Good afternoon. My name is eddie selassie. Im a coolidge of the class of 2021 and a freshman at Harvard University studying economics and our panel is session six. It is titled the results of coolidge policy, the roar of the 1920s economy moderating. This panel is john childs john childs is the chairman of j. W. Childs associates, a private Investment Firm focused on sciences, real estate and, Consumer Brand investments. Prior to forming his firm in 1995, mr. Childs was senior managing director of thomas lee company and prior to that he ran Capital Markets group of prudential insurance. Mr. Childs served our in the u. S. Army. Hes a trustee of the Coolidge Foundation and serves on numerous other corporate and boards. Please join me in welcoming mr. Childs and our panelists to the stage. Good. What do you want . Im going to put that there. Wheres. Yeah. Good have to be. Ill come down here. Yeah. Let start by thanking edie for that lovely introduction and then ill pat myself on the back. I was on the board of jurors that selected her to be a coolidge scholar, so probably, probably the smartest decision of my coolidge career. Anyway, were going to be talking about the roaring 20 something. But before we do, i would like to call for a roaring round of applause for amity, matt and paul lane and the rest of the staff whove done such a superb job in putting on this centennial celebration. All very good. Okay. You know, theres been a lot of talk by previous panelists about the importance of history and i pretty much agree with them. But one has to be careful about which history. One is talking about and im reminded of sort of a russian dont know whether youd call it an aphorism or witticism or what, but one russian talking to another saying, we know what our future. Our questions are all about what our past was. So if you were going learn from history, you need to understand what the past is. And i would say when it comes to the Roaring Twenties, there awful lot of myths that certainly i got when i was in school. And i imagine some of you did. Maybe not everyone. I hope not. But there are there are a lot of myths about what went on in the twenties, for instance. It was considered period of, you know, real frivolous, the kind of a figment of Scott Fitzgeralds imagination populated with flappers and bootleggers. And you name it i guess, stockbrokers. We cant leave them out anyway. And it is frequently dismissed in American History as a period of time we can brush over lightly so we can get to important things like the depression. I think, and i hope ill convince before were through that the two of each was actually one of the most transforming emotional periods in American History, was very important to, you know, to how we evolved. And as many as, you know, probably the biggest myth about the twenties is it led directly to the Great Depression. Well, you all have heard of fake news, right . Yeah. Well, this is fake history. So were going try and set the record straight. I have a terrific panel for doing that on my left, i have john allison, who is arguably the most successful banker of our time. He ran bbt bbmp for, what, 20 years . Yes. And took the assets from something under 5 billion to almost 200 billion in that period of time. So these. Yeah. Give him a round of the guy. And then ask him why i didnt tell you about the stock. Anyway but you know, here is a man who understands growth and how it happened. So its very appropriate to have him on a panel talking about the Roaring Twenties. We also have im sorry, John Cochrane it looks have improved since i turn to the and we also have John Cochrane who is a very distinguished and very important economist. I am not going to read all of johns list honors and accomplishments. We would you know, take up the rest of the time here because hes really a very distinguished economist. But is going to chime in on just how important the twenties were and some of the environment that created the twenties. And finally, we have Matthew Denhart who, as i think most of you know, is president of the Covid Foundation and, you know, he and amity have built this into a spectacular, id call it a juggernaut in, you know, american institutions today. And its just getting started. So, you know, one of the things i love about the Coolidge Foundation is the Scholarship Program was in that program. We start out with 30,000 applicants and each one of them has to re the autobiography. Correct me if im wrong, man of Calvin Coolidge and then write several essays about it. And in the sense you could say this is our subversive way of making that fake history gets crowded out by real history. So i think it you know, its a Great Program beyond just, you know, the obvious attributes of the program. Anyway, before i turn to my panelists who are terrific and i always said, you know, and when i was running a company, you know, dont hire people stupider than you are because just because youre afraid someone smarter, upstage you hire smart, because then you dont have to work as hard and theyll make you richer. And ive applied that that principle to the panel we have here today. So theyre going to be great and helping set the stage, if you will. Anyway, im not going to bore you with an enormous number of statistics, but i am going to give you some data points. So kind of, as i say, to set the stage for what went on in the Roaring Twenties. And lets start with what they called and those days gnp. John can probably explain how they to gdp. I cant. Other than it came earlier in the alphabet maybe well have gaap someday. I dont know. But anyway. But during the period of the twenties grew annually by a rate of 4. 9 . Now some, of you who paid close attention earlier, it sort of shocked me. Heard diana. It grew at a rate of three and a half percent or some such number. All i can tell you is when youre statistics and trying to make point, make sure you try. Choose the right base year. Anyway, i asked matt to see if we could find some kind of data on Median Household Income and how it progressed. Anyway things were so rudimentary there and you know, coolidge didnt want to gum up the government with a lot of useless agencies. So the best we could come up with was the rate of growth in per capita gnp, and during the twenties grew by 40 . And you can assume that is a proxy for. What Household Income did during that period. Anyway, another fairly dry statistic, but when you encounter all the time unemployment during that period, someone mentioned, you know, when we came out of world one in pretty bad shape with unemployment approaching 12 under coolidge in his administration, unemployment. To 3. 2 . You know, even lower than the employment rate that President Biden boasts about. And he doesnt mention that hes paying people not to work. So its a different era. Anyway, those the background. There are two other things that happened that id like to spend a little more time on and that is the to use and this is why i say it was a period in the twenties really gave birth to a 100 year love affair with the automobile bill at the start. The decade we produced and sold one and a half million automobile deals a year by end of the decade, that number was four and a half million. I say billion earlier. Millions. What im trying to say and you know, when you think about it, the population has roughly tripled. So the per capita consumption of automobiles wasnt very different from what it is today, which is extraordinary. And if you think about it, you know that kind of transformed what American Life was about. You know, we have become an Automotive Society and moved away from, thank god, a horse and buggy society. Let me point out one other thing that i think was of great importance in, you know, sort of the daily life we lead today. And its very easy to these things for granted. But during the twenties, american households were electrified. I mean, they got, you know, utility supplies. And at the beginning, the twenties only, 35 of american households had electric. Today, by the end of the twenties, that was almost 70 . And if you exclude farmers who are way away from the grid, it was almost 90 . So