Re-evaluating presidents: the biais of historians?

First of all, I have to apologize to our readers for my prolonged absence while settling back home after returning to Quebec from England. On my way back, I sadly missed the annual publication of the ranking of the greatest US Presidents. So it went unnoticed until it was sent my way by a colleague. As usual, Franklin Delano Roosevelt reigns supreme at the top of the ranking while the utterly forgotten James Buchanan dwells at the very bottom.

I am always unsettled to see FDR at the top. His policies regarding economic recovery most probably lenghtened the Great Depression by a few years and made Americans suffer more. Furthermore, he attempted unsucessfully to rob the Supreme Court of its power by attempting to pack it with liberal justices to stop the opposition from Justices McReynolds, Van Devanter and Butler. He is often hailed for his refusal to take dictatorial powers at the height of the Great Depression as certains like his wife and Hugh Johnson pushed him too. However, I fail to acclaim him to greatness on this sole factor.

At the same time, I am wondering why Presidents like Calvin Coolidge and Warren Harding have such dismal scores. By all standards, the "return to normalcy" of Harding allowed the United States to return to pre-war life settings. He pardonned several individuals that the Wilson administration had imprisonned for opposing the regime. He massively curtailed the federal government and its reach that had expanded during the Great War. True, at every reading of Warren Harding, I see an unimpressive man. But here is something I wonder: should we value greatness of characters?

When Lord Acton proclaimed that power corrupts while absolute power corrupts absolutely, could it go beyond the person with power? As historian when we see a statesman perform great actions of reforms like FDR, that gives us the stuff we need to make a living. However, I don't see how this makes a president a better man. Maybe historians are corrupted by the power they evaluate. Would it be necessary to begin a re-evaluation of presidents according to their records of restraint to use power in their context?

After all, President Coolidge - like Harding - is cast negatively for not doing anything. However, Coolidge is often described as an "alert inactive" in the sense that he was always on the lookout to protect individual liberty while respecting democratic life and the rule of law. Could it be that his restraint actually had long-term benefits or invisible benefits that make him hard to adress. True, there are some studies - like this one - that re-evaluates Presidents with regards to their record on peace, liberty and prosperity. A good start in my opinion, however somewhat ideologically tainted.

But heh...that was just my two cent on the task of the historian...I don't really have a great answer

Worth Reading: Supreme Power - FDR versus the Supreme Court

A few years ago, I was charmed by the reading of Empire of Liberty by Gordon S.Wood concerning the early history of the United States of America. I especially enjoyed the introduction he provided to the issue of the Supreme Court and Judicial Review. With an amazing talent, he related the conflicts between the federalists on the Supreme Court and the jeffersonians who thought the Supreme Court was overriding the will of the people.

With similar talent and notwithstanding his political bias (he was a speechwriter in the Clinton Administration), author Jeff Shesol relates the conflicts between the Supreme Court and democratic president Franklin Delano Roosevelt. He paints an amazing biography of all of the nine justices and how each of everyone of them had come to develop their judicial thinking. After setting the stage of the Great Depression, he jumps in all the cases that saw the administration and the Supreme Court clash over. From the famous unanimous verdict of the Schecter Brothers that invalidated the National Industrial Recovery Act to the Butler case that invalidated the Agricultural Adjustment Act, Shesol forgets nothing.

What is most interesting is the struggle between the branches of government especially as FDR attemps to pack the court with new justices. It reminds us that government is always a question of balance between different branches of power and that no one branch should be seen as superior to the other. For example, it might be true that the USSC ended up invalidating the NIRA and the AAA that have been blamed for the lenghtening of the Great Depression, however some of the same justices on the Supreme Court were amongst those who upheld law forcing sterilization of "the feeble-minded"(Buck v Bell).

Shesol in a way reminds us that government is always a question of striking a balance between powers but also that powers will shift with time and other powers will react to maintain it. A magnificantly written book full of interesting little facts. Worth reading indeed...

A lead-up to the Great Depression

Lee Ohanian and Harold Cole have been for the last 5 to 6 years on a crusade to debunk the rosy myth of the glorious New Deal. Monetary factors can easily explain why there was a decline between 1929 and 1932, however it cannot account for the long lenght of the recovery. Ohanian and Cole have found that the culprit was the New Deal, mostly the National Industrial Recovery Act and the National Recovery Administration (NRA).

But one of my professors, Albrecht Ritschl and his colleague Monique Ebell goes at it through a different set of lenses. He looks at the lead-up to the depression. His view is pretty simple : you had the juxtaposition of two monopolies.

Imagine that the economy is only about butter and cannons (really old and plain example don't you think?). If you end up with collective bargaining in those two industries, it will tend to mimic the effects of individual bargaining on output and employement if there is a high level of competition. However, as you move towards a more monopolized economy in the economy, output falls if you have collective bargaining and employement soars at the same time. So, you end up vindicating Karl Marx when he said that "only hired workers are served by unions" and that unions "were the worst ennemies of the socialist cause".

