Monday, August 27, 2012
1912-2012: Grading the Presidents pt 2: Truman to Ford
In part 1, we analyzed 6 Presidents encompassing the years 1912-1945, a 37 year span. And in that period, with the exception of Warren G Harding who was arguably the Worst US President we've ever had, each individual who held high office then earned good to excellent grades.
And now we move on to Part 2- Truman to Ford (1945-1977), a span lasting 32 years. As stated in Part 1, we do not grade based on wars won or lost, constitutional scandals or anything else not tied in some direct way to the national economy. And where there is a connection, we make mention of it.
Now we continue:
Truman was the first US President to enter that position in the middle of an ongoing war, having done so because of the passing of FDR. Truman is obviously famous for his decision to use nuclear weapons on Japan to quicken the end of the war and as Commander in Chief during the Korean Conflict.
But we're here to focus on finance and economics, not military success or intentional stalemate out of concern (some might argue cowardice) toward the Chinese..
Economically, post WWII was anything but a smooth and orderly transition to peacetime. It was quite disorderly and Truman faced many challenges in domestic affairs. The years of 1945-48 were marked by severe shortages, numerous strikes, and the passage of the Taft–Hartley Act (allowing for the monitoring of activities and power of labor union) over Truman's veto.
Due to Truman's unpopularity on the domestic front including a post-war recession which took hold, the Democrats lost both houses of Congress in 1946 midterm elections to the Republicans, though they would reclaim majorities in 1948 along to correspond with Truman's amazing election victory which confounded all predictions at the time.
Most of Truman's focus during his Presidency, especially his elected term was on foreign issues..
Besides being important on a humanitarian level, the Marshall Plan basically lifted from impoverished rubble, millions upon millions of Europeans and allowed them the means to purchase and consume US products and services. US Corporations benefited greatly and profits were so strong, that many built or expanded their business interests worldwide during this period.
In in the immediate post WWII world, the US was basically the only game in town, as the saying goes. Wanted a quality TV or automobile? You bought US made. You wanted a piece of undependable, unreliable crap? You would at that time, buy from China or Japan. Funny how things change within a couple generations...
So when everything is taken into consideration, Truman's economic grade is a solid C+ because as stated before, it was quite a turbulent economic adjustment after WWII and indirectly, Truman benefited greatly by the US being the only non-Communist superpower, and by extension, leader of the world.
As in his assent to the Presidency, Truman's economic record could be summed up with the phrase 'Right place, Right time'
Eisenhower's greatest achievement prior to becoming President as most know was as Supreme Commander of Allied Forces during Europe theater of WWII and was quite successful in that role.
As President, 'Ike's' focus was mostly on foreign issues such as the continuing Cold War tensions with the Soviets and the situation in the Suez Canal in 1956. Domestically, the economy was rapidly improving thanks to being the only capitalist superpower and other nations still trying to recover and rebuild itself.
And domestically, the big events were the Communist hysteria drummed up by witch-hunt specialist Joe McCarthy, and the Surpreme Court reversed segregation in the classroom during Eisenhower's time in office.
Probably Ike's biggest domestic economic achievement was authorizing the Interstate Highway system which was not only important from a symbolic and practical standpoint, but it gave a lot good paying jobs to many hard working laborers.
His biggest setback which history has forgotten was that he was President during a severe recession which hit the US in 1958-59 but didn't leave any lasting damage once sustainable recovery was quickly established.
For Eisenhower, like Truman we give a grade of C+ because legislatively neither did much on their own to boost the economy. It was doing quite well as-is which allowed 'Ike', like Truman before him to put more focus and attention on foreign policy matters during the late 1940s through to the end of the 1950's.
Most of the attention of Kennedy's Presidency goes to the Cuban Missile Crisis, the failed Bay of Pigs preceding it, and socially the Civil Rights fight (which was really led more by Martin Luther King. Jr; Kennedy took a less active role than history gives him credit for)
Kennedy was actually a successful economically as President but it gets overshadowed because the economy is a very unglamourous subject to focus on among the multitude of movies, TV mini-series and other biopics made on Kennedy's life and time in public office.