there were huge transformation. And i like to think of it as it was, the great battle of westinghouse with its resident genius, tesla and General Electric with its resident genius, steinman well, you all know the sequel to this story. Tesla has a car named after him, but for steinmetz. No one could figure out how someone would proudly say, i drive a spider map. So is hes been a little bit lost to history. You know, westinghouse and g. E. A phenomenal job. Im going to im going to tell you one little anecdote about g. E. And steinmetz in the twenties. My great grandfather happened to be chairman of g. E. So this is kind of a law, if you will, may be apocryphal, but well assume its not. So. My great grandfather goes to steinmetz after the election, he says. Steinhardt, who did you vote for . Stein you said, i voted for the republicans. And he said, steinhardt, i thought you were. I thought thats why you had to leave germany. Steinmetz i was until my salary went over 5,000 a year. So you know, the point would like to make beyond a funny story is that what was going on in the 20, the roaring boom, the optimism, you know, and the environment of the twenties was enough to to a dyed in the wool socialist to capitalism. So you know thats pretty neat. Anyway we talked about during that time the National Debt which coolidge inherited 25 billion reduced to 16 billion. The dow jones went from 63 to 381. And these all indices of the great thing and and people say well ben, what happened . Well, in fact, i actually did a calculation. If you had bought stock at hundred and 81 a share or if hed bought into the dow at that time. And if you just on until today, you would have compounded your money at about 5 a year. So it wasnt a disaster. Truthfully high might not be great. I wouldnt want to invest money quite at that rate, but it wasnt quite the disaster. Finally, let me just finish on this point. As i said earlier, one of the great myths, my opinion about the twenties is that it led, you know, more or less directly, maybe indirectly to the Great Depression. And i hope by the time were finished this panel, sometime in the next 60 minutes, we will be able to disabuse everyone in this room of that idea and show exactly what did contribute to the Great Depression and why the stock market crash in 29 wasnt merely a correction, which weve had a lot, but the prelude to a Great Depression. It wasnt the stock markets that caused it. And i wont give you any more hints, but we will talk to talk about it later. Anyway, i hope the stage is set down. Ill turn it over to you. Tell us how banking has. I thank you very much, koos, which is a term with a german that contrasts with both his primary predecessor, woodrow wilson, his immediate successors Herbert Hoover and Franklin Roosevelt, who was fast philosophy was not fully integrated. He had a clear of physical, philosophical press that drove most of his major. He was an advocate of individual rights, free markets and limited government. The finance won the us under wilson massively increased Government Spending and did at the same time the Federal Reserve significantly expanded the money, ultimately raising interest rates, effectively reducing health of the economy over many in the economy. Example, the Railroad Industry was national large. Coolidge understood that it was his responsibility it lead to restoring the principle underlying a free society. He led a tremendous effort to deregulate the economy reduce government debt. Reduce government and cut taxes. The strategy unleashed american entrepreneurs and american and led to a period innovation, creativity and the combined created a significant improvement in economic wellbeing for practically everyone. The list of advances in 1920s is pretty amazing. There was dramatic increase in automobile ownership, huge expansion of the roads system. Radio became available, broadening the individuals of the world, electrical disc tribulation was created, expanding opportunities for many different types of Home Appliances and support. Industrial development, the telephone were being installed at a rapid pace and the list goes on. Coolidge coolidges principle of individual liberty free markets. And then the government created an incredible improvement in the quality of life. Unfortunately, what is taught most schools, therefore a commonly held belief is that the Roaring Twenties led the Great Depression. This is not true. It was a radical change in policy by hoover and Franklin Roosevelt that both created the great Great Depression and extended duration cure, which is principles of good government, were attacked by hoover and then roosevelt. There was a huge increase taxes massive increase regulation and government interfere dances in many business activity. If coolidges principles had not been violated is highly unlikely that we would have ever had the Great Depression and we probably wouldnt have had world war two. I want to speak a personal perspective with potentially help the students here, which i have you as the audience i really want to focus on to turn q which is principles his understandings and to a productive and moral life. In my career i have experienced a significant of reducing regular actions as coolidge did, and this destructive negative increasing regulation is hoover did a joint b me t in 1971. At that time it was a small eastern North Carolina farm bank. I want to tell you a story because this would do and thats what i would. Im their storyteller at the beginning of the great there was a run on banks because of fear that banks would all go broke oh the b t time had a deposit ratio was a local post office oh when the bank run started customers use just the withdrawal money the bank and put it in open savings accounts at the post office. The post, fortunately, would bring the money to baby baby and tease door and deposit it in the post office account. The and teller would count out the money slowly and it was running out, even doing. But fortunately about lunchtime the Federal Reserves break structure showed up and the guard slowly unload loaded all the the money bags of money into the bank vault for all to see seeing. The bank had plenty of money the customers went home when a few later roosevelt ordered all to close because so many were failing the board and ignored the claiming that they didnt get it, which is extremely unlikely. Leaving tea was one of the very few banks that stayed open all the way through the depression this independence characteristic was built into the culture of the bank. When i joined it. I became c chairman and ceo in 1989 and was in this role for 20 years during tenure b, b and t grew become the 10th largest bank in the us we had 20 consecutive years record earnings and were in the top percent of banks in the world in overall performance, we were competing with much larger financial institutions, yet we were consistently gaining market share. We had far lowest employee turnover and the best customer retention of any bank. We invested far more in employee education than our competitors. We operate the baby and universities were employees had the opportunity to match after their responsibilities and earn promotion since we had a very small advertising budget but spent far more education than our competitors because we had how we trained employees we operate a very decentralized set of Community Banks who had a much higher level of Decision Making party in our competitors which was a foundation for customer relationships. Our organization was driven by a clearly defined set of values. Our values were expressed differently. Underlying these values, coolidges concepts of individual rights, free markets and living the gummer government. When i joined the banking industry, it was highly regulated, slow and had limited profitability. It was also a very fragmented industry. During the late 1970s to pay off debt from the vietnam war. The Federal Reserve significantly, the money supply one more time, leading rapid inflation, causing many small and savings and loans fail in order to fix problems when, the regulators come to help you. Youre in trouble the fix the problems