Tuesday, November 25, 2008
Personal Aside: The Age of Obamaa Déjà Vu of the FDR Era that
Didnt Solve the Depression or Unemployment.
If you are of a certain age as I am you can readily see even now the definite similarities between Barack Obamas ascension to the presidency and the 12 years of Franklin Roosevelt. Im a geezer expert on FDRs influence on this country: he was the only president I knew in my entire life, from kindergartener to high school senior. Like Obama, FDR depended on the support of a largely adulatory media. He tried to socialize the economy in fruitless experiments while liberals cheered his decisiveness and good intentions notwithstanding that he solved unemployment only when we went to World War II. Could it happen again?
From 1933 to 1945 the Hyde Park country squire in the White House who (a) single-handedly commanded the media (except it seemed for the Chicago Tribune and the Hearst press ) and (b) experimented with the economy. Nothing utterly nothing worked in the long run until 1941 when the national defense program and Pearl Harbor cured joblessness.
For seventy-plus years Roosevelt was been regarded as a national hero. But now a spate of books has been recently published telling irrefutably of the failure of the Roosevelt administration to solve our economic problems: in fact, more than thisactually prolonging the Depression and threatening to regiment our people while the contemporary media gloried in the decisiveness and flair of FDR. Sheep-like, led by deceptive media their photographers lowering their cameras as the paraplegic president was hoisted aboard planes and yachts, keeping his paralytic physical condition largely blacked out from the public (as they did 20 years later with JFKs womanizing in which the Washington Posts Ben Bradlee was an active witness, he deciding it would not be seemly to report the truth) the media largely propagandized the American people to reward liberal good intentions with their votes, neglecting to emphasize the failures.
The Threat of Floyd B. Olson.
A myth embedded in history holds that Roosevelt prevented either a right-wing fascist or Communist party couptake your choice-- and saved the U.S. by inventing the beneficent corporate state. The threats supposedly came from three challengers, Fr. Charles E. Coughlin, Huey Long and Dr. Francis Townsend. Largely fictitious. Coughlin was never a threat since as an obedient priest he allowed himself to be silenced by his bishop at the behest of liberal-leaning George Cardinal Mundelein of Chicago Long, a raving demagogue who appealed to back country southerners and no one else, was assassinated in 1937 and Townsend was a one-trick pony specializing in an fantastic pension schemes (he died at 93 in 1960).
But on the horizon there was a genuinely electoral threat. As a transplanted Illinoisan to Minnesota, I engaged in a lifelong study of him. He was a charismatic, blond half Norwegian half Swede wildly popular governor of a third party maybe not Red but decidedly pink and as charismatic as FDR the former Hennepin county (Minneapolis) prosecutor, Gov. Floyd Bjornstjerne Olson, the Farmer-Laborite from Minnesota who threatened to put all Minnesotas electric utilities, iron mines, grain elevators and meatpacking plants under state ownership. Reelected with huge majorities he was the nominee for the U.S. Senateand certain to be elected where he would plot a national career--when he died at the Mayo Clinic at age 44 in 1936 of stomach cancer. There was never a serious contender for Roosevelts crown since then.
Roosevelt breathed a sigh of relief when Olson died, retired New Deal brain truster Rexford Guy Tugwell told me in 1973 when I interviewed him the first time where he was a fellow at the Center for the Study of Democratic Institutions in Santa Barbara, Calif. (later he came at my behest to lecture to my class in politics at the Wharton School of Finance, University of Pennylvania. Rex is right,echoed James A. Farley, FDRs old campaign manager and postmaster general when we discussed history in Farleys office at Coca-Cola Export in New York a year later.
