6 presidents Trump can look to as economic role models

Donald Trump won the presidency in a campaign in which ‘economic policies’ played a supporting role, but  ‘the economy’ played a starring one.

To which presidents should Donald Trump look to as role models in leading the U.S. economy?

Not to discount the importance of foreign affairs, the environment or civil rights, but economic performance is an aspect of presidential greatness often overlooked by historians who judge and, sometimes, quantify success.

Consider the presidency of Richard Nixon from 1969-74, renowned for foreign policy achievements, but widely seen by economists as a failure because of price controls, regulatory excesses, and monetary meddling.

Bill Clinton worked with Congress to reform welfare and presided over the creation of 23 million new jobs in the economy, yet his legacy was marred by scandal.

Andrew Jackson offers a compelling contrast as president. Usually considered one of the truly “great” presidents on the six-point Schlesinger scale, Old Hickory was an economic failure.

The few economic principles Andrew Jackson had were disastrous, none more so than a hostility toward banking. He vetoed a renewed charter for the Bank of the United States in 1832, then withdrew all federal funds in 1833 in favor of smaller banks that supported his re-election.

When runaway land speculation seized the Western states, Jackson decreed that land transactions could only be conducted using pure gold or silver. His policies culminated in the Panic of 1837, which was the Great Depression of the nineteenth century.

So who were the greatest economic presidents? And, importantly, what instructive lessons do they hold for Donald Trump?

In our judgment, six presidents set the standard for economic greatness — George Washington, Abraham Lincoln, Calvin Coolidge, Harry Truman, John Kennedy, and Ronald Reagan. 

Best of the Best

Abraham Lincoln may have been the wisest economic mind ever to lead the nation, though it was entirely by instinct rather than formal training.

During his presidency, with the Civil War overshadowing all else, Lincoln found the time to encourage legislation establishing land grant universities, developing railroads, re-establishing a central bank, and, perhaps most famously, helping Americans move west with the Homestead Act of 1862.

These policies shared a Whiggish philosophy of economic development. When that party disintegrated in the 1850s, Lincoln distinguished himself from the Know-Nothing Party of the day by strongly embracing immigrants.

Indeed, the expansive 1864 Act to Encourage Immigration was inspired, guided, and signed into law by Lincoln, only to be rescinded by numerous anti-immigrant laws passed in the 1880s.

While Democrats of the day were generally hostile to eastern manufacturers and bankers, the parties of Lincoln (first the Whigs, later Republicans) favored plans to foster infant American industries and what we now call infrastructure — roads, railroads, etc.

Our memory of Lincoln’s economic vision is overshadowed by his renown success in fighting to end slavery. The principle of “free labor” was much bigger than an anti-slavery movement.

It favored small farms, small businesses, personal ownership, and the dignity and self-reliance of economic liberty. When Lincoln signed the Homestead Act of 1862 into law, it opened up 270 million acres west of the Mississippi River to citizens and immigrants for settlement.

Yes, Lincoln did support high tariffs — a questionable view to most economists today — yet there is a lesson here for Donald Trump. First, the Republican tariffs in the 1850s were not implemented to protect old industries but to nurture new ones.

Lincoln had little sympathy for farmers worried about mechanization, and he would have little sympathy for factory works worried about automation.

The Economic Founders

At some level, no president can measure up to George Washington for the simple reason that he was the first. If America is a monument to economic liberty, Washington set the cornerstone.

Not only did he preside over the Constitutional convention in 1787, Washington was elected to the first two terms as chief executive from 1789-97.

In both roles, he created the basic institutions of democracy — a bicameral legislature, intellectual property rights, independent judiciary, and the arms to enforce the law and defend the nation.

The appointment of Alexander Hamilton as the first secretary of the Treasury would alone secure Washington a spot as one of the economic greats. He and Hamilton established the credit of the federal government by assuming the decades-old war debts of the various states, a brilliant move (even worthy of celebration in the hit Broadway show, “Hamilton!”).

Today, when the world looks to U.S. Treasury bonds as the ultimate safe harbor, it owes a metaphorical debt to the vision of George Washington.

Not everything the first president did was popular, of course. To pay the federal debts, forcibly collecting federal revenue was essential for the first time. The newly formed federal government enacted the first domestic tax — distilled spirits — in 1791.

Popular resistance turned into violent rebellion, testing the integrity of federal authority. Others might have wilted at taking up arms against their own citizens, but in 1794, President Washington led a militia army into western Pennsylvania to restore order and enforce tax collections.

Respect for every law passed in the 23 decades since is based on this exemplary and necessary threat of force to enforce the law and its institutions.