they. Made. Regulators encourage savings in loans to expand their commercial lending portfolio. Remember, they had finance houses traditionally and where they had no expertise, which led to massive overbuilding that created a crash in real estate markets and many small banks and thrifts failed in the early 1990s in order to encourage healthy banks like bp and ti to make, there was a major reduction in regulations giving banks opportunities, make acquisitions, expand their product offer and open markets exactly what coolidges underlying philosophy support. Unfortunately in the mid 2000s parties the regulators encouraged banks make subprime to raise the percentage of individual firms houses. Clearly a Hoover Roosevelt strategy right. Many of the buyers could not afford the houses and the subprime home market collapsed at that time. The regulators incredible pressure and instruction on healthy banks in contrast to what they did in the early 1990s on i decided to retire as ceo baby b. A. Because i knew we were going into a regulatory nightmare. I and definitely how long it would have would last. My goal was to find individual rights. I became the president and ceo, the cato institution, the worlds leading libertarian tank, and i would like to thank Calvin Coolidge for the ideas that underlie individual rights free markets and limited government. Thank you all. John, one question before we move on. Should coolidge permit interstate banking . I dont it was permitted in his time. It was permitted in his time. I think that would have been a great idea. I dont think the was ragged he would run into mass of political because you had thousands of small banks and they all had political power so i dont think it could have been done but yeah it would have been great if hed just allowed some something to happen on narcotic banking and it ended up with a healthier economy basically doing it right. Yeah, that was about the only thing he missed when he comes back. Work on that one. Thank you. Thank you very much, john. We have lot of jobs up here, dr. Cochrane, next year and goodbye, doctor. Thats so pretentious, so my job is to talk about the economy of the 1920s. Im an economist by the way, im 1920s work the single consequential decade for the lives of everyday americans. This is the contours of modern life happened pretty much all in one decade when think of technologies and changes, theres an essay shape. Something is invented it trundles along for a couple of decades it a toy the rich may be then theres a vast period of diffusion quickly and then we spend another couple of decades making it making it better. I think of airplanes, cars, anything you can look at. The 1920s was the coincidence. The middle of the scurve on on so many things that are important. And thats what made it the defining decade. Its about just accumulation of stuff. Its about changing the way people lived everyday. People lived their lives all at once. So electricity from depend on your numbers from 30 to 70 of homes got electrified and the electricity was better. Ac standardized and with that came appliances, electric lights instead kerosene lamps, electric appliances, the iron, the toaster, the washing machine, the vacuum cleaner which was the most popular, by the way, which one diffused the first . You know, actually it was the electric ion. And just think this is where were a little bit guilty of male centered history. Didnt think of the job ironing shirts with a coal stove and a coal iron yak electric iron number. One on the official measures way understate this thing i consider light. In 1920 you had to burn flame 1929 you turn on a light bulb. The quality of that light is was what was important. Not not having a thousand candles and revolutionized home life and the unending drudgery of it. By the way, we learned yesterday in 1923, the coolidge home, the president at home had no electricity or telephone when harding died. How things have changed, not just in the home, in 14 of 30 of manufacturing was elected electrified by 1920 and 70 . Just think of a factory with no electricity in it and maybe some some big belts and steam stuff going versus a factory that thats all electrify wide where the like the electricity had to get to the houses why how wires right massive infrastructure that come from was there a big federal program . Was there a stimulus in infrastructure . No that was done by private utilities, automobiles . In 1920, 20 of people had them, 60 of families owned a car. 1929, it just boomed. Automobile in one decade until all vehicles per households was 90 by 1929. This wasnt a convenience. This is a massive change in your life. Are trucks and busses also dominated the roads. By 1929 you know railroads actually increased the of horses because he needed to the last mile problem and as far as the environment is concerned horse poop. This was an revolution to change even cars then, which were pretty dirty. It was amazing revolution in a way, but it changed peoples lives. You didnt just get to go places more conveniently. People used to have to live right near a soot and milk emitting factory where they were. They worked. Now they could to suburbs. So the beginning of moving to much more pleasant life. Well, that was the car that made that possible. And rural isolation i mean imagine living on a farm when you have to take a horse to get the town at one number said that by 1929 93 of farmers had cars to get them down. And they said car was the number one thing. They didnt care about the electricity, anything else they you know the car to connect them, the transportation revolution. Were talking now about the transportation revolution, a decade, a transportation revolution. How did that happen . Was there breaks, subsidies . My i live in palo alto. I know my neighbors house was worth 5 million bucks. The federal government gave him 7500 to buy a tesla so we can drive down to his private jet in a tesla rather. Did we have federal subsidies . Nope. Zero. Did we have a federal plan . We have a trans transition plan . No. And of course, the along with the invention of the gas station in 1920, you bought gasoline as a Hardware Store in kansas the filling station, got invented in 1929. Was there an inflation reduction act, the most hilariously named act, recent memory, but nonetheless did need billions of dollars to fill south dakota with filling stations . No, no, no, no. The filling stations came in all on their own and they people figured out they could make money doing it. Communication, telephone, phonograph, radios, movies. This all came from to a pervasive feature of everybodys life. Radio. From zero to half of the houses are and most also you know they had a neighbor something they record the radio you dont just need radio you need to invent whos going to Say Something on the radio . The whole idea of broadcasts, broadcast networks. So thatll happen in the 1920s as well. The whole idea of mass media didnt exist. 1920 was a pervasive feature of everybodys. In 1929. And imagine how that changes their lives. And again, did that happen . A plan, a subsidy policy . No. As usual, pretty much everything happened despite the government, if not rather than because indoor plumbing, water, sewer and gas these all were practically absent in 20 and practically universal in 1930. How many of . You used an outhouse lately . That was the standard way of pretty much all americans in 1920 and not in 1920. I have to think fetching water from a pump. Think about starting your stove made of coal and cooking over a coal stove. That all changed in one decade for average americans infant mortality, plunged. Doctors started to know what theyre doing that. Perhaps if those of you who are not will be parents and that one tugs at the heartstrings more than about anything else. This was the shape. All of it was still primitive. The model t is not not as good as the average toyota, the radio and the silent movies versus tv, google, netflix. But imagine the isolation and drudgery of life. Them the fetching water in the cold, the washing, all your stuff. My hands, innovation is in finance. Consumer credit was invented. 75 of new vehicles were financed in 1926, and that spread to Household Appliances that helped people to be able to afford wonderful new things. The Shopping Experience it used to have to go the general store and negotiate literally over the price of your bread, which was behind an outlet fixed chain stores a sears moved from catalog to store. And of course you could go to the store in your car now on national chains. There were 7500 outlets in 1920 3000. In 1930, 15,000 of those by a p alone was the walmart and amazon of its day. But think about that change experience from the horse down to the general store to being able to drive to the sears and get what you the numbers are good numbers we talked about them the average earnings rose 30 in a decade. Gdp rose. But that hides the dramatic transformation. If you knew gdp rose by a third. So people have three kerosene lamps, not two people. They oh, they got two horses. Not a model t ive got ive got indoor plumbing i dont have a his and hers outhouse you know, which would be a doubling of income gdp is not meant measure Human Welfare its meant to measure income. Well look the lights in this room, the gdp and the lights i think youre probably, what, 50 bucks on the electric bill for this entire. I think if we had to do it by candles would have been thousands of dollars, way more, but way less benefit. Benefit to us. It just isnt made. It to capture. Its a fine measure. Its not made to capture what happened to peoples life. The greatest economic and lifestyle revolution in life, fought for middle class and lower middle class people, happened with basically no guidance from the federal government. It just simply failed to make worse the existing impediments to progress and largely stayed out of the and nobody really worried that much about equity think how important would it be how you know if we would think back and the government had really said look you have two horses, i have one horse, thats a problem. We all need to have one and a half horses, which they probably would do by chopping the horse in half versus lets all get model. Of course, think of how much better off we are now is a terrible that rich people had to buy it for twice the price in 1924 and poor people waited to 1927. Would we look back and wish had all slowed it down in the name . And you know, today worry about jobs and intelligence. What about all horse shoemakers and, the piano makers who fell apart . The the kerosene makers now they all got jobs. Dont worry about taking the jobs. Its all the same. Now thats my microconf mix. Theres also macroeconomics. Thats the most important by the way, overall growth, Living Standards of basic people, but it needs a backdrop of stable macroeconomic, stable, institu tions and as we mentioned before it looked a lot in some ways like today there was a war much than the war were seeing right now, a pandemic much worse than. The pandemic were seeing right now, inflation way worse than the inflation were seeing right now in a background of u. S. Federal debt, but also a massive debt in europe and hyperinflation and revolut in russia and the us. I think culture wars. There was a lot of communists around and a serious question whether we would go the same way. Well, i wont repeat the whole first panel, but there was the first great supply side tax by coolidge and then one dropping the top rate from 70 in 1970 to 25 . That can done in 1982 to 1986. And the reagan administration, tip oneill, some bipartisanship, cut it from 70 to 28 . That thats possible now . Where are we now . Yeah, well, were in the 40 range and arguing about it. But principles of taxation, what matters is not federal income tax. What matters is all taxes together . The wedge between what you produce for your and what you get to eat in end. And you have to add up federal tax state tax, local taxes, payroll taxes, sales taxes, property taxes. Your of the income tax, the Corporate Income estate taxes. I lots of experts in taxation and. None of them can name their own personal marginal within 20 percentage points. I think theres a reason for that. If we knew it, peasants and pitchforks would be out there mad as heck. But we are, you know, guesses are in the 70 range on the top marginal rate. Were ready for that again. And revenue rose as mentioned. In fact, revenue rose from the from the rich people as well. A lot of that from compliance getting rid of the swiss cheese eagle. What does that tell us . I i think as steve said earlier, he started saying tax cut. And then he said, no, no, no, wait, never say the word tax cut. Say tax cut, because thats the important. Thats where the incentive is. And you the tax rate and often you get rid of the loopholes, too, you often get more tax revenue. So promise me from now on in youll Pay Attention to the incentive first and youll say the words tax cut, not tax cut, because thats what were talking about. That wasnt democrats and progressive wanted. Boy does they think sound like just today targeting the tax cuts the lower income people, taxes on the rich and the progressivity and well change the top tax laws stop the illegal the avoidance and well give the irs more money. Things are things dont change much do they . Deficits. Well, thrifty cow. But that was that was not there was plenty of mischief at work. The congress had plenty of ideas for spending, but each year in the twenties, the federal government generated a surplus. There is this thing called a surplus. Its ancient history. We use the word deficit. Theres this strange thing that can happen when the government takes in more money than it spends. And Calvin Coolidge and mellon. The Congress Managed it every year in the 1920s and reduced the federal debt. So and the economy boomed. So much for stimulus so much for secular stagnation. The economy boomed even though they running a steady surplus and and reducing the debt inflation we have a little inflation now. Were all mad about it. Nothing like 19 and 19. From 1914, the price level was 100 1918. It had gone to 150, 50 cumulative inflation by 21, 99. 7 price level had some serious inflation. You know, we might have had 15 altogether. That was 100 19, 22. It went down from 199 to 1, 70 and stayed there until 20. Inflation was conquered quickly. The story is a little bit about the standard, but a lot about i am so i do the fiscal theory, the price level and we learned this morning how the budget act was the crucial action that gave people the government was not going to go down what was happening in europe, hyperinflation, when you tend to the many powers kinds of hyperinflation germany and austria we werent going to go down that route and it and cured inflation there was a recession 1920 just before coolidge came on the board. A big recession. Why . Well, basics is you cut the price you cut, you have a 30 deflation sorry, 15 deflation to stop the inflation. And theres going to be a bit of a recession. But it was short and sharp and it ended very quickly. People went back to work. What did the government do about it . Nothing. Where was the stimulus . Where was the bailouts . Where was that . Where was the transfers . No. When lesson learned, recessions can end very quickly. If government will get out of the way, allow prices adjust and dont do much fixing of things. Now lets to policy. And what did the government do here . Policy was not all lots of things were not working well. For example, the governments major transportation policy initiative was to at least get us all in cars. No, it was the icc regulation of railroad rates that the major problem was going to be who pays, how much . And railroads didnt even to them that were going to all change the cars and trucks within ten years which eventually killed the railroads tariffs were high immigration restrictions. What did coolidge do this is supposed to be a conference about coolidge and hes been absent so far in my comments, mostly constraining mischief on the on the microeconomics. One source i looked at it said he at appointed commissioners to the federal trade commission and the interstate commerce commission, who did little to restrict the activities of business under their