Is Obama Using FDR's Playbook in Attacking Mitt Romney With Bain Capital?

Jul 16, 2012David Woolner

Obama's attacks on Bain follow in FDR's 1936 re-election footsteps except for one key aspect: a full-throated case for government.

Yes, there are still determined groups…[who would]…steal the livery of great national constitutional ideals to serve discredited special interests. As guardians and trustees for great groups of individual stockholders they wrongfully seek to carry the property and the interests entrusted to them into the arena of partisan politics…

Obama's attacks on Bain follow in FDR's 1936 re-election footsteps except for one key aspect: a full-throated case for government.

Yes, there are still determined groups…[who would]…steal the livery of great national constitutional ideals to serve discredited special interests. As guardians and trustees for great groups of individual stockholders they wrongfully seek to carry the property and the interests entrusted to them into the arena of partisan politics…

The principle that they would instill into government if they succeed in seizing power is well shown by the principles which many of them have instilled into their own affairs: autocracy toward labor, toward stockholders, toward consumers, toward public sentiment. Autocrats in smaller things, they seek autocracy in bigger things. “By their fruits ye shall know them.” - Franklin D. Roosevelt, 1936

In seeking to identify Republican presidential hopeful Mitt Romney as an unfeeling member of the nation’s wealthy elite, President Obama is using tactics reminiscent of those used by Franklin Roosevelt in his own bid for re-election in 1936. In that campaign, FDR sought to draw a clear distinction between what he and his Democratic colleagues represented—the interests of the average working American—versus what he saw as the Republican promotion of a return to the economic status quo. But unlike FDR, President Obama is shying away the argument that government must be the countervailing force against entrenched financial interests.

By 1936, conservative critics of the New Deal had launched a persistent and hard-hitting campaign against FDR's policies, labeling them un-American and contrary to the Constitution. At the forefront of this effort was the American Liberty League, a privately funded anti-government organization that ruthlessly attacked his economic policies as little more than a drive to usurp the constitution and take the United States down the path toward socialism. But thanks to the fact that the Liberty League was never a truly populist movement (although it tried to portray itself as such), as well as the fact that it was financed by some of the most powerful business interests in the county, including the leaders of the DuPont Company, Chase National Bank, Standard Oil, and a number of other wealthy individuals and corporations, FDR was able to discredit its efforts as little more than a poorly concealed attempt to restore the country to the laissez-faire economic policies of the past.

In doing so, FDR reminded the American people again and again that the rightwing drive to restore these policies was not based on the elite’s desire to protect and promote free enterprise, but rather based on their unabashed desire to protect and promote their own wealth and power. Under such an economic system, which had been in place during the 1920s, the “savings of the average family, the capital of the small-businessmen, the investments set aside for old age,” what FDR rightly called “other people’s money,” were the tools with which the economic elite dug itself in. Indeed, as he went on in perhaps his most famous 1936 campaign address, it was critical not to forget how:

Throughout the nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise.

In our own era marked by declining wages, the outsourcing of jobs, and an ever-increasing share of the nation’s wealth residing in the hands of the financial barons of Wall Street—whose willingness to risk “other people’s money” has hardly diminished—FDR’s assault on what he identified as “the privileged princes of these new economic dynasties” rings as true today as it did in the mid 1930s.

It is for this reason that President Obama’s attacks on Mitt Romney’s record as the head of Bain Capital have proven so effective. Having been burned in the 2007-2008 financial collapse that led to the worst economic crisis since the Great Depression, the American people still harbor a good deal of hostility towards the bonus- and bailout-receiving bank executives whose reckless behavior brought the nation and the rest of the world to the brink of economic ruin. Based on the response to the president’s efforts to paint Romney as one of these elite, it also appears that they remain skeptical of the financial titans' ability to pull us out of the Great Recession. What is missing from the president's attacks, however, is the one key element that FDR used in convincing the American people that they should support his re-election in 1936: the clear and unequivocal case for government.