Harry Truman, like Washington, used the U.S. armed forces after a victorious war to shape the economy, though in Truman’s case it was the global economy after 1945.

He fostered international institutions that are still core pillars of the world economy. An agreement at Bretton Woods created a global gold standard for diverse national currencies which provided a stable and reliable economic environment.

Global trade tripled over the following two decades. Truman also secured the peace in Western Europe, first with the Marshall Plan and second with NATO.

Fighting the Empire

Among some contemporary conservatives, it is trendy to claim that Ronald Reagan’s hold over conservative politicians and the public has outlived its usefulness. On the contrary, we believe that Reagan is an iconic pole star whose status will only rise in the coming century.

His presidency’s domestic and foreign policies shared a common theme of thwarting big government’s effect on individuals’ economic liberty. At home, that involved slashing taxes and curbing the expansion of the federal government.

Abroad, Reagan was mocked for his principled opposition to communism, embodied by the Soviet Union. He deftly supported Beijing’s nascent transformation away from Maoist central planning.

Though often neglected in economic commentary, Reagan was the first president to embrace a bilateral free trade agreement (with Israel in 1985), rather than more complicated multilateral treaties.

He worked with a Democrat-controlled Congress to advance fundamental tax reforms in 1981 and 1986.

Fifteen years of corrosive inflation had vexed politicians and their economic experts during the 1970s, but Reagan had the political courage to stand by Federal Reserve chairman Paul Volcker as tight monetary policy achieved painful but fast relief to runaway prices.

Fortunately, the 1980 and 1982 recessions were followed by a booming economy in 1984 that helped drive him to a landslide reelection victory that year.

Few presidents were willing to resist the centripetal force of government power. In the U.S., Calvin Coolidge (1923-29) stands out as the president who most valued the spirit of limited government.

Routinely mischaracterized as “passive,” Coolidge was, to the contrary, an active president, though one with an agenda to veto and countermand the encroachment of the regulatory state.

For example, when Congress passed legislation to raise prices artificially for agricultural crops through a new government-owned corporation that would buy up surplus, Coolidge vetoed it — twice.

A blemish on his economic legacy is his signature on the then-popular 1924 law establishing immigration quotas that simply banned Japanese immigrants and curtailed those of many other nationalities.

Coolidge really stands out for cutting federal income taxes. Introduced with the 16^th amendment to Constitution, tax rates on individuals ballooned in ten years from the initial range of 1-7 percent in 1913 to a range of 4-58 percent in 1923.

Coolidge and Secretary of the Treasury Andrew Mellon acted forcefully so that low-income individuals paid a 1.5 percent rate and the highest-income individuals faced a 25 percent rate.

Those who think Franklin Roosevelt was great on economic issues might be surprised that he reacted to the Great Depression by raising federal income tax rates on every American.

In 1932, when the Democratic Party won control of the House of Representatives, tax rates across all income levels were, at a minimum, doubled. Tax rates were increased six more times once Roosevelt took office.

The top rate went from 25 percent to 94 percent. Middle-class incomes in the $2000 to $4000 bracket (equal to roughly $30,000 to $60,000 today) faced marginal tax rates ranging from 3-8 percent in 1932. By 1944, they ballooned to 29 percent.

Kennedy’s presidential library and free-market lore are the clearest articulation of the widespread benefits of growth that flows from lower tax rates. His line, “A rising tide lifts all boats,” is apocryphal, but Kennedy’s actions are not.

Before his tax cut, high-income Americans, including households with incomes of $100,000 a year (in 1950 dollars), were allowed to keep just one dime for every dollar of income.

As we look back at the arc of American history, it is easy to remember and celebrate the iconic presidents on Mount Rushmore and others made famous in wartime.

Economic visionaries in the White House are harder to see. In some cases, prosperity coincides with greatness (Reagan), but often booms are illusory (Franklin Roosevelt) or worse.

A 90 percent tax rate here, an erosion of federalism there, and in the blink of historical time, American exceptionalism can fade.

President Donald Trump’s gut instincts on the economy can be fine without a phalanx of experts, but only if they lean toward nurturing and defending economic institutions of growth and prosperity founded on individual initiative and freedom.

 

Glenn Hubbard was the chairman of the U.S. Council of Economic Advisers from 2001-03 under President George W. Bush. Hubbard is currently dean and Russell L. Carson Professor of Finance and Economics at Columbia Business School.

Tim Kane is the JP Conte Fellow in Immigration Studies at the Hoover Institution at Stanford University. Kane’s research has been cited by multiple news outlets, including the Wall Street Journal, the Washington Post, and the New York Times. 

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