jurisdiction. The regulatory state under coolidge thin to the point of invisibility. He vetoed farm subsidies twice lots of bad ideas came up and coolidge. His job was to say no. Interestingly what i understand of coolidge is in amity may correct us. He was personally a free market crusader. His instincts, his policy preferences were quite progressive. But his view was that those were state and local matters. That was unbecoming that was that the federal government was not allowed to do. He did what did out of respect for the institutions more than as the leader of an ideological crusade that we might agree with. And i think that is perhaps the wonderful thing if we would only respect institutions, we wouldnt need to try to appoint somebody who has our ideas. And if and if in a democracy, somebody with bad ideas comes in, theyll have bad things. Lets fix the institutions, will rogers said theres a great quote i got from yesterday he didnt do nothing, but thats what they wanted done. Thats utterly wrong. Coolidge did hard work, which we heard about this morning on the taxes to beat back bureaucratic expansion hard work to cut the taxes hard work to restrain the spending, hard to say no to endless bad he it hard work to do the institutional reform of putting a budget process. His stories were mostly from the left praised the great leaders lead us in great moments to expand the government and, often to make worse crises of their making. I guess well talk about the Great Depression in a minute. What about leaders who stay out of the way do bit to improve the machinery of the government work valiantly to fight. Fight the weeds, to preserve and strengthen the institutions of american government, we should celebrate as our greatest leaders, the fixers, the quiet reformers, the minders of the store, the preservers of our institution, not the crusaders, are often the pied piper is his motto was normalcy. Stop. Dont be transformative. Fix these rotten institutions and that when i look at of what americans want is exactly what americans want today the vast majority of them. No please not some other great plan normalcy. Thank you, john. That was a great presentation that you have anything to add to that . Not much. How did you followed john allison john childs. John cochrane. Well, you can have a different name and to be memorable in that way anyhow, ill share a few thoughts, maybe fill a data point or two that the John Cochrane probably just didnt have time to get to. And then talk a bit about. The Great Depression, where i think our conversation is going next. So mr. Charles opened our panel saying that theres a myth that the 1920s exuberance you often hear caused the Great Depression. It was a necessary correction, that of this sort of out of control environment, both in the way people lived and the way they invested and way that they ran their businesses in their lives, had cause of crash. And that was the retribution for the irresponsibility of the era. Well, the evidence doesnt really seem suggest that out, but the myth continues. In fact, just just the last day or two, i saw a tweet from a wellknown tweeter, and it said those who praise Calvin Coolidge remind me of a story of the man who jumped of the top of the empire state building. And as he was falling down, people inside heard him say so, far so good, so far so good. Of course, the implication being that in the twenties, things seem good. Before they came literally crashing and ended in disaster of Great Depression. And then we had to do our penance for a decade before we could sort sort of try to get our way out. Well, lets look at the evidence. Ill look at three different sets of policies. And i want to compare a recession we just heard about from John Cochrane that you almost hear about otherwise, which was the recession of the early 1920s with the Great Depression of the late 1920s. So when you said, you know, the recession of the twenties, people always assume were talking about the depression. Its important to ask which one . And ill look at three different policy areas. The responses to those the first being federal spending ill probably breezed through the time in the early twenties because dr. Cochrane copped a cover that quite well. The meaning tax policy and the third being labor and wages. So so just to kind of summarize the early downturn or the downturn in the early 1920s was very severe. There was a bad recession, bad inflation, really bad as we heard real gnp capita fell more than 15 between 1919 and 1921. The unemployment was above 11 . The Dow Jones Industrial average dropped. About 30 in the year 1920 alone. If you looked at that today, thatll be like going from, oh, i dont know, were about 34,000 right now. Itll be like dropping to 23,000 or so. So be rather dramatic. So what was the response to this bad recession . First, lets look at spending nowadays believe in countercyclical fiscal. So when theres a downturn, the government ought to spend money to try to increase demand which will help us in recovery. But in the early 1920s, the government did the opposite it, pulled back, spent less. There was no stimulus and the recession and despite the recession, the budget of, the federal government continued to shrink. I guess youd expect somewhat. Were coming out of world war one where were spending was dramatically high you would expect it to come down some. But even in a year of a bad recession, 19, 20, 21, you continue to come down. Well spending didnt just come down that came down enough that there were surpluses in those years and they use that surplus to help pay down the federal debt today even in boom years, we dont manage to pay down the federal debt. But in 1920s, Debt Reduction was pursued. The severe recession. Second tax policy weve heard that first time the wilson administrate in and then of course under Harding Coolidge tax rates came down dramatically from 7 eventually to 25 . I think something maybe a point to add to dr. Cochrans comments was certainly clarity and simplicity was an important part of that. The 1920 gop platform put right there in writing the plan that harding and coolidge would then enact almost to perfection. It promised lower rates but also a much simpler system. They thought it was far too complex. They would probably be rolling over in their grave today and was important to get businesses certainty and and confidence that they could invest in the future. Third, the government rejected the notion it was the federal governments job stimulate consumer demand. We about how there was no stimulus there also was not pressures or unusual pressures in any case, employers to keep wages high. There was a commission in which then secretary Herbert Hoover, a partizan, pitted, arguing for what many today would consider to be the standard approach, which is when you have a downturn, you want to have upward pressure on wages. The idea is if people can be paid more, even though the economy is doing bad, they might spend more and their spending would increase production and jumpstart the economy, help weather the storm and get us back to a solid thats very standard economics. But this at the time was only a commission. There was no official wage policy that was implemented from that the employers in 1920s therefore did what sort of a market would suggest you ought do they let wages fall or stays just stay stable. Stable me certainly is painful when wages are cut. But if the choice is between being laid off and having hired unemployed or lowering wages, i think most most employees, certainly employers would much prefer to have a somewhat lower wage still to have a job in the early 1920s downturn was handled in what was the traditional way that time and. Then later, of course there was the Great Depression. Its sort of interesting. The Dow Jones Industrial average actually tracks coolidges adult life. The first index came in 1896, the year after graduated from Amherst College and a stock crash and 20 or later and 29 wouldnt have been totally out of the ordinary in that time from 1896 until 1920, there had been at least pretty severe crashes what they used to call panics of the stock market, 