In the wake of the more than 30-year assault on government launched by Ronald Reagan in 1980, President Obama and the Democratic Party may be loath to use the case for government as part of their strategy to win the 2012 election. But as FDR pointed out in the mid 1930s, we have now reached a point like the 1920s where for too many of us “the political equality we once had won” has become “meaningless in the face of economic inequality.” Why? Because, as was the case in America’s gilded age, “a small group” has “concentrated into their own hands an almost complete control over other people's property, other people's money, other  people's labor—other people's lives.”  As a consequence, we also find, as FDR did, that “for too many of us life…[is] no longer free; liberty no longer real; men…[can] no longer follow the pursuit of happiness.”

To counter such entrenched economic interests, FDR insisted that “the American citizen could appeal only to the organized power of government,” and he urged his fellow citizens to vote for him and his party as the best means to ensure that government by, of, and for the people would continue to flourish. For, as he often noted, what was really at stake in this struggle between the average citizen and the interests of the wealthy was the state of democracy itself. In the same election speech, for example, he also observed:

Unhappy events abroad have re-taught us two simple truths about the liberty of a democratic people. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic State itself.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.

FDR’s belief in the need for government to serve as an active instrument of social and economic justice won him the greatest electoral landslide in American history. It also helped preserve American democracy in an age when democratic government was under siege worldwide. Surely these are two lessons the Obama administration might turn to as it struggles to win the hearts and minds of the American people at this critical moment in our history.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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President Obama and FDR: Rumors of Political Demise at the Hands of the Supreme Court Greatly Exaggerated

Jun 28, 2012David Woolner

Despite the handwringing, neither president suffered a huge political blow at the hands of the Supreme Court.

Despite the handwringing, neither president suffered a huge political blow at the hands of the Supreme Court.

There is no question that the Supreme Court’s decision to uphold the Patient Protection and Affordable Health Care Act represents a major victory for Barak Obama’s presidency. Struggling in the polls thanks to the continued sluggish performance of the economy, a defeat on the constitutionality of this signature piece of legislation had led many analysts to predict that, had the decision gone the other way, President Obama’s ability to effect further change would be finished. Others argued that a ruling striking down the health care law would have meant the end of President Obama’s political career. But if history is any guide, these dire predictions may have been too severe.

Roughly 75 years ago, when Franklin Roosevelt was engaged in his own struggle with the Supreme Court, it appeared for a time as if the fate of his presidency—and the New Deal—also hung in the balance. In May of 1935, for example, the Court struck down the National Industrial Recovery Act and the Agricultural Adjustment Act, two key provisions of the New Deal. FDR was livid and, fearing for the fate of such landmark pieces of legislation as the 1935 National Labor Relations Act and Social Security Act, he eventually decided to take on the Supreme Court by unleashing his famous “Court Packing Plan” in February 1937. The plan argued that the president should be allowed to add up to six new judges to the bench in cases where a sitting justice who had served at least ten years on the bench refused to retire after reaching his seventieth birthday.

The president was perfectly within his legal bounds to request a change in the make-up of the Court, and he certainly was not alone in his call for judicial reform. But given the widespread support for the make-up at the time and the means by which the president unveiled his proposal—it was launched without warning and without any effort to secure congressional support before it was put forward—the plan soon ran into fierce opposition, even from some members of Roosevelt’s own party. As time went on, what congressional support there was for the plan eroded, and after some months the bill was quietly allowed to die in the Senate before it ever came to a vote.

Most historians agree that the launch and demise of FDR’s court packing scheme was a major political blow which, when coupled with the Roosevelt recession of 1937, resulted in the strengthening of the anti-New Deal coalition in Congress in the midterm elections of 1938. This certainly made it harder for FDR to push further New Deal reforms in the coming years, but it did not bring about the judicial reversals that FDR feared. On the contrary, from that moment forward the Court upheld every New Deal statute that came before it, launching a new era of jurisprudence that fundamentally altered its character and the nature of its decisions.

The setbacks that President Roosevelt experienced at the hands of the Court in the mid 1930s, then, did not result in the undermining of the New Deal. Thanks to a shift in attitude in the Court about the role of government in the maintenance of the social and economic health of the nation, we still enjoy Social Security, unemployment insurance, a federal minimum wage, and a host of other New Deal provisions. Nor did the Court’s action’s result in the political demise of Franklin Roosevelt, who would go on to win reelection to an unprecedented third and fourth terms.

