“We Had a Great History, and We Turned Aside”


By cutting tax rates to get America moving again and quoting John F. Kennedy all the time, and Calvin Coolidge at times, and Ludwig Erhard at times, he in effect drove the Democratic party from its thesis, which was that spending and finance by deficits were good for the economy. He forced the Democrats to become an antithesis party. All they could do was beat up on Ronald Reagan for wanting to cut tax rates. Remember Walter Heller’s saying it would cause triple-digit inflation or something like that? The Democratic party went crazy trying to deal with Reagan.

Reagan had a thesis, and it was positive, and it was populist. I think that is the most enormous contribution that Ronald Reagan made: his optimism, his positive application of entrepreneurial capitalist ideas and tax reform with spending limitations. You know, he’d been taught about balancing the budget, but growth came before the deficit to Ronald Reagan. So did the defense of America come before the deficit. As important as that deficit is, it’s single-entry bookkeeping, in my view, to look only at the deficit, as denominator, and not to look at the numerator: the size and growth of the economy.

The pro-internationalist foreign policy, the pro-free-trade policy, the pro-growth policy, the pro-traditional values and pro-family policies of Ronald Reagan really put the Democratic party on the defensive. And, unfortunately, today the Republican party is thinking less in terms of creating jobs and opportunity than the Democratic party is. Now Clinton may very well lose that edge because of the way he’s raising taxes on small businesses, Social Security recipients, families, and the middle class and by policies that inhibit the formation of capital, but at the moment, the American people think the Democratic party and Bill Clinton are more likely to create jobs than the populist wing of the Republican party is. And that’s a shame.

You just mentioned that the Republican party in the eighties was thought to be the party of free trade. Now this was a considerable departure from the party’s traditions. The Democrats were historically the free-trade party, and the Republicans were protectionists. What happened?

I don’t know that I would be as eloquent on this subject, or at least as articulate, as I like to think I am on some of the other issues. But the Republican party from Lincoln on, certainly through Hoover, was a protectionist party, a high-tariff party, notwithstanding the fact that Calvin Coolidge lowered tax rates in the 1920s and helped, in my view, to cause the great twenties boom. And I don’t think Calvin Coolidge would have ever signed the Smoot-Hawley Tariff Act. I was telling someone the other night that within six months of June 1930, when Hoover actually signed the Smoot-Hawley Tariff Act, a number of very unpleasant things happened. Within a week or two Europe retaliated, and the resulting trade war caused massive unemployment, and that massive unemployment helped lead to the triumph of fascism.

History will never be kind to the forces that kept Congress from attempting to stop Mussolini.”

We really didn’t learn our lesson, nor did Roosevelt, in the 1930s. There was a slight reduction of tariffs by the Democrats in 1938, 1939, if I remember correctly. In 1944 and 1945 at Bretton Woods the IMF [International Monetary Fund] and the predecessor to the World Bank were formed. GATT [the General Agreement on Tariffs and Trade] came in 1948. These were great contributions to liberalizing trade.

You have to give credit where credit is due, and that really was a function, at least in the environment it created, of the Roosevelt and the Truman administrations. Now, I don’t know that either one of them knew at all what they were specifically accomplishing, but it was a tremendous contribution to the world economy and certainly to the United States economy.

Kennedy had a huge tariff-reduction policy, and he was an internationalist. I don’t agree with everything he did, but I certainly respect his internationalism, because he was devoted to two things: Bretton Woods and maintaining the dollar as good as gold. In fact, he was very supportive of William McChesney Martin, who was the chairman of the Federal Reserve Board, and if you remember, the dollar was targeted to the price of gold. We kept it that way, and interest rates were low, the world system was working, more countries were coming into the GATT, and the IMF in those days was doing what it was supposed to be doing—that is, be a temporary window for countries with short-term exchange rate problems. It was not trying to run the economies of Russia, or Eastern Europe, or the Third World, or Latin America.

Richard Nixon decided on wage and price controls, raised tariffs, and devalued the dollar in 1972 for fear that the Japanese were going to overcome our advantage. Nixon and Connally thought the only way to compete with the Japanese was to engage in currency devaluation, which is now the modus operandi of the IMF. It really is. The IMF tells every country in the world, “Devalue your currency and raise taxes.” And we broke up Bretton Woods. The Smithsonian Agreement of 1971 ultimately led to the collapse of Bretton Woods in floating exchange rates, and Katy-bar-the-door. Every country has indulged in some form of mercantilistic trade practices since that time.