10 , you know, losing say value of 10 or more per year. This was before 20. But the economy had always recovered. And that was certainly was the as dr. Cochrane explained. Well with the 1920 crash painful severe and brief now lets move on to the 1929 crash of the stock market, which course then later had the Great Depression. In 1929, the dow dropped from 81 on september 3rd, 1929, to below 300, and then even further. One thing people dont, i think most almost no one knows or appreciates is it dropped. Then it came back before dropping further. Several months later, hoover was a republican like, but hoover led congress and different policies than those applied in the early 1920s. In all the three areas i discussed the Hoover Administration followed basically nearly the exact opposite. What . Wilson. Wilson. Pardon me . Harding and coolidge followed earlier in the decade. So lets look again at the three federal spending when it came to spending, the idea by now was to spend to help bring recovery. And the Hoover Administration certainly did spend first, not too dramatically in the first in the early years of the Hoover Administration, maybe five or 6 increase from the year before that. But by 1932, federal spending had increased 30 year over year. And of course, that only accelerated under the roosevelt administration. But by 1940, federal spending annual federal spending had tripled. Over its 1929 level tax policy when it came to the budget of course, the government was now in trouble to spend on stimulus. That meant that this new spending i talked about, you had to finance it and they had the idea to do that through higher taxes. So rather than cutting as they had done to start decade taxes went up dramatically the top rate went from coolidges low of 25 all the way to 63 by 1932. So not just a small tax increase, a dramatic one. And third, what was the policy on wages and well this time hoover was the president , not just the commerce secretary. So he had a little bit more authority when when the time came he pushed for strong upward pressure on wages and he got it. This is both through Pressure Campaign of informally the bully pulpit as you might call it, as well as official policy in november of 1929 on the Pressure Campaign, he hauled in a leading leading industrialist of the era. Henry ford was there. Dupont was there . Of course, mellon was part of the cabinet. You would have been there and and and president hoover know impressed upon them the importance that wages stay high. This was important for not just the workers but for the whole country that wages stay high. This high wage policy the white house issued a press release following this meeting. And heres what the press release said. The president authorized by the employers who were present at this mornings conference to state on their individual behalf that they will not initiate any movement for wage reductions. And it was their strong recommendation that this attitude should be pursued by the society as a whole. They considered, aside from the human considerations involved, the consuming power of, the country thereby be maintained. So the idea was if we can keep wages high, not only will the workers do well, but our whole country will survive this depression and and will come out of. It. So hoover got his higher wages, wages and worker earnings steady or even increased in 1929, 1930 and 1931. And then through official policy, the davisbacon act, hoover in congress ensured that who got a federal contract would pay the top rate on union wages. The businesses went along. I said. Henry ford himself, similar statements to that which were in the press release but of course went along but they didnt change the underlying economics of their situation. The only choice if they couldnt reduce wages and allow prices to readjust, the professor mentioned, was to lay people off or hire people less. So in a trade off between and unemployment, the result was very high unemployment and although wages stayed somewhat. By 1932, unemployment was 25 and unemployment over 14 or 15 for the entire decade. In the 1930s, the policy response from 1929. Unfortunately seems to be what we consider standard. Many of our textbooks tell us is playbook. But the evidence, evidence suggests certainly with these three policy areas that, we should maybe follow the playbook from the early 1920s. Thank you you. Matt. Matt, quick question before we open to the floor. Did hoover look at the contradiction asking for higher wages then more than doubling taxes, you know, giving one hand and then taking back with the other . Did they ever reconcile that . But we have some real hoover experts in the audience, including george. They hesitate to make any definitive statement on what hoover said or thought. And maybe george, fill us in in the q a. But the high wage policy was was embraced not just by but by by the whole country. I mean, the economists of the time all agreed with this and really went sort of unexamined from any decades. My my mentor in college and professor Richard Vedder wrote an entire book out of work on this question about the labor price and, and i would recommend it to anyone to have a look at who did he have wished hoover what did he have an opinion on the taxes well he embraced the high taxes. Then they went higher. Good. Yikes. The Great Depression stuff. Ill make it short. Im im very interested by this meme that the of the 1920s inexorably led to the depression of the 1930s. No economist believes this not even i read a lot of left wing economists and keynesians. None of them. Theres just no scholarly economic that has this idea. Everyone, the Great Depression came the policy mistakes of the 1930s we debate which are the important ones, but. But everyone agrees its from the past mistakes. The 1930s are raising. Maybe raising marginal tax rates. The 63 , maybe the fed clamping down on the money supply, maybe allowing the banks to fail. That was Ben Bernankes idea. The problems with the Gold Standard, maybe it was the National Recovery act as is emilys. It says maybe the the the contradiction of capital ism the contradiction of trying to raise prices relative to wages in industrial monopolies and trying to raise wages relative to prices by unions and. Raising one relative to the other will make them both go up again that completely. It completely makes no sense. So at were the the political war on capital . Well, this is what we debate, but nobody there is no economic that says that somehow automatic the boom of the twenties had to lead and the seeds for the thirties everyone agrees it was the policy mistakes 1930s that caused the Great Depression. I mean, it was you just argue about the. Calvin, youre off the hook. Thats great. Very good. I guess we are ready. Questions from the floor. Somebody with a microphone. Excuse me. Yeah, skip. I cant see such stuff in it. Hi, im juliana from demarest, new jersey. My question about how you would respond to the common question, this question that a lot of people have about the over that it was the speculation during the 1920s in the federal government sort of like letting it kind of like build that led to the Great Depression. What is a this is a good response to this question is how how do you respond arguments that over in the 1920s led to the stock talk. Right well i would this and matt alluded to it weve had lots what i would call stock market correct actions, not crashes. You know, weve had it we the stock dot com bubble in 1999 we had the you know, subprime mortgage meltdown in 2008. And matt decided something from earlier history in every case we had a correction that came at the end typically of a boom period this is not unusual the us economy but there was only that led to a depression and i think as professor cochrane pointed out, that was the policies of the, you know, of the thirties that caused that and you know, you at what you know particularly roosevelt did during the thirties here you have a country in depression. So he raises taxes from, you know, hoovers 63 to 79 . Then confiscates the gold save most of the country. And he does at 20 an ounce and immediately the price to 35, you might say he controls skated the rest i dont know how Supreme Court let him get away with that and then you know third he was just and hypothetical to business what did he do with one of the greatest secretaries of the treasury has ever had Andrew Mellon he set the irs on him. So how do you think businessmen felt. So to the extent animal spirits which they talk about ever play any role they were certainly dampened in that period. I dont address your question. I would just add, it is normal in a period of rapidly evolving technology. Its as if we just were we saw actually weve not had to become booms where prices are just way over card earnings. Why . Because people, you know, have the radios going to take over everything. The internets going to take everything. And then you kind of find out the limits of it. And there is a stock Market Correction thats perfectly normal. Question is why in 1999 and then, you know, this year were having the the end of that correction in the speculation, if you will, or the high prices of of new technologies. And sometimes you get a tiny minor recession and you get a horrible bank, a crash and so forth, and its not inherent in the speculation, in the bad policies, in the fragile Banking System and all the rest of it, that that happened that 1929, its stock market didnt cause the recession was a symptom of, you know, theres a slowdown all those things that are only going to pay off in ten or 20 years are suddenly worth a lot less so so yeah, its it is even that part the high stock prices and not just the high investment in Economic Activity didnt necessarily sow the seeds of a recession afterwards. Any other questions . How about right here i can see this person shes right here at the so im kyle im from colorado and im just im wondering that you as a presenter a lot of empirical evidence and just about how why the early twenties recession was resolved so quickly and easily maybe like coolidge why did that not carry through what exactly missing and the next generation of Political Leadership like what did they miss . Why didnt they respond in the same way you can start, you know, listening the panel on taxes coolidge took taxes down from whatever it was 70 during the war to. Ultimately 25 . Guess what that two things we use more money in peoples pocket to buy things with and to leave more money in their pocket to investment is very important. Economic growth. You know, roosevelt comes along, takes all the money away. Well, as the gold this is. Well, why you investing so there were massively different policies and i would you know i would defer dr. Cochrane but i would suggest that not piketty and paul krugman would suggest raising taxes in a recession. No they would do so again i told you dont look take tax rates matter not tax amounts keynesians look at it as as dont want to take money you want stimulus in a recession so they would they would say that but for the wrong reasons. But i think ideas matter. Hoover was so im from the hoover institution, so i have to speak a little ill of the namesake he was famous for being mr. Fix it. He made his he went in and kind of a command control guy and he solved the belgian famine during the first world war. And his attitude was mr. Fix it and roosevelt was similarly ideologically im in there to to do great things, not to keep the institutions going within my constitutional limits like that, theres a great quote in emilys book about how roosevelt said, wow, hoover did all the things that we want to do, and now we get to take credit for it. I would say im a little different on the gold, actually. There was a with the Gold Standard. It was not ideal monetary arrangement and led to far more deflation than you had to have. So actually getting rid of the Gold Standard was was i think the good thing to do and thats the economy started recovering pretty much the minute they got rid of gold and id like to want add one more thought i was running a b. A. In early 1980s when Ronald Reagan take over well proceeding we had you know, for a nominal inflation thing seem to be out of control and reagans solution was not that different from coolidge did he deregulated all kind of stuff he cut tax rates dramatic radically which he was highly criticized, and yet it made huge improvements in the economy. And then course that was followed by ten years of great economic growth. And whats interesting is the economists didnt really seem to learn lessons. Im not saying they did theory learn lessons but the ones that spoke out from coolidge or from reagan in terms of really creating more economic freedom. Some of us did a few of yes on the agenda but not enough not enough, i might add just one little point. You know, hoover is sort of castigated and talk about hoovervilles. And the problem was he care and he didnt do anything, i think is the certainly what i learned in school, which is another myth sort of the problem of the hoover policy in this era was not that he did nothing said he did too much and he raised taxes, had all these all these ideas and that that then was was amplified during the depression, the new deal, which again often were taught in high schools. What saved us from the depression. These things sort of wore out the market allowed prices not to readjust and made what was a recession a very bad depression. But isnt interesting lesson in political life. So creating a great crisis that you can then go down in history as being the savior of the crisis even though it never got better thats how you get you know your name on the on the statues and just quietly minding the store letting the economy boom. Well youre mr. Coolidge. Anyway, because i. Sorry. Hey, Francisco Camacho from, tennessee. I also go by aj take your pick. Anyway, my question is actually rather like giulianis, since you all are trying to convince us about the causes of the Great Depression, im looking for another rebuttal because the most compelling argument ive typically heard is that the root cause of the depression was the overproduction. Agriculture, especially of wheat prices, dropped farms broke. And thats essentially the original catalyst of this whole situation. To me, that even seems like a compelling for farming subsidies, but i imagine you will have a response that. So id really love to hear it. Agriculture is a small part of gdp agriculture, since you know when do we start at 8000 b. C. Has always a volatile thing used be a bigger figure, so i dont see how a bad wheat crop, you know, makes general stop selling cars. Its just its just not that big deal and you know later in the depression, first theres a bumper crop of too much and then theres a dust bowl and not enough wheat. Sort of like climate change. Its always you know, its either raining too much or too little. And its always the problem of capitalism. I. I am, yes. Mangal from minneapolis, minnesota. Mr. Cochrane, you mentioned the promise of artificial intelligence. What sort of technologies have that same scurve adoption and what sort of policies should be adopted to, ensure that they cause the same flourishing that we saw the twenties. Yeah. I mean, im a techno. One of the biggest debates going on in economics now growth over is this i mean think about how you are migrate parents and grant grandparents live this is you know my point about the 1920s the economy of the outhouse the horse, the kerosene lamp and silence was just dramatic. Well, that period of growth, is that over now . Was this all about fossil fuels and electromagnetism . Im an optimist and i is is just amazing what theyre now doing it. And i think biotechnology is one of the most Amazing Things that, you know, we at least live a comfortable life when a lot of the rest of the world need to our standard of lives. But you know what could be more important at this point than health and longevity and i think were on the cusp of that maybe. Yes maybe no but i dont know. And you dont know. And i know the federal government doesnt know. So well, you know, maybe fund some basic research, but try to do that a little better than theyre doing now and then get the heck out of the way. Allow new companies with new ideas to