In the decades since Roosevelt’s showdown with the Supreme Court, a debate has raged about how much his decision to confront the Court may have led to the change in attitude among the justices regarding the constitutionality of the New Deal. A number of historians—and Roosevelt himself—have claimed that the president may have lost the battle but won the war. In other words, it was the pressure from the president that led to the shift in the Court’s outlook.

But more recent scholarship tends to support the idea that the Court’s about-face reflects the slow evolution of 20th century constitutional law that predates the New Deal. The court, in essence, was heading toward supporting greater federal intervention in the economy, but had not quite reached this point when FDR launched his flurry of programs and reforms. One strong argument in favor of this view stems from the fact that in early 1937—before FDR announced his court reform proposal—the court reversed itself and ruled in favor of two other New Deal provisions that had been brought before it. Ironically, one of the justices who changed his position was Owen Roberts, a conservative Hoover appointee who would continue to serve on the court until 1945. Given his change in attitude, it is Associate Justice Owen Roberts—a man whom the current chief Justice John G. Roberts (no relation) apparently admires—who is most often credited with saving the New Deal or, as was said at the time, carrying out “the switch in time that saved nine.” Today, it appears that it was Chief Justice Roberts, who cast the decisive vote in favor of the Patient Protection and Affordable Health Care Act, who will make it possible for millions of uninsured Americans to finally gain access to what many consider a fundamental human right: affordable health care. 

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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Rediscovering Government

Myths About Government

Jun 20, 2012Jeff Madrick

The Rediscovering Government roundtable discussion in DC tomorrow sets out to debunk misconceptions about government spending and the economy and reinvigorate a dialogue about the importance and positive potential of government. 

The Rediscovering Government roundtable discussion in DC tomorrow sets out to debunk misconceptions about government spending and the economy and reinvigorate a dialogue about the importance and positive potential of government. 

Perhaps it isn’t odd that the American people are so skeptical of the uses and purposes of government. As a nation built on a revolution against a monarchy, such skepticism is likely built into our national character.

But it doesn’t accord with our history, and that is why it remains surprising. Government was inseparable from American economic and social development. It did not reduce freedom, but protected it.

I am always disturbed when economists in particular talk about the “role of government.” It is like talking about the role of parents in their children’s lives, or the role of the basketball in a basketball game. There is no economy without government, even in America. The government does not merely correct market failures; its purpose is far more profound. It is about true freedom, true opportunity, and necessary change.

We have organized an important panel discussion on June 21st in Washington, D.C., to put to rest some of the prevailing myths about government. Peter Lindert of the University of California at Davis will tell us about his empirical work on whether large government impedes growth; his extensive research shows it has not. Jon Bakija of Williams College will similarly tell us about how little hard evidence there is that high taxes impede growth. Lane Kenworthy of the University of Arizona will show how much of the income of the lower half of the distribution depends on social policies. Nancy Altman of Social Security Works will put straight the true finances of Social Security. And finally Ruy Teixeira of the Center for American Progress will tell us how extensive the American antagonism towards government is despite these facts, and whether these views can be changed.  

Our goal is to present a counter-narrative to the prevailing anti-government ideology. We will not argue that government is all good, requires no radical reforms, or cannot be made to work better. After all, why should we expect politicians to act in the interests of others, rather than their own sometimes contradictory interests?  

But there is reason to expect this, because it has happened time and again in American history. Moreover, acting in the interests of others is often acting in one’s self interest. Thomas Jefferson championed regulations of land sales in early America to make sure many people got a chance at ownership. The result was a strengthened democracy of secure and satisfied citizens.

His party built the canals through public financing in the states, led by New York. Many, and probably most, prospered when New York City became the giant hub of trade and commerce with the opening of the Erie Canal. American government created free and mandatory schools, subsidized the railroads, started technical colleges, and sanitized the cities, which in turn became sources of growth. In the 1800s, these activities were typically led by the state and local governments.

Markets don’t work when monopolies gather power, and the federal government in the next century set out to limit that from happening. It protected workers in all kinds of ways. In the 1930s, it recognized that financial markets were different from others and required special regulations. It built highways, invested in medical and technical research, subsidized college, and established necessary product, safety, and environmental regulations.   

As Lane Kenworthy points out in his fine summary piece on our site, if big government were a problem, why did the U.S. economy keep growing fast even as government got bigger?  

And let me point out one other factor that is neglected. As I emphasized in my book, The Case for Big Government, government is the key agent of change. No one anticipated we’d need high schools and colleges when the Constitution was written, but government was the instrument to create these critical institutions. No one knew of germ theory, but government led the way in sanitizing water and making large cities habitable. Who knew about the computer chip?

Perhaps I am biased because I live in New York. The New York City government eventually took over and aggressively expanded the subways. It built the dramatic walls of Riverside Drive, so often neglected. Miracle of miracles, it collects the garbage in this densest of cities.

But consider the great water works of the west. This was the work of state and federal government. And the highways, of course.  And the university system of California, among others.

If one needs further historical examples, consider the first great European city, Rome. Its aqueducts and enormous road network were the work of the government. Its devotion to law is a model to this day. It was highly productive and conducive to commerce because of these advances.  

American attitudes towards government have always shifted; sometimes pro-government and public investment and social programs, sometimes against them. We were usually at our best when we favored government, but government was far from always efficient. America was not immune to substantial corruption. Government always needed a good wringing out. But when it was widely vilified and weakened, America often failed. Political instability, widespread sacrifice, and jeopardized democracy were results.  

As for contemporary times, the Great Depression was an important catalyst. It turned an already partly progressive nation (since Teddy Roosevelt and Woodrow Wilson) far more so. It gave us a minimum wage, unemployment insurance, Social Security, labor organizing protections, securities regulations, and great public works to create jobs. The New Deal was followed by Johnson’s remarkable Great Society in the 1960s -- Medicare, Medicaid, historic civil rights legislation, and on. The American social sphere was brought into modern time along with its economy, which required those social investments.

But these attitudes shifted strongly beginning in the 1970s. Attitudes towards government had already become somewhat more skeptical in the 1960s, with new poverty programs and racial demands. The Vietnam War was a further blow to confidence in government, as was the Watergate scandal.  

In my view, however, the economic devastation of the 1970s was the major blow. Inflation of 12 percent, unemployment soaring, mortgage rates at 18 percent. In 1972, Governor Ronald Reagan of California supported a referendum to demand a sharp and permanent cut in state income taxes. Californians voted against it; they said they would pay their state taxes. By 1978, only six years later, Proposition 13 passed overwhelmingly, sharply cutting property taxes and with it undermining the state’s great education system.  Nationally, the Kemp-Roth tax proposal to cut federal income taxes up to 30 percent was rapidly gaining support in Congress. Economic pain caused Americans to seek quick and sometimes vindictive solutions, even personally self-destructive ones.  

In my view, the lost faith in and mismanagement of government is the key cause of the crisis of the future the nation now faces. This lost faith resulted in deregulation, unaffordable tax cuts, and the failure of government to develop new programs and act as the agent of change it should be.  

We can argue about these issues philosophically. But Rediscovering Government will stay as close to the demonstrable facts as possible. We will present the evidence about government, the economy, and growth. Then we can discuss how to restore a true sense of our own history, rebalance our sense of the purpose of government, and move on constructively.  

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

 

Capitol image via Shutterstock.com.

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The Senate’s Dimon Hearing Was Sadly No Pecora Commission

Jun 14, 2012David Woolner

Rather than digging up the truth behind Wall Street's behavior, Congress seems content to let the possibility of another crash loom.

Rather than digging up the truth behind Wall Street's behavior, Congress seems content to let the possibility of another crash loom.

Jamie Dimon’s testimony before the Senate Banking Committee yesterday has led some critics to charge that the Senators tasked with getting to the bottom of what led to JPMorgan Chase’s staggering $2-to-$5 billion dollar loss in the derivatives market have dropped the ball. In spite of Mr. Dimon’s frank admission that JPMorgan Chase, like the nation’s other big banks, was sometimes led astray by “greed, arrogance, hubris [and] lack of attention to detail,” and his additional observation that the instigation of the yet-to-be imposed Volcker Rule could have reduced the losses, Dimon faced few really tough questions. As a result, we learned little, if anything, from the hearings about the true nature of the decisions that led to the loss, or how Mr. Dimon and the CEOs of our nation’s other too big to fail banks might avoid such large losses in the future. This is particularly important if what he calls the “vague and unnecessary” Volcker Rule is ultimately watered down to the point of ineffectiveness.

