My Amazon Review of Robert Elder's "Calhoun: American Heretic"

 

 Slavery’s Theoretician

 

John C. Calhoun was brilliant and was one of America’s most dominant politicians for nearly four decades serving as congressman, senator, vice-president under two presidents, Secretary of War, Secretary of State and sought the presidency on several occasions. Unfortunately, he used much of his brilliance in cause of slavery. Baylor University history professor Robert Elder tells the story of his life with nuance and great detail. Unfortunately for the lay reader it 656-page length is a bit much.

 

Calhoun was born in 1782 in South Carolina’s up-country and was inculcated in his slave-oriented society. Unlike most of his brethren he goes north to Yale for his education and after returning to South Carolina he becomes one of the state’s leading politicians. After his election to Congress in 1810 be joins forces with Henry Clay to become a leader in the war hawk faction that leads the U.S. into the War of 1812.

 

His alliance with Clay continues after the war and he becomes an initial supporter of Clay’s American System. He supports the establishment of a national bank, the tariff, and a program of internal improvements. However, the coming of the Missouri Compromise of 1820 he breaks with Clay as the fight over tariffs becomes a proxy war over slavery. By 1832 he triggers the Nullification Crisis where South Carolina sought to overturn the Tariff of 1828. It almost came to war, but Clay came up with a compromise.

 

Calhoun believed the United States to be a compact of sovereign states with each or with a substantial minority having the right to nullify federal legislation. He called his theory “concurrent majority”. He basically sought a minority veto over policy. To be sure part of it was based in the Virginia and Kentucky Resolutions of 1798 authored by Madison and Jefferson in opposition to federal power. That theory was expounded 160 years later by civil rights activist Lani Guinier was nominated to be an assistant attorney general under Bill Clinton. She supported a minority veto over majoritarian rule. Calhoun was pro-union, but only on southern terms.

 

Calhoun viewed slavery as a positive good. To him it guaranteed equality among whites thereby dampening the class struggle between white factory workers and their employers. After all South Carolina was way ahead of the rest of the country in promoting universal suffrage for white males. In a way he was a Jacksonian ahead of his times.

 

To Calhoun America’s original sin was not slavery, but rather the “all men are created equal” line in the Declaration of Independence. This completely undercut his support of slavery and further although Elder does not mention it the preamble to the Constitution begins with “We the people...” not “We the states…”

 

As an international statesman Calhoun had a hand in drafting the Monroe Doctrine in 1820 and avoided war with Great Britain over the Oregon Territory in 1845. He actually opposed the Mexican War because he believed President Polk usurped the power of Congress in declaring a state of war existed between the U.S. and Mexico. Further his free trade ideas became conventional wisdom in the second half of the 20th century.

 

Elder goes into great deal about Calhoun’s family life. His wife Floride and her dozen pregnancies and his relationship with his daughter Anna who became his intellectual confidante. The last a rarity in that era. The reader will learn much about America and Calhoun in this book, but I caution it is long.

For the full Amazon URL see: Slavery's Theoretician (amazon.com)

 

My Amazon Review of Matthew Klein's and Michael Pettis' "Trade Wars are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace"

Global Keynesians

Barron’s economics columnist Matthew Klein and  Peking University economics professor Michael Pettis have written a widely discussed book bemoaning the global savings glut that they believe to be the cause of the increase in trade tensions over the past two decades. And it is the high rate of savings by the wealthy that reduces aggregate demand globally thereby suppressing output and wages. It is Keynes’ classic under-consumption view of the world. Klein and Pettis try to prove their point by examining the economies of China, Germany and the United States.

But before that they go through a serious history of trade policy and economic crises from the 1820’s on. Unfortunately they make a few mistakes along the way. They admire Henry Clay’s American System of tariffs, internal improvements and national bank. However they ignore the secret sauce of American protectionism in 1800s, that being a tidal wave of immigration. Instead of importing products, America imported labor, much of it skilled. When immigration was cut-off in the 1920s and record high tariffs were imposed, the economy collapsed into the Great Depression. Along the way the authors surprisingly have some nice things to say about the gold standard.

Klein and Pettis early on cite Keynes’ discussion of how well the French economy fared with the payment of an indemnity arising out of their defeat in the Franco-Prussian War. What they leave out is that the excess savings generated by the French economy in the 1850’s and 1860’s was the source of funds. Hence what the Asian nations and Russia learned after the 1997-98 crisis, was the need for central banks to establish precautionary balances. It is those balances that make nation resilient to the vagaries and vicissitudes of the international economy. And as Klein and Pettis rightly note, the Asian and Russian response to the crisis greatly contributed to the savings glut.

The overarching thesis of the book is that capital flows drive trade flows. Simply put a trade deficit in the U.S. requires a capital inflow and a trade surplus in China requires a capital outflow. The authors use accounting identities to make their point. However accounting identities do not define causation because other items are not held constant. For example an increase in government spending, other things being equal increases GDP, but other things do not remain equal as consumption or investment or exports could be simultaneously reduced.

The authors make a very straight forward case that China should reduce its exports, which line the pockets of the Communist Party Bigs and the industrial elite at the expense of the workers. In turn the economy should shift towards domestic consumption through a policy of higher wages and a stronger social safety net. That all makes sense, but the high wage-stronger social safety net policy is inimical for the trade deficit-prone United States. All that would do is increase the U.S’s trade deficit.

Klein and Pettis also offer up other polices one of which is akin to modern monetary theory. Simply put, if the world is short of safe assets, the U.S. should sell all the bonds the rest of the world is demanding. They leave unsaid the impact of that policy on the foreign exchange value of the dollar. They also believe that the Dollar Standard that the global economy is now is instead of it being an exorbitant privilege, it is now an exorbitant burden. They would substitute Keynes’ Bancor, an idea that failed at the 1944 Bretton Woods Conference, but it is certainly worthy of discussion today.

