attempt to socialize one-seventh of the U.S. economy may have been the last serious attempt to advance the statist liberal agenda we will ever see. Every action now from that camp is defensive, and some involve backtracking. When the Republicans took over both houses of Congress in 1994, in public reaction to the Clinton Health plan, Clinton and his supporters lost the ability to resist political pressures for genuine--if meager--welfare reform, and for balanced budgets. Further backtracking towards a more limited agenda for the state is coming. The public has lost faith in the statist liberal programs and perspective, and much of Skidmore's essay is an expression of despair over this fact. Public education is failing to educate, and the public is demanding reforms. Competition between public and private schools through vouchers will remove the statist liberal capacity to indoctrinate the young, a thought that chills them to the core. Medicaid is already in the red. The baby boomers are aging, and if social security is not at least partly privatized, it will soon go broke. In either case, more and more people will realize that government coercion and compulsion beyond that necessary to provide national defense, protect property rights, and enforce honest, open, and mutually voluntary interactions between persons, is the problem, not the solution.
Notes
Skidmore, "America's 20th Century," 8.[Back]
See Burton Folsom, Entrepreneurs Versus the State: A New Look and the Rise of Big Business in America, 1840-1920 (Young America's Foundation, 1987), chapter 2.[Back]
Douglas North, Growth and Welfare in the American Past: A New Economic History (Prentice Hall, 1983), chapter VIII.[Back]
Money is a partial exception here. As a public good, it is a marginal case, at best. Money was not invented by governments, and government control of monetary systems has historically been employed as a covert method of taxing and raising taxes. Government may perform a useful function in standardizing the units in which money is issued, but even this may not be necessary. Railroads standardized track gages and nut and bolt manufacturers standardized threads from economic motives, without government mandate. It is not obvious that competing private money issuers (mints, or banks issuing bills on coins deposited) would not do the same from similar economic motives.[Back]
See the brief, similar statement by Ludwig von Mises, Human Action (3rd revised ed. Henry Regnery, 1966), 152 and 157-161. See also any standard economics text on the subject of comparative advantage, and on the differential marginal evaluations of the same goods by different persons that give rise to exchange. This perspective on man and society pervades economic analysis, which arose as a distinct discipline in the heyday of classical liberal thinking, and is methodologically individualist to the core.[Back]
Before the New Deal of the 1930s, the relative size of the federal government seems to have risen and fallen in peacetime years with little discernable trend. In 1929 federal government expenditure was only 2.6 percent of Gross National Product (GNP). By 1990 it had reached 23.3 percent of GNP, almost ten times its size relative to the overall economy in 1929.[Back]
Ayn Rand, "America's Persecuted Minority: Big Business", in Ayn Rand, Capitalism: The Unknown Ideal (The New American Library, 1967), 45.[Back]
Skidmore, "America's 20th Century," 9.[Back]
Skidmore, 10.[Back]
General Motors soon replaced Ford as the giant of the auto industry. This is only one of literally thousands of examples that could be cited of dominant firms in various industries losing their dominant positions, thereby demonstrating the lack of power of such large firms to control markets and restrain competition.[Back]
In 1895 American became the first firm prosecuted under the Sherman Anti-Trust Act, but it was not found guilty of constituting a "combination in restraint of trade". See United States v. E.C. Knight Company, 156 U.S. 1 (1895/).[Back]
Bearle and Means's theory literally implies that the corporation will be an inefficient form of business organization. If this were so, instead of becoming the dominant form of business organization in the 19th and early 20th centuries, it would have been competed out of existence by proprietorships and partnerships. In fact, no evidence shows corporations to act inefficiently in their use of assets relative to other types of business organization, or that the rise of corporations harmed the public. Indeed, the period of mass industrialization and rise of corporate dominance after the Civil War was a period of extremely rapid increase in output and the real incomes of ordinary persons. See North, Growth and Welfare, 139-140.[Back]
The seminal work in this literature is Henry G. Manne, "Mergers and the Market for Corporate Control," Journal of Political Economy 73 (1965): 110-120. For an extended discussion of the issues and events of the 1980s merger wave, see James Rolph Edwards, "Corporate Raiders and Junk-Car Dealers: Economics and Politics of the Merger Controversy," Journal of Libertarian Studies IX (Fall 1990): 95-115.[Back]
Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (The Free Press, 1963).[Back]
Dominick Armentano, The Myths of Antitrust (Arlington House, 1972), chapters 4 and 5.[Back]
Thomas J. DiLorenzo, "The Origins of Antitrust: An Interest Group Perspective," International Review of Law and Economics 5.6, 73-90.[Back]
Robert Higgs, "Railroad Rates and the Populist Uprising," Agricultural History 44 (July 1970) has the best comparison of crop prices relative to railroad rates. Some contemporary writers noticed the same thing, however. See H. T. Newcomb, Changes in the Rates of Charge for Railway and Other Transportation Services, USDA Division of Statistics, Misc. Series, Bulletin 15, Washington D.C., 1898.[Back]
See Gabriel Kolko, Railroads and Regulation: 1877-1916 (W.W. Norton and Co., Inc., 1965), and Paul MacAvoy, The Economic Effects of Regulation: The Trunkline Railroad Cartels and the Interstate Commerce Commission, 1870-1900 (MIT Press, 1965).[Back]
