Mario Loyola
“We were at our richest from 1870 to 1913. That’s when we were a tariff country,” said President Donald Trump recently, and he’s not wrong. But tariffs aren’t the whole story. The genius of the Gilded Age was interstate regulatory and tax competition.
That economy boomed. From 1870 to 1913, America’s GDP grew at nearly 5 percent per year. Even though America’s population nearly tripled during that time, with 30 million immigrants, per capita GDP doubled. Steel production boomed, surpassing Britain, France, and Germany combined. Railway miles quadrupled. A period that began amid the ruins of civil war ended with America in first place among the world’s great economic powers.
Washington collected lots of tariffs then, but little else. Before the 16th Amendment paved the way for federal income taxes in 1913, Congress was spending barely 1% of GDP—compared with nearly 25% today. Meanwhile, the federal power to regulate commerce was limited to transactions that actually crossed state lines, leaving the vast majority of regulation to the states.
States competed for capital and labor by keeping their taxes and regulations light and efficient. As a result, America became the world’s most competitive economy, attracting a flood of foreign capital and workers. It’s no surprise that the booming economy of the Gilded Age was able to sustain tariffs.
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Of course, that period had its dark sides—political corruption, “Robber Barons,” child labor, and environmental degradation. These excesses sparked the progressive movement. The sprawling administrative state created by President Woodrow Wilson was soon dictating prices for nearly every major commodity and service, leading to massive economic distortions.
By the stock market crash of 1929, the economy was no longer competitive. A new round of tariffs—the Smoot Hawley Tariff Act of 1930—devastated the economy, deepening the Great Depression. » Read More
https://www.heritage.org/trade/commentary/what-made-america-great-the-gilded-age