There was one line in the book that really intrigued me. The authors note that the three areas of intense government involvement; housing, healthcare and higher education are the primary drivers of U.S. inflation. I would suggest that it would be in keeping with their concern about the immiseration of the U.S. working class to focus their next book on this topic.

To sum up, the Klein-Pettis book is being taken very seriously in policy circles and it could very well have a real influence on a potential Biden Administration. It is worth a critical read.

For the full Amazon URL see: https://www.amazon.com/gp/customer-reviews/R4B7PKBQT8DPR/ref=cm_cr_arp_d_rvw_ttl?ie=UTF8&ASIN=B087TJKJRQ

My Amazon Review of Douglas A. Irwin's "Clashing over Commerce: A History of U.S. Trade Policy"

Trading Places

Dartmouth economist Douglas Irwin has written a very long (832 pages in the print edition) and sometime tedious history of U.S. trade policy, but in many respects it is a tour de force. In a way he is writing American history through the lens of trade. His history starts with the economic impact of the French and Indian War’s (The Seven Years War globally) on Britain’s fiscal and colonial policy. The Boston Tea Party was the result. After independence and the chaos caused by the failed Articles of Confederation one of whose attributes were tariffs among the states a new constitution was written that centralized trade policy within the national government. In fact the second law enacted by the first Congress was a tariff. It was needed to fund the government. Thus Trade policy is as old as the Republic.

Irwin divides his history into three eras: tariffs for revenue (1789-1860), tariffs for restriction (1861- 1933) and tariffs for reciprocity (1934-Present?). Initially export oriented (cotton and tobacco) South favored low tariffs (for revenue only) and the North supported tariffs to restrict imports as well. Given that geography Democrats were for low tariffs and Whigs/Republicans were for high tariffs. By the late 20^th century the two parties traded places with Republicans favoring open trade while the Democrats became far more restrictionist. Irwin tells his story by going into the details of all of the major congressional debates on tariff questions. Sometimes this is very interesting and sometimes it gets a bit tedious, but it is history in the making.

The first real battle over trade took place in the 1820s where the political genius of Henry Clay pushed through a restrictive tariff which both protected northern industry and raised revenue to fund internal improvements. That was his American System. By 1832 led by John C. Calhoun the South rose up in protest against what he called the Tariff of Abominations and introduced the doctrine of nullification. Irwin notes that the fight over the tariff became a proxy war over slavery. Nevertheless, with the Southern Democrats largely in control tariffs were largely used for revenue only prior to the civil war.

With the Republicans coming to power in 1861 the tariff was first used to raise revenue to fund the civil war and afterwards to restrict the entry of foreign goods into the United States.  Irwin found no real evidence the high tariff policies of the Republicans promoted economic growth. This was due, in part, to the economy being wide open to immigration and technology transfers. It was also helpful that the U.S.’s leading trading partner was Britain which then had a zero tariff policy. It is unfortunate that Irwin did not note that the success of textile manufacturing in New England was due to stolen technology from Britain.

Although the Republicans were in the high tariff camp, both Presidents Garfield and McKinley in his second term were open to reciprocity. Unfortunately both were assassinated before they could implement their new ideas.

After growing unrest with the high tariff policies of the Republicans which were thought by the Democrats to promote monopoly and act as a tax on consumers, the new Wilson Administration moved swiftly to lower tariff. Irwin highlights how Wilson was very hands on in working with Congress to pass the Underwood Tariff which significantly lowered import duties. Something else was going on as well. The U.S. was becoming a major exporter of industrial goods. This was due to the discovery of huge iron deposits in the Mesabi Range of Minnesota which made the U.S. the world’s lowest cost producer of steel.

However after World War I and the Republicans returned to power tariffs were raised dramatically in 1923 with the Fordney-McCumber Tariff. That was followed by the Hawley-Smoot Tariff of 1930 which raised the already high tariffs by 15%. Irwin debunks the idea that the Hawley-Smoot Tariff caused the stock market crash and the depression. It did, however, exacerbate the global collapse of the early 1930s.

With the arrival of the Roosevelt Administration tariff policy takes a U-Turn. Secretary of State Cordell Hull established a policy of reciprocal trade, first with Latin America and then with the rest of the world. If anyone person is a hero in the book it is Cordell Hull. Under the leadership of state department official Will Clayton, the Truman Administration follows up deal by deal reciprocal trade agreements with broad multinational agreements(GATT now the WTO).

By the 1970s the parties traded places. The Republicans supporting trade in financial services and high technology products become free traders, while the labor oriented Democrats fearing the loss of union jobs become protectionists. Further the long free trade oriented South, switches sides as its textile manufacturing business come under stress. All of this came to a head with Democrat Bill Clinton supporting NAFTA against a majority of his party. NAFTA passed with Republican votes, but the fissures the battle engendered made Americans more suspicious of trade deals.

Those fears bore fruit with the leading Democratic candidates in 2016 opposing the Trans Pacific Partnership along with Donald Trump. Now with a protectionist in the White House and a protectionist Democratic Party it appears that the long era of reciprocal trade might be behind us. Irwin thinks there is too much momentum and it took the Civil War for policy to transition from revenue to restriction and it took the Great Depression to transition for restriction to reciprocity. My question is whether the Great Recession was another such trigger. I hope not.

In sum Irwin’s book is a long slog, but for those serious about how our trade policy came to be, it is well worth the effort.

For the full Amazon URL see: https://www.amazon.com/review/R3U5XU27SA6HNX/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv