His 122 ch 26 republican resurgence and decline

REPUBLICAN RESURGENCE AND DECLINEChapter 26

“NORMALCY”

The Election of 1920 1920 Election Warren G. Harding (R) and James Cox (D)

Harding promised “return to normalcy” (meaning return to cultural era before WWI)

Conservatism vs. Modernity

Harding won

Harding (R) 404 E.C. 16, 152, 200Cox (D) 127 E.C 9, 147, 353

HARDING APPOINTEES AND POLICY: “FOOLED AGAIN”

Early appointees jailed for corruption Harding raised the tariff. Ohio Gang

Reverse progressive policies Chief Justice William Howard Taft “Reverse a few decisions”

Struck down child labor law

Struck down minimum wage law for women

Limited regulatory power of federal agencies.

Slumping Economy National Debt 1 billion in 1914 to 24 billion in 1920 Vetoed War Veteran Bonus Bill arguing that it would increase the federal deficit

HARDING AND THE OHIO GANG

ANDREW MELLON AND TRICKLE DOWN ECONOMICS

MELLON’S TREASURY POLICIES

Mellon: Secretary of the Treasury (1920-1932-Harding, Coolege and Hoover administrations; 3rd richest man in U.S.) 1920’s Reduced government spending Lowered taxes (from 65% before 1921 to 20%

in 1926 Repealed the wartime excess profits tax Revenue Act of 1926

Lowered estate taxes Repealed the gift tax

HARDING-MELLON DOMESTIC POLICIES

High Tarriffs on imported goods

Fordney-McCumber Tariff of 1922 increased rates on chemical and metal products to prevent revival of German chemical and steel industries

Increased tariffs on imported agricultural products

Regulatory reform

Appointed industry insiders to regulatory agencies to ensure regulatory policies friendly to business

Lax Regulation and excess investment speculation by the rich and banking institutions led to the financial collapse that resulted in the Great Depression

Anti-lynching bill

Defeated in Senate

SUPPLY SIDE ECONOMICS

Macroeconomic Theory: Economic growth most effectively created by lowering barriers for people to produce (supply) goods and services.

Policy: lower taxes and less regulation

LAFFER CURVE

t* = the tax rate at which maximum revenue is generated without negatively affecting growth.

1979

2007

Lowest quintile

Highest quintile

Income Growth in Average After-Tax Income, By Income Group Graph, pg 19 Congressional Budget Office, October 2011

ISOLATIONISM IN FOREIGN AFFAIRS

War Debts and Reparations

Repayment of war loans from U.S. to allies were contingent on reparations from Germany to the allies.

Germany could not afford the reparations.

U.S. began making loans to Germany to pay reparations to the allies

Paradoxical Foreign & Domestic Policies Payment of war debt from allies

Allies can’t pay war debt by selling goods to U.S. because of high tariff on imports

DISARMAMENT; U.S. ISOLATIONISM AND THE KELLOGG-BRIAND PACT

U.S. Army: Did not maintain conscription army

U.S. Navy Arms Race U.S. and Britain

Japanese expansion

Washington Naval Conference of 1921 Charles Evans Hughes: “end it now”

5 Power Treaty: U.S., Britain, France, Italy, Japan

5 POWER TREATY

5 Major Powers agree to limit size of navies by limiting the number of ships

Refrain from further fortification of bases in Pacific

U.S. & Great Britain agreed not to build new naval bases north of Singapore or west of Hawaii

Partition Great Britain dominated North Sea to Singapore

U.S. Dominated Western Hemisphere

Japan dominated Western Pacific

Substantive problems Limited only certain ships

No enforcement

Germany and Russia excluded

ISOLATIONISM IN FOREIGN AFFAIRS

The World Court 15 international judges to arbitrate disputes between

nations

U.S. refused to join the World Court

Improving Relations in Latin America Reversal of Wilsonian diplomacy

Recognized the government in power, regardless of how it got there

THE HARDING SCANDALS

Administrative Corruption Tea Pot Dome scandal

Government owned oil deposit administered by the Interior Department

Secretary of the Interior Albert Fall let private companies exploit the oil in exchange for bribes

Harding died in office August 2, 1923

“Silent Cal” Calvin Coolidge

Presidency should return to post-imperialistic ways introduced by Teddy Roosevelt, “speak softly & carry a big stick.”

THE HARDING SCANDALS

Pro-Business Conservatism Coolidge, “The chief business of the American people is

business.” Businesses =best entities to regulate business

The Election of 1924 Calvin Coolidge (R) vs. John W. Davis (D) and Robert

La Follett (P)

THE NEW ERA

Stabilizing the Economy Herbert Hoover led the Commerce Department, the most

active agency in the Federal Government.

Encouraged trade associations to stabilize the market by promoting voluntary cooperation in sharing information and promote standardization and efficiency

The Business of Farming Agriculture- weakest section of economy in 1920’s

Wartime boom: 1914-1920 sales of agricultural products abroad.