To preempt Olson, Tugwell (who outlined them retrospectively for my Wharton class in 1974), designed several New Deal statist reforms. He had gone to Rome to interview a man early New Deal theorists thought was the man to copy in this country. His name: Benito Mussolini. Sitting down at Mussolinis desk, Tugwell perfected the concept of the NRA (the National Recovery Administration) which he copied as a virtual stenographer taking notes dictated by Mussolini himself. This tyrant intrigued Tugwell because of many reasonsforemost being he was an adroit former journalist and ace propagandist.
Il Duce is now a figure of mirth for his portrayal by Jack Oakie as the rotund, be-medaled dictator of Bacteria in The Great Dictator but was hugely admired by New Deal statists in the early `30s. Tugwell was fascinated by the intellectual amalgam Mussolini waspart nationalist, corporatist, syndicalist, master of state propaganda and lord prosecutor of subversives.
Hoover as Bill Gates.
FDR came to power not only because of the Depression but because the nation was disillusioned with Herbert Hoover. Before he was president, Hoover never had a failed day in his life: a brilliant mining engineer and businessman, he became a multi-millionaire before age 40. He was the `20s Bill Gates and Michael Bloomberg. The voters clamored that they wanted not a politician but a businessman to run the country. But being president is far different than running a business. Calvin Coolidge complained that you couldnt tell this wonder boy anything: so he made gigantic mistakes unaided.
The first thing he did after the 1929 crash was to call business leaders together and got them to agree not to lower wages or prices. So they got around it by letting thousands of their employees go. Then Hoover raised taxes, saying a balanced budget would spur Wall Streets confidence in the government. Higher taxes were the worst thing one could do with a torpedoing economy. Following which he signed a punitive protectionist trade bill, Smoot-Hawley. It triggered an international trade war against us where Europe punished our manufactures. By 1932 everybody agreed he was hopeless.
Roosevelt wasnt any betteralthough he was a free trader-- but he had superb press.
What Hoover and Roosevelt never understood and economists of the day missed until Milton Friedman was that the U. S. was in deflation, a money drought. The Fed was very young (having been formed in 1913) and the concept of open market economics, where government buys bond and sells bonds to soak up money from the economy was virtually unknown at the time. But big media were charmed by Roosevelt as they never were with Hoover--and went along, glorifying in the thought that he was willing to experiment, i.e. to spend the country out of Depression ala Keynes. Or so they thought.
FDR failed spectacularly--but the crowd he attracted to Washington to help him were adjudged as brilliant, liberal, witty and the more flops they created, the more the supine mainstream media loved him. Then an interesting thing happenedwhich just may repeat itself today.
The Depression went on so long with joblessness averaging in the mid-teens that people decided the condition would stay in perpetuity. Thus the American people accepted it as de rigeur and cheered his innovations as experiments no matter that they didnt work. They wanted FDR to succeed. His ideas were so intricate, so cerebral, so exciting. John Maynard Keynes ideas were paramount: they were so more persuasive than old-hat economics. And Keynes ideas are back again front and center with Obama. Were in for it, folks. Another round of failures ballooned into triumphs by the media fawning over an exciting presidential figure.
Amity Shlaes Book.
One extraordinarily fine book about the failures of the FDR days is by Chicago-born Amity Shlaes, whose father and I often debated over lunch decades ago at the Cliff Dwellers Club. Amy Shlaes became a free-marketer and a strident libertarian, editorial page member of The Wall Street Journal who now writes a column for Bloomberg News. She spent five years researching The Forgotten Man: A New History of the Great Depression [Harper: 2007]. The good rap on Roosevelt which even now is part of media lore is that he made things better by his style: taking charge. Did he? Here are some numbers from Shlaes.
1929 the year of the stock market crash under Hoover, unemployment stood at 5%. By 1931 under Hoover: 17.4%.
Then the glory days of Franklin Roosevelt.
1933, the first year of FDR 22.9%...1934 under of FDR 21.2%...1935 FDR 21.3%...1936 FDRs reelection 15.3% ...1937 FDR 15%...1938 FDR 17.4%...1940 FDR 14.6%..
