Learning from Budget Hawks and True Champions of Limited Government

During the fourth Republican presidential candidate debate the four participating candidates were asked to name a past president who would serve as an inspiration for their administration. In his response, Governor Ron DeSantis stated that he would take inspiration from President Calvin Coolidge. Coolidge, stated DeSantis, is “one of the few presidents that got almost everything right.” Further, DeSantis argued that “Silent Cal” understood the federal government’s role and “the country was in great shape” under his administration.

To say that the federal budget process is broken is an understatement. The national debt continues to grow driven by out-of-control spending. The budget hawk within the Republican Party is an endangered species. Governor DeSantis is correct that the Republican Party needs to rediscover the principle of limited government. The best way to do this is to take inspiration from the Republican Party’s best known budget hawks and champions of limited government, Presidents Warren G. Harding, and Calvin Coolidge.

President Harding assumed office in 1921 when the nation was suffering a severe economic depression. Hampering growth were high-income tax rates and a large national debt after World War I. Congress passed the Budget and Accounting Act of 1921 to reform the budget process, which also created the Bureau of the Budget (BOB) at the U.S. Treasury Department (later changed in 1970 to the Office of Management and Budget). President Harding’s chief economic policy was to rein in spending, reduce tax rates, and pay down debt. Harding, and later Coolidge, understood that any meaningful cuts in taxes and debt could not happen without reducing spending.

Harding selected Charles G. Dawes to serve as the first BOB Director. Dawes shared the Harding and Coolidge view of “economy in government.” In fulfilling Harding’s goal of reducing expenditures, Dawes understood the difficulty in cutting government spending as he described the task as similar to “having a toothpick with which to tunnel Pike’s Peak.”

To meet the objectives of spending relief, the Harding administration held a series of meetings under the Business Organization of the Government (BOG) to make its objectives known.

“The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding.

Not only was Harding successful in this first endeavor to reduce government expenditures, his efforts resulted in “over $1.5 billion less than actual expenditures for the year 1921.” Dawes stated: “One cannot successfully preach economy without practicing it. Of the appropriation of $225,000, we spent only $120,313.54 in the year’s work. We took our own medicine.”

Overall, Harding achieved a significant reduction in spending. “Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922,” noted Jim Powell, a senior fellow at CATO Institute. Harding viewed a balanced budget as not only good for the economy, but also as a moral virtue.

Dawes’s successor was Herbert M. Lord, and just as with the Harding Administration, the BOG meetings were still held on a regular basis. President Coolidge and Director Lord met regularly to ensure their goal of cutting spending was achieved.

Coolidge emphasized the need to continue reducing expenditures and tax rates. He regarded “a good budget as among the most noblest monuments of virtue.” Coolidge noted that a purpose of government was “securing greater efficiency in government by the application of the principles of the constructive economy, in order that there may be a reduction of the burden of taxation now borne by the American people. The object sought is not merely a cutting down of public expenditures. That is only the means. Tax reduction is the end.”

“Government extravagance is not only contrary to the whole teaching of our Constitution but violates the fundamental conceptions and the very genius of American institutions,” stated Coolidge.

When Coolidge assumed office after the death of Harding in August 1923, the federal budget was $3.14 billion and by 1928 when he left, the budget was $2.96 billion.

Altogether, spending and taxes were cut in about half during the 1920s, leading to budget surpluses throughout the decade that helped cut the national debt.

The decade had started in depression and by 1923, the national economy was booming with low unemployment. Both Harding and Coolidge were committed to reining in spending, reducing tax rates, and paying down the national debt. Both also used the veto as a weapon to ensure that increased spending and other poor public policies were stopped.

The results of the Harding-Coolidge economic plan created one of the strongest periods of economic growth in American history. Unemployment remained low, the middle class was expanded, and the economy expanded. From 1920 to 1929 manufacturing output increased over 50 percent and the United States was a global leader in many key industries.

In our current era marked by dangerous debt levels and high inflation whoever becomes the Republican presidential nominee should take inspiration from Harding and Coolidge.

John Hendrickson serves as policy director for Iowans for Tax Relief Foundation and Vance Ginn, Ph.D. is president of Ginn Economic Consulting and a visiting scholar at Iowans for Tax Relief Foundation.