Speculation in farmland and increased debt to acquire new land

FARMING BUBBLE BURSTS

1920: Commodity prices collapsed as European agriculture returned to pre-war levels

Overproduction=lower crop prices

18 months: wheat $2.50/bushel to less than $1/bushel

Cotton $0.35/pound to $0.13/pound

1926 bumper cotton crop caused collapse of prices (South tasted Great Depression)

Paradox of efficiency, technology and crop prices

Bankruptcies and foreclosures & McNary-Haugen bill “equality for agriculture in benefits of protective tariff”

Surplus American crops to be sold on world market

CHARLES MCNARY (R, OREGON )GILBERT HAUGEN (R, IOWA)

HOOVER, COOLIDGE AND MORAL HAZARD

McNary Haugen Bill vetoed twice by Coolidge

Hoover opposed it in favor of Hoover Plan Efficiency, electricity, diversity, production reduction

and cooperative associations

Keep tariff on imports high

Basis for Opposition Big business leaders opposed it

Involved government regulation in business of farming

Cause farmers to become dependent on government regulation and destroyed self reliance

THE NEW ERA

Setbacks for Unions Unions weakened by Red Scare

In 1929 membership dropped by 1.5 million

The American Plan

“Yellow Dog” contracts

“Welfare Capitalism” profit sharing, bonuses, pensions, health programs

COOLIDGE DECIDES NOT TO RUN IN 1928

Summer 1927: while vacationing in the Black Hills of South Dakota, Calvin Coolidge announced, “I do not choose to run for President in 1928. If I take another term I will be in the White House until 1933…10 years in Washington is longer than any man has had it—too long!”

REPUBLICAN CONVENTION OF 1928

Coolidge chose not to endorse a candidate. Regarding Hoover: “For six years that man has

given me unsolicited advice—all of it bad”

Nomination of Dawes as Vice President would be “a personal affront”

Herbert Hoover won the nomination for Republicans

HOOVER ACCEPTANCE SPEECH

We in America today are nearer to the final triumph over poverty than ever before in the history of this land... We shall soon with the help of God be in sight of the day when poverty will be banished from this land.”

ELECTION OF 1928

Herbert C. Hoover (R) 444 21,391,381Alfred E. Smith (D) 87 15,016,443

“I have no fears for the future of our country”

OCTOBER 29, 1929

THE GREAT DEPRESSION

SMOOT –HAWLEY TARIFF

Passed in 1930

Authored by Republican protectionist advocates in Congress, Representatives, Willis C. Hawley and Reed Owen Smoot

Initially intended to protect farmers by reducing farm imports from overseas

Corporate lobbyists convinced Congress to add hundreds of items

Hawley-Smoot Tariff actually raised prices on most raw materials and consumer products

Other countries retaliated against goods from the U.S. causing exports to plummet

Depression deepened

SMOOT-HAWLEY TARIFF

•May 1930: 1,200 economists signed a petition against the tariff

•Henry Ford went to the White House to beg Hoover to veto the tariff

•J.P. Morgan CEO “I almost went down on my knees to beg Hoover to veto the ‘asinine’ tariff.”

•Tariff taxed 3,200 products at a rate of 60%

U.S. Imports decreased 66% from 4.4 billion in 1929 to 1.9 billion in 1933.Steep reduction in imports had a negative effect on banks already weakened by the stock market crash.

STRUCTURAL PROBLEMS WITH THE STOCK MARKET

Speculation in stocks had replaced speculation in real estate prior to 1929

Buying stock “On Margin”

Banks and Brokers Margin calls and stock value

Domino effect on banks when stock speculators could not pay margin calls

STRUCTURAL FLAWS IN BROADER ECONOMY

High prices, low wages and mounting consumer debt

Mellon’s financial policies did not trickle down to consumers

1/3 of personal income was held by the top 5% of the population

Profits invested in business expansion and speculation while wages did not rise

Consumer spending declined

Investment in new factories and businesses plummeted

Small businesses and consumers increased borrowing

Result was weakened businesses, weakened consumers and weak banks

GOLD STANDARD

Value of paper currency tagged to size of national gold reserves Money supply shrinks or falls depending on amount of gold in a

national treasury

When economic output, prices and savings began to fall in 1929, Hoover administration and Mellon tightened the money supply

Mellon, “purge the rottenness out of the system” From 1929 to 1933, 40% of American banks disappeared and millions

of Americans lost their entire savings (FDIC did not yet exist).

Defaults and bank failures fed deflation

Nation’s money supply shrank by 1/3

1936 U.S. along with 36 other nations abandoned the gold standard

Money supply expanded, leading to economic growth

PRESIDENT HOOVER, THE ENGINEER

The Human Toll of the Depression By 1933, 13 million people were out of work

People with jobs worked fewer hours

Soup Kitchens run by local charities depended on donations

Hoover’s Efforts at Recovery Too little too late

Government funds for construction projects to local governments who had no tax revenue

Local and state agencies cut back on employees

GLOBAL CONCERNS

Japan Invades China 1931 explosion destroyed a section of railway in Manchuria

Japanese investors demanded recourse by Japanese government

Japan invaded Manchuria to protect its investment

Japanese invasion rendered the post WWI treaties moot. Neither the League of Nations nor the United States responded

to China’s please for assistance.

Japan withdrew from the League of Nations in response to a resolution condemning Japan’s invasion.

Stresses and Strains at home mean Japan’s invasion of Manchuria is not an issue for American people.