With 1941 came the wartime national defense years and unemployment shriveled.
Disastrous FDR Schemes.
These are some of the disastrous things Roosevelt did which gained media plaudits but worsened things:
Ordered the Fed to exchange all its gold with the Treasury for certificates, devaluing the dollar by 59%, hiking gold price to $35 an ounce which increased domestic prices. He told the nation it would have to endure it for a timethen a Fed chairman who made exactly the worst diagnosis: the Depression came from overinvestment by business not monetary contraction (which was the root cause) so the Fed didnt expand the money supply for the remainder of Roosevelts first term which suffocated recovery.
Launched the Federal Emergency Relief administration to impel the states to hire unemployed to build small-scale public facilities, then the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) which hired 3 million plus respectively which didnt dent the jobless rate: when their public service time expired, unemployment zoomed back to where it was.
Rammed though Congress a new tax on business retained earnings in addition to hiking top individual income taxes at 79% prompting the rich to seek off-shore tax shelters, causing revenue which had started to rise in 1936 to plummet in 1937.
Mandated Treasury and the Fed to hike their reserves to guard against inflation, prompting commercial banks to do the same, cutting back on bank deposits and loans, forcing businesses to slash production and lay off workers.
Ordered full speed ahead on federal spending for relief and public works, causing an additional $3.75 billion for public works. Still no good: unemployment ranging from 17% to 18% through 1939.
Aped Mussolini by creating new government-sponsored towns similar to what Il Duce did in draining the Pontine marshes to found a model cooperative community called Mussolinia (later renamed Arborea). Tugwell, under-secretary of agriculture built Greenbelt, Md. as a Mussolini-style model--and Casa Grande, Ariz., where farmers would share the land from each according to his ability deriving earnings to each according to his need. The Congress ended Casa Grande because it was too Red-tinged and Tugwell was fired.
Launched a vendetta against the rich seeking shelters from the 79% top personal income tax rate by declaring it immoral for them to take tax deductions and exclusions to escape their obligations. To set an example, he pursued Andrew Mellon, Harding-Coolidges treasury secretary (who spurred prosperity in the `20s with tax cuts) through the federal courts charging fraud. The IRS had given Mellon a clean bill of health. FDR rejected this. He sent Justice to prosecute Mellon for tax evasion. He failed, the courts finding Mellon not guilty only after the aged financier died. Concurrently Roosevelt perused the returns of other wealthy taxpayers and leaked their names and details to friendly media.
Vowed to veto Social Security if businesses were allowed to individually give better than government benefits for their workers. He insisted his Social Security principle be not voluntary but government- mandated. Ironically Democrats offered serious opposition to the legislation. In the Senate, Bennett Champ Clark (D-Missouri) proposed an amendment to enable employers to opt out of Social Security if their pension plans gave more generous benefits than SS did. His amendment carried 51-35 in the Senate that was Democratic 2-1. When the House reconsidered it, FDR vowed to veto the entire package unless it were taken out during the House-Senate conference. It was. Pro-FDR commentator Robert S. McElvaine summed it up neatly: Social Security was important as a symbolic gesture to demonstrate that Roosevelts heart was in the right place. (Italics mine).
Applied Mussolinis codes regulating businessthe Tugwell brainstorm copied from Mussolini. The NRA, symbolized by a blue eagle affixed to all store windows with the slogan We Do Our Part, run by a crusty retired general negotiated 557 industrial codes ordering businesses to set minimum wages, maximum hours, child labor restrictions and occupational health and safety rules. Then came the so-called Sick Chicken case, which sentenced two brothers who owned a poultry store to 2 years on a felony. They violated the NRA rule that consumers had to accept the live chickens poultry stores gave them regardless of whether the chickens looked good to the buyers or not. The erring brothers allowed customers to pick the live chickens they wanted from the pen as a free choiceagainst federal law. The New Deal ruled the customer is not permitted to select the chicken he wants; he must take the first chicken the butcher hands him, unhealthy looking or notno substitutions. Which caused a panic because public health officials believed tuberculosis was being spread through sick chickens. Customers insisted on choosing healthy-looking chickens they assumed were not sick. Result: the Supreme Court invalidated the entire NRA in retaliation for which Roosevelt vowed to pack the Court.