come in and innovate, even though that makes existing companies very unhappy. That kind of dynamism of new ideas and and displacing Old Companies with new companies, thats what brings growth, not five year plans, industrial policies spend more money at whatever the chinese think that they want to spend money at this this year that that thats a system we know doesnt work. Im as i mentioned i was the president Cato Institute and cato pub which is what they call the Human Progress index. And its very interesting from the evolution of sapiens for thousands of years until the late 1700s early 1800s it was no improvement in the of life is flat and then starting in the early 1800s and accelerating rapidly after that in the in the late 1800s. Theres this curve and quality of life Life Expectancy is unbelievable. The percentage improvement and its not just the states or western europe, the whole dadgum world. And it was caused basically by innovation and creativity and that even though we dont have as much as we like to have, we have some restrictions we dont have. But if you look, Human Progress, innovation, creativity is based on human free freedom. It allows people to think differently, do Different Things as driven up the standard of living the world. Unbelievable. But want to add that is the economic right now. People ask you whats the problem . The slowdown in growth is the problem in that postwar era. We grew for percent a year. Now were growing maybe one and a half to 2 a year. That just a disaster over decades. And getting back to strong growth is thats more important than just about anything else. One of the ideas i would have, john, is to reduce the tax on capital, because all of this and growth come out of someone risking their capital on a great new idea, whether its artificial or whether its a new medication or whatnot. If you stimulate, dont get in the way i would be on the side that growth will continue. Absolutely somebody the corporate the right Corporate Tax is zero. Yes. The tax on investment. Tax on investment is zero. Lets throw out the income tax. This is an idea from 1910. No, 19. What . 13 . Why did we have an income . Well, thats because. Why do they have a window tax in medieval england . Because you could count the in 1913 as kind of the thing the government could grab. It makes no sense from an Economic Perspective to to have an income tax. So we built steam engine of a tax system because. Thats what we knew how to do. Steam in 1910. And we still got it. Exhibit a is president trumps taxes scandalously leaked but we looked at it just left the news. Why did it leave the news . Because it didnt have any of the partizan points people wanted to make. You just got to see how a very wealthy investor takes advantage of all the incredible amount of loopholes and special deals 400 or some separate limited Liability Corporate pass through. What are we talking about here . That the the rottenness that swiss cheese ought to be just exhibit a throw this darn thing out and get a sensible 21st century tax system that does what mellon said raise from the government at minimum economic destruction. We know how to do it. I wont give you a tax now, but just get rid of the whole darn. Yeah. I think we have time for one more question. And now were going to go to the back of the room. Thats i havent been able to see that before. Okay. You know, phil magnus, institute for economic research, my question pertains to the academic theories about the Great Depression. Granted that most economists left, right or anywhere in between do not accept this narrative about the 1920s causing the Great Depression. But the historians do. If you read ten out of ten college textbooks, they repeat some under consumption. This theory of the Great Depression. My question would be, what do we do about that . How do we bridge that knowledge gap . I think we continue to fund the coolidge Scholarship Program. Which which spreads the word slowly but surely to the best of the brightest young minds america and exposes them the real history, not the fake history. Yeah, academic history is so busy shooting itself in the foot that, probably itll be rebuilt again in a generation and we can get something. All right. We do have time for one more questions. Go ahead. Yeah, you give him the mic now. Its come. I got you. Excuse me. Sorry, ive got your phone off. Hi, alex. Volsky from new york city. My question is on. Given coolidges belief in liberty and free markets and, the mistakes of the government we have seen vis a v currency manipulation such as with quantitative and more recently the lack of regulation leading to the collapse of alternative currencies such as cryptocurrency is what im talking about. Should we derive cryptocurrencies in such similar alternative 21st century currencies. As like mad cow and anchor opinions . Yes. I dont think theres any reason the federal government, Federal Reserve needs to be in the cryptocurrency business. I think the markets will correct. You know, if you think about most great crypto currencies theyre just pure speculations anyway theres nothing there and if you want to speculate, great. If you lose, you lose. If you win, you in. But i think thats in a free society, free people should be able to take that kind risk. We had a long time ago. It was called the the tulip bulb craze. And people put tons of money, tulip bulbs and drove them up to crazy prices. And the difference between crypto and the tulip bulbs, when the cryptocurrency goes to zero, you will not able to plant it and get nice flower. So im a little more sympathetic. You ask three questions. So qe basically qe, i view it entirely as marketing for the Federal Reserve to pretend it was doing something qe. They took your twenties and gave two fives and a ten. Does that make difference . Either on the way up or on the way down . Really inflation comes from fiscal policy. Not so much from the fed, something i think were i mean its just bloody obvious and im luckiest guy in the world. I wrote a book on inflation. Its all from fiscal policy and then the government handed people 5 trillion worth of checks and we got inflation. Thank you. Ill be good for. My book sales but a warning sign about the fed crypto is a new technology but nothing new in terms of what we know about how money and asset markets work and unbacked money is volatile and eventually ends up being zero. Thatll come back to crypto is an interesting concept you know weve weve invented now the 19th century bank sort of the wildcat bank and ones that pretend to be backed but arent really well eventually get a really crypto, which is just the reinvention of the Money Market Fund and thats probably useful. But we are at a crossroads. We all need 21st century electronic and and crypto is one way of getting that and we also need to preserve anonymity. And this is one that we have anonymity with cash, but anonymity also leads to tax evasion and illegal activity if we have completely electronic money, that is totally anonymous, which you thats important for Political Liberties to have some anonymity and in money but then that that explodes that makes it very much cheaper to be ransomware and so forth you dont want them all laws you dont want to enforce like laws against getting money out of china or into ukraine. Are those those are good things. So how do you handle the balance between the vital importance of an anonymity and transactions mean the government knows every this is the problem of central bank currency. The government knows every transaction you ever made. Welcome to china. Goodbye your Political Liberties. On the other hand, if it doesnt do any transaction, you made good bye tax collection. We need collect some taxes that to actually the currency government run so a welldesigned electronic currency is an important policy thing for today and not super easy and crypto exact isnt a very computationally efficient for that. So crypto is a wonderful thing and. Its an answer searching in search of a question and well see what the question turns out to be and im certain that no Government Agency is going to figure out what that question ought to be. All