Given the level of campaign contributions members of the Senate Banking Committee—on both sides of the aisle—have received from the banking industry, perhaps we should not be surprised by the coddling Mr. Dimon received in the Senate hearing room. But things were not always so cordial. Roughly 80 years ago, in the wake of the 1929 financial sector crash, the very same Senate Banking Committee, under the leadership of the committee’s indomitable chief counsel Ferdinand Pecora, excoriated members of Wall Street’s financial elite. The result was a series of revelations about the behavior—what Mr. Dimon accurately calls the “greed, arrogance [and] hubris”—of Wall Street that outraged the nation and shocked Congress into action.

In the spring of 1933, for example, under the grilling many top executives received at the hands of Pecora, who cut his teeth as a prosecutor as the Assistant Attorney General for the State of New York, the Senate Banking Committee learned that top executives at National City Bank (now Citibank) had bundled a series of bad loans to Latin American countries into securities and sold them to unsuspecting investors. The Committee also learned that these same executives had received large interest-free loans from National City’s coffers and that, as J.P. Morgan, Jr. admitted, it was fairly common practice among the members of Wall Street’s banking and financial elite to keep a list of influential “friends” who were given the opportunity to purchase stocks at drastically reduced prices. Most shocking, however, was the revelation that Mr. Morgan, who as head of the nation’s largest bank was the Warren Buffet of his day, had paid no income taxes between 1930 and 1933. Nor was he alone, for the committee soon learned that many of the nation’s other top bankers had also paid little or no income tax in the years since the 1929 crash.

These disclosures, coupled with additional revelations about excessive salaries and bonuses, outraged the public and helped inspire the incoming Roosevelt administration and Congress to push through some of the most important banking and financial reforms in American history. It is thanks in part to the work of the Senate Banking Committee, then, that the nation benefitted from such reforms as the Glass-Steagall Act, which separated commercial from investment banking and gave us the Federal Deposit Insurance Corporation; the 1933 Truth in Securities Act, which required the securities industry to provide potential investors with complete and accurate financial information about any financial product individuals or firms might wish to purchase; and the 1934 Securities and Exchange Act, which created the Securities and Exchange Commission.

Of course, the vast majority of the financial sector in 1933 and '34 vehemently opposed these reforms. But thanks to the willingness of the Senate Banking Committee to root out and expose many of the unethical practices that contributed to the collapse of the American economy, all Americans, from Wall Street to Main Street, were able to reap the benefits of a properly regulated financial sector for decades to come.

Today, most mainstream economists agree that it has been our return to the reckless and largely unregulated financial practices we saw in the 1920s, coupled with the dismantling of such key New Deal reforms as the Glass-Stegall Act, that led to the 2007-08 collapse of the world’s economy and the onset of the Great Recession. Yet the gentle treatment Mr. Dimon received at the hands of the current Senate Banking Committee pales in comparison to the penetrating line of inquiry pursued by its predecessors. This is unfortunate, for it represents yet another lost opportunity at the hands of our dysfunctional government to provide the kind of leadership required to bring about meaningful financial reform. Sadly, it seems that we would rather run the risk of another financial collapse than confront the truth about the unsustainable nature of an industry driven solely by the desire to accumulate vast quantities of wealth by whatever means necessary, no matter what the cost to the millions of Americans who still believe in an honest day’s pay for an honest day’s work.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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Rediscovering Government

Austerity Replaces Economics With Disciplinarian Ideology

Jun 6, 2012Jeff Madrick

Ludger Schuknecht's insistance on continued austerity is merely a discipinarian's argument, which has already been proven wrong time and again. 

Ludger Schuknecht's insistance on continued austerity is merely a discipinarian's argument, which has already been proven wrong time and again. 

The letter in today’s Financial Times, "Jointly Agreed Strategy is Good for Germany and Europe," from Ludger Schuknecht, the Director General of the German Ministry of Finance, will likely live in infamy. In any case, frame it for your children as a symbol of the folly of mankind. In the sternest terms, Mr. Schuknecht chastises Martin Wolf for demanding a reversal of fiscal austerity. Why? “The public and markets have been led to believe in short-term measures for far too long.” Goodbye to Keynes, and even Friedman.