Forced farmers to plow under their crops notwithstanding there was hunger abroad in the landa favorite Tugwell scheme taken from Il Duce. Roosevelt sought to reverse a decade-long depression by forcing farmers to reduce their acreage under production, imposing taxes on food processors and paying subsidies to farmers who plowed under their crops and slaughtered their livestock and poultry. During its first three year farm income increased by 50% but all the increase resulted from the subsidy payments. The farm program is still with us.
Clamped down on workers rights by nixing voluntary participation in unions. By passing the Wagner labor-relations act, FDR made it far easier for unions to secure a closed shop and win a bargaining monopoly. Union contracts no longer sanctioned voluntary participation and made it illegal for employers to act contrary to the interests of unions. Even if employees go on strike, the act made it an unfair labor practice for an employer to hire replacements, get work done and carry on the business.
Tried to pack the Courts. After the Supreme Court found a number of New Deal acts unconstitutional and after Roosevelt was reelected by a large margin to a second term, 523 electoral votes to 8 he determined to enlarge the court by supporting legislation that would require Supreme Court justices to retire at 70and if they didnt, adding an FDR-appointed justice for every over-70. Result: he could appoint a half dozen justices to his liking. Then he broadened his court reform to include lower courts as well. His legislation was rejected by the Senate but the Supreme Court moved leftward out of intimidation when one jurist switched positions. It was called the switch in time that saved nine.
With unemployment showing no let-up by 1940, FDR finally resorted to the draconian effort
Spurring a national defense program in 1940, hiking defense spending from $6.8 billion that year equal to 7.7% of GDP to $92.7 billion or 41.9% of GDP. The national draft and wartime massive industrialization finally solved unemployment.
Following which in the interest of national security healong with Republican California Attorney General Earl Warren
Herded legitimate U. S. citizens into camps to protect the nation. In 1942 FDR signed an executive order compelling U. S. citizens and permanent residents of Japanese ancestry to be taken to internment camps for the duration of the war. More than 120,000, 62% of them U.S. citizens, were forced to abandon their homes, farms and businesses.
Because Robert R. McCormick, the editor and publisher of the Chicago Tribune fought FDR all down the line, the president threatened to indict him on charges of sedition and treason. During wartime, treason carried with it the death penalty! He rethought that one when advisers told him it smacked of Naziism.
See Any Similarities to Today?
As Im writing this, Barack Obama has announced he would create 2.5 million jobs by rebuilding roads and bridges while developing alternative energy sources and more efficient carsadding like FDR: We have acted bravely and above all together. That is the chance our new beginning now offers us and that is the challenge we must rise to in the days to come. It is time to act as the next president of the United States.
Liberals say supply-side has failed has brought us to this point of disaster. Now Keynesianism has returned with massive spending ala FDR. Plus: the Mussolini-like attempts to shut down free speech with Speaker Nancy Pelosi and Sen. Chuck Schumer vowing to encourage the new Obama FCC to re-impose the misnamed Fairness Doctrineto mandate conservative talk radio devote equal time to liberals, notwithstanding that they havent been able to make it thus far in the marketplace.
Plus again: Just as the fascists burrowed down into regulating family life, the New Order is touting a Freedom of Choice act which invalidates all state strictures limiting abortions.
Il Duce, whose dead body was hoisted upside down in April, 1945 at a Milan petrol station would have cheered these programs and their boastful language.
Thus in 2009 as it did beginning in 1933, the struggle will be played out against a charismatic and powerful liberal president determined to ride roughshod over individual rights--aided by a largely uncritical and adulatory media.