“If students here could take anything away from this right now — you have no idea how much us old guys up here suffered to make your lives better,” Peter M. Robinson said, as the audience broke into laughter.
Robinson’s lighthearted sentiment echoed the more serious issues of standards of living and sustained financial prosperity addressed in the Hoover Institution’s panel discussion on Thursday, the second in a three-part centennial speaker series, A Century of Ideas for a Free Society.
Former U.S. Secretary of State George P. Shultz, a Distinguished Fellow at the Hoover Institution who has held four presidential cabinet spots, served on the panel alongside senior Hoover fellows Terry Anderson, John Cogan, Lee Ohanian and moderator Peter M. Robinson, where they discussed the economic and sociopolitical patterns of the last century.
The majority of the panel discussion consisted of a roughly chronological political and economic review of the last 100 years. Speakers focused on two pairs of consecutive decades, contrasting the more free-market policies — low tax rates and minimal stimulus — of the 1920s and 1980s with the more regulatory and Keynesian economic policies of the 1930s and 1970s.
1920s and 1930s
Robinson began the discussion by contrasting the low unemployment rates and fast economic growth of the Roaring Twenties with the downturn of the Great Depression beginning in 1929.
“The economy shrinks by a third and unemployment for much of [the 1930s] runs at 25 percent,” Robinson said. He asked panelists about the policy changes that might have led to this sharp contrast.
Ohanian attributed the recession and its duration to flawed economic policy, specifically pointing out that after the 1929 stock market fall, “what could have been a road to short recession turned into a recession that lasted until World War II.”
“Everything that we know tells us we should not have a decade of such miserable economic performance,” he added.
According to Ohanian, the policies were well-intended but ultimately flawed because they conflated fixed high prices with strong economic performance.
“By the end of the 1930s, the marginal rate of taxation was 90 percent,” Shultz said. “After World War II, a young man named John F. Kennedy came along and he proposed to reduce it from 90 to 70. High rates of marginal tax will kill an economy.”
1970s and 1980s
Robinson asked the panelists to share their thoughts on the policy differences of the 1970s and 1980s.
“The policies of the ‘70s were really based on very short-term thinking,” Cogan said, alluding in part to the Federal Bank alternatively increasing interest rates when growth was strong and decreasing interest rates when growth was weak to create a stop-go effect. “They didn’t work. They got you a little bit of a sugar high.”
As a result of significant inflation, the income tax of the average American increased by 20 percent by the end of the decade.
Cogan pointed out that when tax rates increase, companies have increased incentive to find ways around them.
“When tax rates go up, loopholes go up,” he said.
According to Cogan, shortly after Reagan was elected into office in 1980, the economy experienced a recession starting in 1981 partly due to short-term policies and increased income tax of the late ‘70s.
“There was a lot of pressure on President Reagan to not stay the course, to give up on his tax cuts, to increase spending with short-term stimulus,” Cogan said.
Despite the pressure, Reagan both maintained his tax cuts and avoided stimulus spending. Cogan described the decrease of regulation and taxes as contributory to the strong economy of the late 1980s.
When asked about his opinion regarding Nixon and Reagan, Shultz chose to share positive stories about both of them.
Shultz, who served as Nixon’s treasury secretary before resigning, recalled when Nixon went to the South to support an ongoing project to integrate black and white schools despite warnings from his advisors.
Shultz also relayed a quote from Reagan’s reelection campaign in 1984, when polls had Reagan ahead of his competitor Walter Mondale, by a significant margin, in Mondale’s home state of Minnesota.
“I don’t want to humiliate him, let him win his own state,” Reagan said.
Reagan directed his campaign to pull their ads and reduce their efforts in Minnesota, where Mondale ultimately won.
“People realized that, in Reagan, there was this kind of compassion,” Shultz said.
Speakers also discussed wages and inequality in the United States. Cogan spoke about the business moguls of today’s digital age, citing examples such as Jeff Bezos, Mark Zuckerberg and Bill Gates.
“The question is: do they deserve to be wealthy,” Cogan said. “I would flip the coin around and say that these are people who have transformed our society. We have to look at what they’ve done for us.”
Anderson addressed the connection between financial inequities and the growth of environmentalism and economic growth in the United States. He reflected on his multiple trips to Africa and his interactions with the poor communities there.
“We would speak about preserving the endangered species, and they would look at us and say, ‘I am the endangered species!’” Anderson said. “Economic prosperity allows us to be better environmentalists.”
Speakers addressed the generational gap between youth and elders, specifically the difference in resources of the ‘70s and ‘80s compared to those that Stanford students have access to right now. Cogan mentioned that now, performing statistical calculations is as easy as sitting down, pulling out a laptop, typing a few commands, “and within a few seconds, get your statistical results.”
In comparison, he pulled out a deck of punch cards, describing the painstaking process of performing the calculations on his cards, taking them to a computer operator and having to reorganize the cards when he dropped them — a common occurrence, he said.
Turning toward modern economic developments, an audience member asked the panel about their perspective on the US-China trade tensions and future relations between the two nations.
“I don’t see a trade war,” Shultz answered. “What I see is a change in the administration to get the Chinese to respect property rights and patents. I don’t see that ending up in trade war as the cost of a trade war is too high.”
Contact Yusra Arub at yusraarub19 ‘at’ mittymonarch.com and Paxton Scott at paxtonsc ‘at’ stanford.edu.