1 Boring Old Man

Lessons from FDR
by eriposte

In keeping with the urgency of the moment we face I’m going to write a bit about FDR today because, the opportunity that President Obama has, arguably resembles the opportunity that FDR had in reshaping America in a progressive direction. Moreover, just as FDR inherited a terrible economic situation from his predecessor, so did President Obama [though we are not facing a depression, yet]. FDR’s "New Deal" was nothing short of a sweeping change in America, but not as commonly known is the fact that a few key aspects of FDR’s policies diluted the positive impact of the New Deal and scuttled further, sharp progress on New Deal legislation in the late 1930s. It is this topic that I discuss in this post for it is important to learn from and avoid those mistakes as we look forward to the Obama Presidency.

As historian Jean Edward Smith discusses in his book "FDR", in the first 100 days of his Presidency FDR managed to push through an astonishing number of key initiatives:

• the Emergency Banking Act
• a revision of the Volstead Act (prohibition)
• the Economy Act
• the Civilian Conservation Corps
• the Federal Emergency Relief Act
• the Agricultural Adjustment Act
• the Emergency Farm Mortgage Act
• the Tennessee Valley Authority
• the Truth-in-Securities Act
• the de-linking of the US dollar from the gold standard
• the Homeowners Refinancing Act
• the Glass-Steagall Act
• the Farm Credit Act
• the Emergency Railroad Transportation Act
• the National Industrial Recovery Act

The positive impact of many of these initiatives would be felt in the coming years. Yet, the efficacy of the New Deal’s economic policies was also inadvertently compromised – partly because of some of the legislation and partly due to flaws in execution. Columbia Historian Alan Brinkley discussed some of these issues recently in a good piece at TNR – although, as I point out below, he appears to have missed one of the major problems that FDR faced initially with his spending program. The most significant issues that slowed or reversed New Deal economic progress during FDR’s Presidency can be divided into the following three groups:

1. Sharp Cuts in Government Spending…
2. Flawed Spending Plan…
3. Tax Increases During the Depression…

…Despite his spending/relief programs, FDR’s major mistakes – the misguided attempt to balance the budget by slashing Government spending during the depression, a large amount of apportioned funds never getting spent in the early 1930s, and the initiation of social security taxes during the Depression – ended up partly countering the effectiveness of his New Deal in speeding up economic recovery. In some ways, the failure to realize that massive economic growth from a low base takes years of focused investment – not just a burst of temporary spending – compromised the results of the New Deal.

To make matters worse, even though FDR had created the New Deal in the mid-1930s largely based on his strong popular support and his solid partnership with the Democratic-led Congress, he subsequently squandered his credibility because of his hubris – as reflected in his terrible attempt to pack the courts following the Supreme Court’s overturning some New Deal legislation and his extraordinary intervention in Democratic primaries to defeat a few foes of some New Deal legislation. This furthered deep divisions within the Democratic Party which had already been weakened politically in the late 1930s due to the disastrous spending cuts.

As we review this history, it is instructive to contemplate some pertinent lessons for President Obama from FDR’s experience. President Obama was correct to observe in his speech yesterday that:

What the cynics fail to understand is that the ground has shifted beneath them – that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works – whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public’s dollars will be held to account – to spend wisely, reform bad habits, and do our business in the light of day – because only then can we restore the vital trust between a people and their government.

He would be well advised to be bold and not let the inevitable criticism deter him from being aggressive in investing in America – for our future’s sake. It is also worth remembering what FDR said in 1935:

You cannot borrow your way out of debt, but you can invest your way into a sounder future….Over three years ago, realizing that we were not doing a perfect thing but that we were doing a necessary thing, we appropriated money for direct relief. But just as quickly as possible we turned to the job of providing actual work for those in need.
I realize that gentlemen in well-warmed and well-stocked clubs will discourse on the expenses of Government and the suffering that they are going through because their Government is spending money on work relief. Some of these same gentlemen tell me that a dole would be more economical than work relief. That is true. But the men who tell me that have, unfortunately, too little contact with the true America to realize that…most Americans want to give something for what they get. That something, which in this case is honest work, is the saving barrier between them and moral degradation….

It is critical that the American public understands that what the Obama administration is about to embark upon is not merely "Government spending" – it is a solid, multi-year investment in America’s future. That is how the spending program should be designed and communicated.