John Maynard Lincoln
The early months of the Civil War did not go well for the North. The South was galvanized, passionate about repelling Yankee invaders who threatened to deprive the Confederacy of its way of life and destroy its economy by freeing the slaves.
The North, the world’s next great industrial society, was nonetheless weak and divided. Northern Democrats wanted to defend the Union but were fiercely opposed to freeing the slaves. Republicans also wanted to preserve the Union but were divided on the slavery issue. Abolitionists wanted to wage an all-out war, abolish slavery, crush the South and decimate its feudal way of life.
Despite overwhelming strength in numbers, the North’s hubris was quickly punctured when in 1861, the Army of the Potomac suffered a humiliating defeat at the First Battle of Bull Run, sending Union soldiers scurrying in panicked retreat back toward Washington. Over the next year, the South scored victories at the Second Battle of Bull Run, Fredericksburg and Chancellorsville.
Trying to hold the Union together and not really sure how to do it was President Abraham Lincoln, the first western president who defeated three other candidates for the office. Despite winning a plurality, Lincoln was seen at best as an unknown quantity and at worst, a weak, vacillating politician.
Lincoln did not start out prosecuting a war to abolish slavery. If he could preserve the Union by abolishing slavery, he would do so. Lincoln believed the South’s peculiar institution was a sin against God, but he also believed that it was an antiquated institution that would slowly perish if left alone. If he could end the war and leave slavery alone, it would wither and die over time.
We revere Lincoln today for fighting a noble war to free an enslaved people, but he was not a plastic saint. In Team of Rivals, Doris Kearns Goodwin sketches Lincoln as a canny politician not above bending the truth and forging unholy alliances with political adversaries to achieve his goals. He did not want to conduct an unpopular war with divided support. He was a minority candidate, besting three other adversaries who divided the electorate to clear his path to victory. He did not want to see tens of thousands of young men killed in battle. In the depths of the struggle, he wandered the White House, suffering from insomnia and nightmares. And he was keenly aware that an all-out war would devastate the economies of both the North and South.
But Lincoln possessed an expansive mind and an equally expansive view of what the federal government could and should accomplish. Buried in the oft-told stories of his greatness is a little known footnote to the Lincoln lore; Lincoln, the economic thinker who would have fit in comfortably with FDR and the New Deal architects; the Lincoln whose attempts to end the Civil War by buying the slaves’ freedom provides us with economic tools we can use in this Covid-19 pandemic.
Lincoln’s Stimulus Package
In an age when the dominant economic philosophers, John Locke, Adam Smith and John Stuart Mill, preached that labor and natural resources were the source of society’s wealth, and that the economy was guided by an “invisible hand” based on secure markets, division of labor, market growth and concentration of investment capital, Lincoln came up with a novel idea.
On March 6, 1862, he urged Congress to adopt the following resolution:
Resolved, that the United States ought to cooperate with any state which may adopt gradual abolishment of slavery, giving to such state pecuniary aid, to be used by such state in its discretion to compensate for the inconveniences, public and private, produced by such change of system.
Bruce Catton, in his magisterial Civil War trilogy, recounts in the second volume, Terrible Swift Sword, how Lincoln tried to end the war by buying off the South with what we would call today an economic stimulus package.
Lincoln thought that if slavery died in the border states — Maryland, Missouri, Kentucky and Delaware — it would also eventually die in the secessionist states of the Confederacy. According to Catton, Lincoln believed that the “tremendous sums being spent to fight the war ‘would purchase, at fair valuation, all the slaves in any named state.’”
Lincoln calculated that it cost the North $2 Million a day to fight. He proposed to compensate slaveholders $400 per person to free all the slaves in the border states, the equivalent of three months of fighting. In a letter to a California senator, James McDougall, who opposed the idea, Lincoln gave the following example: Delaware had 1,798 slaves. At $400 for each slave, they could be freed for $719,200, less than one half of one day’s fighting. In all the border states, there were 432,622 slaves. They could be set free for $173,048,000, less than 87 days of war.
Lincoln explained how he would pay for his mass freedom plan. He proposed that slavery should cease to exist at an arbitrarily appointed future date, January 1, 1882. He then suggested that the slave count in the 1860 census be used as a base number, multiplied by $400 and states be compensated in 20 annual installments, underwritten by United States bonds paying six percent. “The sum thus given, as to time and manner, I think, would not be half as onerous, as would be an equal sum, raised now, for the indefinite prosecution of the war…” the President wrote.
Congress passed the resolution, but it received no traction with the border states, despite Lincoln’s arm twisting. “More could be accomplished toward shortening the war than could be hoped from the greatest victory achieved by the Union armies,” he argued. “Any scheme to get rid of it in the North as well as the South was morally bound to do its full and equal share.”
But abolitionists would settle for nothing less than total victory and slave holders complained that the government should be protecting their property. The proposal died in its infancy.
Keynesian Economics and the Covid-19 Pandemic
During the Depression of the 1930's, John Maynard Keynes fundamentally changed the theory of macroeconomics and the economic policies of western governments.
He challenged the prevailing wisdom that free markets would automatically provide full employment provided workers were reasonable in their wage demands. He argued that governments are not like households. They own their own debt and while they have a duty to spend taxpayer money responsibly, they have no obligation to balance their budgets, especially when times demand that governments intervene to restore economic health.
Keynes also argued that total economic spending determined the overall level of economic activity and that diminished demand could lead to prolonged unemployment and economic depression. Fiscal and monetary intervention should be used during economic downturns to keep economies on course and mitigate adverse effects of economic recessions and depressions.
