January 22, 2013
President Obama used his inaugural address to deliver an unmistakable challenge to Republicans: I am done trying to bridge our differences; my agenda is non-negotiable. In recent days he has issued 23 executive orders to restrict guns. He refuses to negotiate with Republicans over raising the debt ceiling. He has single-handedly upended immigration laws.
That’s not all. In October, House Majority Leader Eric Cantor issued a report detailing over 40 examples of how President Obama has had his way – with the American people, with the Constitution, and certainly with Congress. Has there ever been such an imperious president?
During the Depression, FDR was just such a president – high-handed, hostile to critics and determined to remake American society. The parallels between the Obama and Roosevelt administrations are extraordinary, and include this: both presidents so divided and unsettled the country that neither could foster a robust economic recovery.
Roosevelt– a hero to President Obama – relied on the misery of the country and the weakness of his opponents to blast through a grandiose agenda. The imperious plutocrat turned the United States upside-down as he embraced one radical scheme after another aimed at getting the economy moving again. None worked.
As FDR stood to take the oath of office in 1933, unemployment stood at a staggering 25 percent. By 1938, after the president had sent shockwaves through the economy, unemployment still topped 19 percent, even as most European countries had enjoyed a significant increase in job creation.
Notwithstanding this history, President Obama has consciously channeled FDR, as when he promised during the recent campaign to pursue “bold persistent experimentation” of the sort embraced by his predecessor. (Obama has already dabbled in “experimentation”; some think that’s why our recovery from the financial crisis has been one of the slowest on record. When Obama took office, there were 143,338 million Americans working; four years later, there are 143,328 million Americans working.)
Obama’s adherence to his predecessor is astonishing, since many economists (other than admirers of FDR’s Big Government measures like John Galbraith) have concluded that the sweeping measures that Roosevelt passed most likely deepened and prolonged the 1930s slump.
Economists Harold Cole and Lee Ohanian, for instance, have estimated that New Deal policies prolonged the Depression by roughly seven years – raising prices on average 23 percent for 19 industries and reducing output by 27 percent. Guided by leftists like Felix Frankfurter and Louis Brandeis, FDR saw the depression as an opportunity to reshape industrial American society, extolling in his first inaugural speech “social values more noble than mere monetary profit.” He suggested that “The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits.”
Sounds a lot like Obama’s advice to 2009 graduates of Arizona State University, whom he advised not to “chase after the usual brass rings… how much money you make and how big your corner office is; whether you have a fancy enough title or a nice enough car.”
FDR’s New Deal – the term was taken from a book by Stuart Chase which extolled central planning like that adopted in the Soviet Union – brought chaos to the land. The Agriculture Adjustment Act required that farmers kill their livestock and plow under crops as the nation starved. The National Industrial Recovery Act of 1933 demanded that businesses shorten work weeks and raise wages above market levels even as many teetered on the edge of bankruptcy. The National Labor Relations Act unleashed widespread turmoil, leading to 28 million “strike days” in 1937.
Such acts were intended to create a recovery through a “bubbling up” of demand – not unlike the boost that President Obama has sought through expansion of unemployment benefits and reducing welfare requirements. It didn’t work for FDR, and it isn’t working now.
Through the 1930s, FDR kept up a steady and purposeful attack on wealthy Americans and business leaders to build his popularity. Like Obama today, FDR took special glee in going after bankers, whom he called “unscrupulous money changers” in his first inaugural speech. Ultimately, his hostility spread to all industries. His pro-labor and anti- business agenda cost him the support of the Chamber of Commerce and the National Association of Manufacturers, after both had initially (and warily) signed on to his programs to boost growth.
Eventually, the chorus of critics – including some devoted followers such as Walter Lippman, Irving Fisher and John Maynard Keynes – convinced FDR to back off some of his most egregious interventionist programs. In a letter to The New York Times, Keynes chided the FDR White House for putting reform ahead of recovery. He also urged FDR to drop his hostility to the business community.
Ironically, while FDR acceded to Keynes’ proposal for a sizeable public spending program - the stimulus of 1934 – he did not follow his recommendation that the monies be spent on infrastructure and modernization. Instead, the $4.8 billion was doled out to work programs; even Treasury head Henry Morgenthau described the program likely to be “flitted away with no centralized plan.” Not unlike our very own Stimulus boondoggle.
Federal Reserve chief Ben Bernanke is a great student of the Depression. He is committed to loose monetary policy in part because he thinks the Fed made a grave error in tightening too early after the 1929 crash, thus deepening the downturn. One may disagree with his diagnosis (and many do), but it would be cheering to see President Obama similarly tap into the history of the 1930s.
He might decide that blaming the rich for the country’s troubles, and pushing for grand gestures – on healthcare, or immigration, for instance -- is more conducive to building his personal popularity than to job creation. Or, perhaps he has already reached that conclusion.