Despite low inflation and interest rates, GDP had grown by an average of only 2.2% during the Eisenhower presidency (scarcely more than population growth at the time), and had declined by 1% during Eisenhower's last twelve months in office.
The economy turned around and prospered during the Kennedy administration. GDP expanded by an average of 5.5% from early 1961 to late 1963, while inflation remained steady at around 1% and unemployment eased. In addition, industrial production rose by 15% and motor vehicle sales rose by 40%.
It is easy to understand why so many look glowingly upon Kennedy's Presidency as an age of 'Camelot'. Even if you get beyond the Hollywood imagery emptiness of a good looking young couple (Kennedy & Jackie) and all the personal visions of simple, happy life that period conjures, there is actual statistical truth to back up the premise that the early 1960s were a very good time for Americas economically.
This period is the true zenith of an upward steady progression for the US economy in terms of real benefit not only to the top 1% but the nation as a whole which began in earnest right after the Civil War as US industries started to drastically pick up.
On economic terms, Kennedy's Presidency is the last 'A' grade we'll be giving.
If you were to compare LBJ economically to a type of baseball player, it would be the guy who hits both massive Home-Run bombs and also would strike out in big situations. In baseball, that is called the ultimate 'hit or miss' player.
LBJ's biggest success by far was the Civil Rights Act of 1964. People usually focus on the social/racial aspects but economically it was far broader in scope and power; it was meant as part of a larger fight; a modern war on poverty.
He was responsible for designing the "Great Society" legislation that included laws that upheld civil rights, public broadcasting, Medicare, Medicaid, environmental protection, aid to education, and his "War on Poverty".
In 1964, the national poverty rate was 19% (about 1 in 5 Americans). Johnson believed in expanding the government's role in education and health care as poverty reduction strategies, which can also be seen as a continuation of Franklin D. Roosevelt's New Deal, which ran from 1933 to 1935.
Because of LBJ's legislative actions, the poverty rate dropped to 11% by 1973 and until 2009, did not see rates anywhere close to where it was when Johnson was President for another 36 years.
After Johnson, future Presidents and politicians with different economic agendas made continual efforts to frame the debate in negative terms. They weren't social safety nets any longer-- they used biased, misleading words like 'entitlements' Thanks to the switch in policy and national attitude toward the poor, National Poverty was at 20% as of 2009.
LBJ would get an A++ if there was no Vietnam war. But there was so it has to be included. Its no so much of concern for this exercise that US forces were prevented from achieving a tactical military victory by Johnson and thus thousands upon thousands of US soldiers died for nothing.
The reality is the dramatic cost escalations for fighting the war ultimately curtailed the finances needed to successfully push forth the Great Society and Johnson. The annual budgets skyrocketed into the tens of billions, unheard of then.. Congress was no longer going to write LBJ blank checks to pursue all his policy aims and now Johnson was forced to pick and choose.
And he chose continual war over his domestic dreams.
No President since LBJ has come even remotely close to dedicating themselves to making life genuinely better for everyday people, particularly the lower/poorer classes. Not Nixon, Ford or Carter in the stagnant 1970s.. certainly not Reagan.. nope, not Clinton.. obviously not the two Bushes... and absolutely not Obama.
So Johnson gets an economic grade of B+ but it could have been more...
It should have been more...
It can be tough to fairly assess Nixon as President because Watergate will always be the #1 focus of his Presidency and for many, a window into his (lack of) character and soul.
We're not interested in Watergate here-- it was a criminal and constitutional issue but not one of economics. We also don't focus on his personality which, to be frank, was most unlikable. So instead, we look at what policies if any did Nixon draft to make the nation better...
Domestically, Nixon's administration generally embraced policies that transferred power from Washington to the states. Among other things, he initiated wars on cancer and drugs, imposed wage and price controls, enforced desegregation of Southern schools and established the Environmental Protection Agency.
But the one economic policy which we care about far above all others was Nixon's decision to pull the US currency off the gold standard in 1971, a decision which has overall had disastrous consequences for this nation into the present and for future generations to come.
The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. No country currently uses the gold standard as the basis of its monetary system, although several hold substantial gold reserves. Prior to 1971, many nations including the US did peg their currency to gold.