By the late 1930s, leading Western economies had begun adopting Keynes’s policy recommendations. Almost all capitalist governments had done so by the end of the two decades following Keynes’s death in 1946.
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back,” he wrote with some prescience in 1936.
In essence, Keynes said that countries can spend their way out of economic doldrums, supporting industry, creating jobs, putting money into workers’ pockets so they can buy food, pay rent, buy commodities and services and spend the economy back to health.
It is not known whether Keynes was aware of Lincoln’s proposal to spend the nation out of civil war and to go deeply into debt to do so, but it is clear that unwittingly or not, Keynes was retrofitting Lincoln’s economic theory for his times, the Great Depression.
Keynes, Lincoln and The Economic Stimulus Package
We have a history of great economic thinkers dating back hundreds of years from which to draw. Though Keynes’s theories have been criticized in the 74 years since his death, his core thinking remains our macroeconomic lodestar: manage the economy by manipulating fiscal and monetary policy, create deficits if you have to and when the economy is humming, tighten up on spending so it doesn’t overload and inflation is controlled.
This is Economics 101. It is also should be Public Policy 101 and mandatory training for every legislator at every level in this nation.
The ghost of Keynes was behind the first stimulus package, passed in March, injecting $2.2 trillion into the economy. That bill allocated $300 billion to individuals, an immediate cash infusion of up to $1,200 and an additional $260 billion for unemployment benefits, each individual to receive an extra $600 benefits boost. Small businesses received forgivable loans totaling $10 billion. Airlines received $58 billion; $11 billion was earmarked to fund vaccine research and testing; $4.3 billion directed to the Center for Disease Control; $20 billion to support veterans; $16 billion for the National Strategic Stockpile to build up our supply of ventilators and masks; and $340 billion for state and local governments. It was estimated that the deficit would balloon $1.8 trillion over the next decade.
This was a rich transfusion directly into the country’s bloodstream and its effect on the economic health of the nation was immediate though not long lasting. Unemployment declined by 2.2 percentage points from 13.3 percent in March to 11.1 percent in June, and the number of unemployed persons fell by 2.2 million from 20 million to 17.8 million. That $600 supplement, which expires tomorrow, doubles and, in certain states, trebles the weekly income of most of the unemployed. More importantly, that is spending that goes right back into the economy, paying for shelter, food, medical bills, tuition, and by extension, supporting businesses that put other people back to work.
It is clear we need another stimulus package. States that failed to lock down or opened up too soon on the false promise of saving the economy are now paying for that folly with terrible spikes in infections and deaths. So why are Senate Republicans resistant to a second stimulus bill, rejecting the Democrats $3 trillion bill for an inadequate $1 trillion bill that notably cuts the unemployment surplus payment from $600 to $200?
Their excuse is that old Republican saw that safety net programs coddle the poor and turn them into wards of the state; that “rich” unemployment benefits are a disincentive for workers to return to work. Senator Lindsay Graham went so far as to say that the extra benefit would only be extended “over our dead bodies”, a none-to-well chosen descriptive when the pandemic death toll has surged past 150,000 in the United States. But we should expect no grace from any of the top Republicans.
There have been no studies that support the Republican position other than the acknowledgement that every penny of the bonus is ploughed back into productive portions of the economy. That money doesn’t buy stock options. It isn’t invested abroad or go toward stock buybacks. It isn’t ploughed into the purchase of fine art. In other words, it is not employed unproductively. It buys jobs for other people and has a halo effect on the economy. A dollar spent is a dollar in the paycheck of somebody else.
There is an underlying fallacy to the Republican argument. In most states, unemployment benefits carry the following condition: if an employer calls a furloughed worker back, the worker has to return and forgo the unemployment benefit, unless that employee can demonstrate that the workplace is non-compliant with safety guidelines and returning poses a medical risk. It is a near failsafe check on gaming the system by sitting at home, collecting an undeserved unemployment check.
I am going to close with a series of cliches because cliches, while tiresome, are almost always sturdy, shopworn truths. History is our best teacher. We have seen this before, if not a virus precisely like this, viruses that fueled pandemics that, in the rearview mirror, left well lighted paths to follow back to health. Or more accurately, revealed paths that should not be followed.
We have thousands of black and white images from the 1918 flu pandemic showing ordinary people, if not social distancing, then wearing masks. We have accounts of how there was stiff resistance to wearing masks. Well documented are the surges in deaths and infections after thousands marched in victory parades in New York, Philadelphia and other cities around the country. We had a president, Woodrow Wilson, who completely ignored the pandemic and urged citizens to go about their business without any change of habit or routine. We have accounts of respected health professionals and the details of their re-opening plans that we could update, modify and follow. New York City Health Commissioner Royal S. Copeland feared a total city shutdown would cause panic, so he devised a plan of staggered openings and closings for businesses, stores, theaters and banks so as not to overwhelm mass transit. It was the first draft of the cautious reopening plans many cities and states have developed.
The nation did not emerge from that pandemic for more than four years and not before an estimated 650,000 people died in the U.S. and as many as 50 million died throughout the world.
Ignoring the recommendations of scientists and ignoring the lessons of the past is not just willful ignorance. When that ignorance is imposed upon the citizenry by our leaders out of some monstrous campaign to spread hateful calumny, when they use the bully pulpit to deceive people looking to leaders for honest guidance, truth and wisdom, that’s both a high crime and misdemeanor, and a crime against humanity.