I saw a masterful performance yesterday at San Jose State University: a talk by historian Burton Folsom on his new book, New Deal, Raw Deal.
Folsom has a lot of energy and humor. The way he told the story of FDR's attempted cartelization of the U.S. economy with the National Recovery Act was wonderful. Also, he told of the depression of 1921 in which unemployment hit double digits but fell quickly after President Harding slashed marginal tax rates and government spending.
I also learned about a lot of inventions that came along in the early 1920s after marginal tax rates fell. His stories about the inventions of refrigerators, air conditioning, zippers, and, yes, sliced bread were fun. I'm less convinced than Burton is that we can clearly attribute these inventions to the drop in tax rates, although one can clearly make a logical argument that this is likely. Also, when he asked a question about the decline of federal government spending as a percent of GDP during the Clinton administration, he highlighted welfare reform as a major cause. The major cause, in fact, was the decline in military spending.
If you ever get a chance to see this man talk, take it.
Here is a 10-minute clip:
http://www.youtube.com/watch?v=Zis7sxCfooM
There is a podcast of Burt Folsom giving essentially the same lecture at that Foundation for Economic Education last summer available here.
I have not read the book written by Folsom. I can see why he would say that the drop in tax rates could lead to the inventions listed about. It is a common assumption that when people have more income, then business is always better. But I think that the real assumption is that a lower marginal tax rate means an increased amount of untaxed income.
People never think about the fact that the marginal tax rate is only based on ordinary income. From what I have learned, it doesn't consider any other tax liabilities. By other tax liabilities, I mean things like tax credits that lower the amount of tax one pays, long-term capital gains, etc.
Thanks, David, for this post. Burt is my colleague at Hillsdale College, and one of the most popular professors we have here. I first met him at a Young America's Foundation seminar in '87, and I'm so proud to be working alongside him now. I think he's simply fantastic! One of the best and most enthusiastic speakers I've ever heard, and a phenomenal historian. More people need to be made aware of his work, such as his previous books "Myth of the Robber Barons" and "Empire Builders: How Michigan Entrepreneurs Made America Great." Highly recommended, as is his new New Deal book!
It's unfortunate. I go to SJSU and am one of the few libertarians in the Poli Sci dept. But I live in Oakland and almost always miss these "Provocative Lectures" because my last class is often 5-7 hours before they take place.
Plus I dont' get Extra Cred for going.
Glad to hear it was fun.