This history is covered in much more detail in James Rolph Edwards, Regulation, the Constitution, and the Economy (University Press of America, 1998), chapter 4.[Back]
See Greg A. Jarrell, "The Demand for State Regulation of the Electric Utility Industry," Journal of Law and Economics 21 (October 1978), 269-295.[Back]
George Stigler and Claire Friedland, "What Can Regulators Regulate? The Case of Electricity," Journal of Law and Economics 6 (October 1963), 1-16. Examining an earlier period in the development of rate regulation than Stigler and Friedland's data covered, Jarrell (note 20 above) found that regulation began in states where electric utility competition was comparatively greater, and that it actually caused rates to rise in those states. This provided even stronger evidence against the public interest hypothesis for electricity regulation.[Back]
George Stigler, "The Theory of Economic Regulation," Bell Journal of Economics and Management Science 2 (Spring 1971), 3-21.[Back]
See William A. Jordan, Airline Regulation in America (Greenwood Press, 1970).[Back]
Nobel laureate Milton Friedman, Capitalism and Freedom (University of Chicago Press, 1962), 149-160, has a good discussion of the medical cartel.[Back]
The existence of the Jekyll Island meeting was so secret that for years only the people involved knew it had occurred. Eventually they began to talk; however, Frank Vanderlip, President of Rockefeller's National City Bank in 1910, one of the main players at Jekyll Island, later openly admitted that the Federal Reserve Act was written there. See Vanderlip, "Farm Boy to Financier," Saturday Evening Post (9 February 1935): 25.[Back]
On the nature of mercantilism see Robert B. Ekelund, Jr. and Robert F. Hebert, A History of Economic Theory and Method (McGraw-Hill, 1975), chapter 2.[Back]
See Bruce Bartlett, Reaganomics: Supply Side Economics in Action (Arlington House, 1981), chapter 8.[Back]
Federal Reserve Bank of St. Louis, National Economic Trends (March 2000): 1.[Back]
See Lowell Gallaway and Richard K. Veder, "Wages, Prices, and Employment: von Mises and the Progressives," The Review of Austrian Economics 1 (1987): 33-80, and Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States (National Bureau of Economic Research, 1963).[Back]
Skidmore, 10, right side.[Back]
Friedman and Schwartz, A Monetary History of the United States, 289-291.[Back]
Friedman and Schwartz, 299 ff.[Back]
Lowell Gallaway and Richard K. Vedder, Out of Work: Unemployment and Government in 20th Century America (Holmes & Meier, 1993), 82.[Back]
See Michael M. Weinstein, "Some Economic Impacts of the National Recovery Act, 1933-1935," in Karl Brunner, ed., The Great Depression Revisited (Martinus Nijhoff, 1981), 262-285, and Gene Smiley, "Can Keynesianism Explain the 1930s?" Critical Review 5 (Winter 1991): 81-114.[Back]
Bartlett, Reaganomics, chapter 10.[Back]
Clifford Winston, "Economic Deregulation: Days of Reckoning for Macroeconomists," Journal of Economic Literature 31 (September 1993): 1263-1289.[Back]
The Economic Report of the President, 1999 (U.S. Government Printing office), table B-33, and the equivalent table for the 1984 edition show poverty rates from 1997 back to 1959.[Back]
See James Rolph Edwards, Macroeconomics: Equilibrium and Disequilibrium Analysis (Macmillan, 1991), Chapter 15.[Back]
The basic article on rent seeking is Gordon Tulloch, "The Welfare Costs of Tariffs, Monopolies, and Theft," Western Economic Journal 5 (June 1967).[Back]
Edwards, Regulation, The Constitution, and the Economy, 173-179 and 190-191.[Back]
The recovery from the Gulf War recession began in the middle of 1991, before Bill Clinton was elected, though the data was unclear at the time. Whether Clinton deserves some credit for the speed and continuance of the expansion since then is more problematic. NAFTA may have helped, but his tax increase hurt. Factors such as the growth of the internet and steady monetary policy seem more important than Clinton macroeconomic policy actions, which are notable mostly by their absence.[Back]
See Council of Economic Advisers, The Economic Report of the President (U.S. Government Printing Office, 1999), table B-79, p. 420, for a continuous time series from 1934 through 1998 (with estimates for 1999 and 2000) on the federal budget balance as a percent of Gross Domestic Product.[Back]
Military spending was 8.9 percent of Gross Domestic Product in 1963, declined thereafter, and only reached 6.2 percent of GDP in 1985 and 1986, at the height of the Reagan military buildup. See same table cited in note 42.[Back]
On that perfidy, see John T. Flynn, The Roosevelt Myth (Fox & Wilkes, 1998,) Book III.[Back]
Clinton's repeated public deceits, including his finger wagging television denial of sex with "that woman" (Monica Lewinsky), and numerous others, are well known and have distressed even his supporters. While the impeachment effort failed in the Senate, Clinton was found guilty of civil contempt by Judge Susan Weber Wright for his false and misleading testimony in the Paula Jones case. None of the numerous charges of his sexual abuse of women (including rape) have yet been proved. On the systematic intimidation and abuse of Clinton's opponents and obstruction of investigations of his activities, see The Judicial Watch Interim Report (Judicial Watch, 1998,), 1-49. At least one case of such intimidation has now been proved. On March 29, 2000, Clinton was found guilty by Federal Judge Royce C. Lamberth of intentionally and illegally violating the privacy rights of Kathleen Willey by releasing private letters embarrassing to her, a misdemeanor crime with a fine of $5,000. In May a federal appeals court refused to overturn Judge Lamberth's finding. Ms. Wiley has since filed suit for damages. See The Washington Times National Weekly Edition, 25 September-1 October 2000, p. 8. In addition, disbarment proceedings for Clinton are currently under way in the Arkansas Bar Association.[Back]