Saturday, February 13, 2010

Steve Fraser: The New Deal in Reverse -- How the Obama Administration Ended Up Where Franklin Roosevelt Began

The New Deal in Reverse: How the Obama Administration Ended Up Where Franklin Roosevelt Began
By Steve Fraser


The legendary first 100 days of the Roosevelt administration, memorable for a raft of reform and recovery legislation, also prominently featured an Economy Act designed to reduce government expenditures. Fearing the possibility of a break with the commercial elite, the president tried forging a partnership with them, much as Hoover had. As a matter of fact, the first two pieces of recovery legislation his administration submitted to Congress -- the National Industrial Recovery Act and the Agricultural Adjustment Act -- were formulated and implemented in a way that would seem familiar today. They gave the country’s major corporations and largest agricultural interests the principal authority for re-starting the country’s stalled economic engines.

However, even as the administration tried to maintain its ties to powerful business interests and a traditional fiscal conservatism, it broke them -- and it severed those connections in ways, and for reasons, that are instructive today.

*The Glass-Steagall Act: This emergency banking legislation passed during those extraordinary first 100 days separated commercial from investment banking. It was meant to prevent the misuse of commercial bank deposits (other people’s money like yours and mine) in dangerous forms of speculation, which many at the time believed had helped cause the Great Wall Street Crash of 1929, prelude to the Great Depression. Today, ever more people wish Glass-Steagall had never been repealed (as it was in 1999), as its absence helped open the door to the financial misadventures that brought us the Great Crash of ’08.

The bill infuriated what was called, in those days, “the Money Trust,” especially the once omnipotent house of Morgan, the dominant member of an elite group of Wall Street firms that had run the financial system since the turn of the century when J.P. Morgan, America’s most famous banker, was revered and feared around the world. (Jack, the patriarch’s son, was so incensed by New Deal financial reform that he banned all pictures of the President from the bank’s premises.) Glass-Steagall, as well as the two Securities Acts of 1933 and 1934 which created the Securities and Exchange Commission and left the doyens of the New York Stock Exchange apoplectic, represented real reform, and so were different in kind from TARP and all the other contraptions designed by the Bush and Obama Treasury Departments simply to bail out the financial sector.

*The Tennessee Valley Authority (TVA): Offspring also of those first 100 days, the TVA uplifted a vast, underdeveloped, and impoverished rural region of the country by bringing it electric power, irrigation, soil conservation, and flood control. It introduced the then-alien (and once again alien) idea of government-directed economic planning and development. It left the private utility industry irate at the prospect of having to compete with effective, publicly owned electrical-power-generating facilities. Fast-forward to today when, on the contrary, the private health insurance and pharmaceutical industries, conniving behind closed doors with Obama’s people, proved triumphant in a similar confrontation, leaving government competition in the dust.

*Jobs: And then there was, as there is again, the question of jobs and how to create them. In 1933, American politicians still took the notion of balancing the budget each year with deadly seriousness. In our present era, every president from Ronald Reagan and Bill Clinton to George W. Bush and now, apparently, Barack Obama talks the talk without any intention of walking the walk. What made the Roosevelt moment remarkable was this: balanced-budget orthodoxy notwithstanding, the new administration soon forged ahead with a set of jobs programs that not only implied deficit spending but an even more radical departure from business as usual.

Initially, the Public Works Administration (PWA), created as part of the National Industrial Recovery Act, relied on large-scale infrastructure projects farmed out to private enterprise. Undertaking such projects inevitably entailed government borrowing and deficits. Partly for that reason, the PWA proceeded at a glacial pace, put few to work right away, and -- in the way it looked to the private sector to take the lead -- resembled the latest thinking of the Obama administration whose newest tepid suggestions for creating jobs depend almost solely on funneling tax relief to business.

Simultaneously, however, the New Deal pursued a more daring alternative. FDR diverted a third of the PWA’s budget to the Civil Works Administration (CWA), out of which was born the legendary Civilian Conservation Corps, an agency that deployed hundreds of thousands of unemployed young men to restore the country’s forests and parklands. The CWA skipped the private sector entirely and simply put people to work: four million people in the summer and fall of 1933. (That would be the equivalent, today, of ten million Americans back on the job.)

During the first nine months of the Roosevelt administration manual laborers, clerks, architects, book-binders, teachers, actors, white and blue collar workers alike became Federal employees. They laid millions of feet of sewer pipe, improved hundreds of thousands of miles of roads, and built thousands of schools, playgrounds, and airports. Harry Hopkins, who ran the CWA, was authorized to seize tools, equipment, and materials from Army warehouses to get the new system up and running. (The Works Progress Administration, a subsequent incarnation of the CWA, would later create eight million jobs on the same principle of public employment.)

This isn’t even within hailing distance of where the current Administration is now as it frets about the deficit and pledges to freeze domestic spending (and implies, without having the courage to say so, that Medicare, Medicaid, and Social Security had better watch out). Coming from a regnant Democratic Party this is change we can’t or don’t want to believe in.

To Read the Entire Essay

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