It serves as a fiscal checks/balances so governments can not overspend and over-circulate its currency which leads ultimately to devaluement of money and all prices for products/services rising.
The reason Nixon did this? Just like the destruction of the 'War on Poverty' with LBJ, blame the continual Vietnam War. All those untold billions upon billions given to the military industrial complex so we would fight endlessly to obtain an 'honorable peace'.. Well, eventually by 1971 the US simply did not possess enough gold to pay for war and sufficiently run a nation.
So Nixon devalued the currency, the Fed could print as much as it wanted with no tangible backstop or limit, the war could continue for two additional years and for millions upon millions of people, their wages in terms of purchasing power, would never be that good again.
We've seen a 40yr slow, incremental decline in worker wages compared to purchasing homes, automobiles, etc. And to fill that eventual dramatic void, credit cards were made available to the masses starting in the early 80s so people could focus on the 'later' vs the 'now'
The 1970s was a rough decade economically in many respects.. In 1971, the Dow reached a high around 850 (the Dow did not reach 1,100 for the first time until the early 1980s) By the end of 1980, 10 years later, the Dow was hovering at the exact same number)
The financial drain of the Vietnam War played a big role, but nothing bigger ultimately than leaving the gold standard and because of this, Nixon gets a failing grade economically.
Now we reach the last President of 'Part 2'. Ford became President when Nixon resigned rather than suffer the disgrace of impeachment.
Ford presided over arguably the weakest economy since the Great Depression, (the current recession-depression is far worse) with growing inflation and a recession during his tenure. As a result, very little to any of the economic problems of Ford's administration were of his doing or his fault. But electorates demand results not excuses and in 1976, Jimmy Carter defeated him.
Its difficult to judge Ford, having only served 895 days, the shortest period of any President who did not pass away while in office, but we will try...
The focus of the Ford administration became fixing the increase in unemployment, which hit 7.2 percent in December 1974.
In January 1975, Ford proposed a 1 year tax reduction of $16 billion to stimulate economic growth, along with spending cuts to avoid inflation. Ford was criticized greatly for quickly switching from advocating a tax increase to a tax reduction. The Tax Reduction Act of 1975 which resulted in a federal deficit of around $53 billion for the 1975 fiscal year and $73.7 billion for 1976.
Ford, like many Presidents afterward (it was solely a Republican issue until 1992 when Wall St Democrats were elected and push this distorted mindset with equal furvor to Reps.) wrongly felt that by lowering taxes on corporations and the very wealthy, that would stimulate jobs and grow the economy.
Time and time again as we will show in Part 3, it does not work and any successful connection between the two is coincidental at best.
When New York City faced bankruptcy in 1975, the mayor was unsuccessful in obtaining Ford's support for a federal bailout. The incident prompted the New York Daily News' famous headline "Ford to City: Drop Dead", referring to a speech in which "Ford declared flatly ... that he would veto any bill calling for 'a federal bail-out of New York City'".
The following month, November 1975, Ford changed his stance and asked Congress to approve federal loans to New York City.
So as a sidebar find it interesting that ultimately every President from Teddy Roosevelt bowing to JP Morgan after the Panic of 1907, to Ford to George W. Bush & Obama bending over and spreading cheek literally to help the corrupt financial system... They All ultimately cower from their beliefs and agree to massive bailouts. We guess its a prerequisite that to serve the nation's highest office you are not to possess any conviction or backbone.
Also kind of funny that a city that touts itself arrogantly as 'the Greatest City in the World' desperately needed government handouts. If its an individual, that person is looked upon as a bum or loser or other derogatory term..
But if its a city on their 'knees'? Well... really no difference is there... Same 'Loser' tagline applies
So to wrap up with Ford, ultimately he was a bad President like his predecessor Nixon but since Ford didn't cause the problems, we can not fairly give Ford an 'F'.. Instead, he gets a 'D' for every idea and strategy implemented to deal with his recession being a failure.
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In a few days, we will wrap up '1912-2012: Grading the Presidents' with the administrations of Carter through Obama... That should make for some lively debates we are sure...