Before even the crash of the stock market in 1929, you had a lead up to the juxtaposition of two such monopolies. After World War I, labour regulations favourable to unions were repelled after a Supreme Court Judgment. However, during this period Secretary of Commerce Herbert Hoover was highly favorable to "cartelization" and the Sherman Act of 1896 against trusts was not pursued very thorougly. Now we consider this word to be bad nowadays and even people on the left favour the mission of such institutions like the Bureau de la Concurrence to promote competition, but at the time competition was not seen as such a panacea. It was actually perceived as bad for "efficiency" and industrial concentration allowed for economies of scale.

Combined with the policy of reducing income taxes by Secretary of the Treasury Andrew Mellon who did not agree with Hoover's approach and often criticized Hoover in front of President Coolidge, this policy allowed strong industrial concentration and monopolization. By 1929, before the crash of the stock market, the Hoover administration(Hoover finally became president in 1928) which was recently sworn in, was attempting to find ways to bring back collective bargaining policies to increase wages of industrial workers. After the crash, Hoover pursued that goal and lobbyed industries agressively so that they would not cut wages, which increased unemployement. But the new labour regulations only came about after the democratic Franklin Delano Roosevelt took power in 1933. At the same time, he also pursued

I believe that the story Ritschl and Ebell tells us is very compelling and plausible. The reason for this statement is that I add the Hawley-Smoot Act that passed early into Hoover's mandate. This very protectionnist act allowed industries in the United States to face even less competition (this time from abroad) which would have reinforced the cartelization process put forward by Hoover under Coolidge and continued during his presidency.

I think that his story proposes an ambitious research agenda about economic performance between 1920 and 1950. If we were to look at other markets and countries at the same and analyze them within this theoretical framework, much historical information could be gathered about policy history in that time which could change considerably our reading of past policies and how they affected the economy at the time.

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Burton Fulsom. The Myth of the Robber Barons : 5th edition.

Douglass Irwin. The Smoot-Hawley Tariff: A Quantitative Assessment - The Review of Statistics and Economics.

Albrecht Ritschl and Monique Ebell. Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s. Centre for Economic Performance at the London School of Economics

The recession of 1921

After my post on the Great Depression, I was discussing with Bryan the predictions that Cole and Ohanian made at the drough of the recession. Bryan was surprised to see that they predicted a nearly 50% increase in one year. My answer was that it was not uncommon at that time, especially if we looked at the 1921-1923 recession. I told him I would post data very soon regarding that recession, especially since it is not well known.

From a paper by one of my professor at LSE, I extracted the following graph that used the Index of Industrial Production by Christina Romer and Jeffrey Miron (link to the index here) which was then compared to the a 2% trend in growth. It gave the following graph. Take a good look at the beginning of the graph for the 1921-1923 recession.

There was a gigantic and rapid drop in industrial production which was quickly erased by 1923. It may not seem much on a graph, but in a year industrial production falls by over 40% and then goes back up in less than two years. The same story is told by the Federal Reserve Bank Index of Manufacturing.

The explanation is the following: money supply. In 1921, the monetary base fell by 9% (largest single-year drop in the history of the United States) and price level fell by 18.5% in 1921 and real output per capita declined by 3.4% relative to trend. In both the Great Depression and the 1921-1923 recession, monetary policy seem to have a very important factor.

The prices were still falling in the 1921 recession when the economy began to recover and once they stabilized, the economy grew at a very fast pace. By 1923, real output per capita was 8% above trend and private investment was 70% above its 1921 level. So why did a drop in monetary base caused a price level decline and a decline in output which was then followed by a rapid recovery in the 1921 recession but not in the Great Depression?

As Friedman and Schwatrz note, the gigantic decline of the money supply by a third (they call it the Great Contraction) did contribute to the beggining the Great Depression, but why didn't the economy act like in the recession juste before? Why was the recovery so slow when the two recessions have so many logical similarities when it comes to monetary policy?
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Ritschl, Albrecht, and Tobias Straumann. Forthcoming. « Business Cycles and Economic Policy, 1914-1945 ». In Kevin O'Rourke and Stephen Broadberry (eds.), Economic History of Europe (working title), Cambridge: Cambridge University Press.

Friedman, Milton and Anna J.Schwartz. 1963. A monetary history of the United States: 1867-1960. Princeton: Princeton University Press.

A long depression or just a deceiving first half-century?

The story of the Great depression goes like this: the stock market crashed, a gigantic chunk of the money supply disappeared, people wanted their gold and gold flew away, every country in the world was in depression. That story is somewhat true while being woefully incomplete and misrepresenting at the same time.

Here is a possibly new explanation. If we take GDP before World War 1 for Western European countries and we give a yearly growth rate of 1.95% (which Barro defines as the normal trend in neoclassical growth model) and then apply a logarithmic scale to what happened and we look at the period 1913-1973 for observed GDP, we find the following (which I extracted from Ritschl 2008):

So what we have is that 1913-1973 was pretty much a period of disappointing economic growth (and destruction because of two world wars). So here is a possible statement that could be analyzed : was the first half of the 20th century a long recession for Western European countries and that the Thirty Glorious Years were only a reconstruction and a catch-up?