Moreover, he argues, “it is expansionary policies and weak fiscal positions that created the current problems of high debt and low competitiveness.” Of course, the Eurozone deficit was only 0.5 percent of GDP before the crisis. In Spain, fiscal policy was clearly restrained before the crisis. Few could argue the European Central Bank practiced loose monetary policy over these years.  

According to Mr. Schuknecht, we need “a combination of fiscal consolidation and structural reforms.” And all of this with the goal of rebuilding confidence. How can we be hearing this again, after the failure of austerity in country after country?  Now even the conservative Spanish government is admitting failure.

Evidence is not the issue here. Surely the impressive IMF research on the failure of austerity time and again cannot be simply dismissed. But dismiss it Mr. Schuknecht clearly does. Heaven forbid we introduce Eurobonds, which will undermine the confidence being built.

Clearly the German government sees confidence somewhere, but it is surely not in the financial markets.

I long to ask Mr. Schuknecht what he believes caused the Great Depression. He may have written about this somewhere; I assume he thinks uncertainty and government spending were the causes. I wonder if he can point to one credible case where austerity worked without a concurrent devaluation of the currency.

But such arguments do not seem to turn on evidence or theory.  They come from the stern gut of a schoolmaster, and they come from a nation that has yet to suffer the consequences of the current crisis. The inability or refusal to see ahead is the sure sign of an ideologue. But I think this is not even ideology; it is the instinct of the disciplinarian. And it is mixed with a desire to diminish government. Another rap on the knuckles with the ruler will bring confidence, confidence will bring investment, and investment, prosperity. We were told the same in the 1930s, but never mind all that.  

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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Mike Konczal on “Fireside Chats”: Tough Times make Liberal Reform Tougher

Jun 5, 2012Danielle Bella Ellison

In the latest episode of “Fireside Chats,” Roosevelt Institute Fellow Mike Konczal talks with David Frum, Daily Beast writer and author of the new novel Patriots. In the clip below, they take on why Democrats have had trouble gathering support for stimulus programs during the current recession. “We’ve gone from Speaker Pelosi and the new Obama presidency and the idea of this wave of progressive energy to really trying to fight between the center and the center right,” Konczal notes.

In the latest episode of “Fireside Chats,” Roosevelt Institute Fellow Mike Konczal talks with David Frum, Daily Beast writer and author of the new novel Patriots. In the clip below, they take on why Democrats have had trouble gathering support for stimulus programs during the current recession. “We’ve gone from Speaker Pelosi and the new Obama presidency and the idea of this wave of progressive energy to really trying to fight between the center and the center right,” Konczal notes.

As Konczal explains, “The real New Deal that we think of – the core economic security and managing the business cycle and so on – occurred in ’35,” when the economy was expanding. Meanwhile, “the conservative agenda to roll back the Great Society and the New Deal” unfortunately becomes more feasible in tough economic times like ours. The public becomes more risk averse and prefers austerity policies to big and potentially risky spending programs. Major liberal reforms, however necessary and beneficial they may be, are just very hard to pass during bad economic times.

The current grim economic condition, as well as the increase in media culture and accelerating ethnic change, have caused a transformation of American politics. Watch the full conversation below in which Konczal and Frum discuss this transition, what a Romney budget would look like, and the future of Obamacare.

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Bloomberg's Soda Ban Recalls New Deal-era Nutrition Programs

Jun 1, 2012David Woolner

Despite conservatives' recoiling at food and nutrition standards set by the government, they have a long and important history.

Despite conservatives' recoiling at food and nutrition standards set by the government, they have a long and important history.

New York Mayor Michael Bloomberg’s recent announcement that his administration plans to ban the sale of large size sugary drinks to combat the growing problem of obesity has once again brought the question of the government’s role in nutrition and public health to the forefront of the nation’s discourse. In a similar move earlier this year, the Obama administration announced that it was issuing new rules for the nation’s subsidized school meal program, which would add more fruit and green vegetables to school breakfasts and lunches, also as a means of combatting the growing problem of obesity among our nation’s youth.

Most Americans are highly supportive of these moves and regard the school meal program—formally the National School Lunch Program—with favor. But like so many of the social programs that we now take for granted, few Americans probably realize that its history and its relationship to concerns over the nourishment of the nation’s children is rooted in the New Deal.

Prior to the New Deal, at the beginning of the 20th century, it had become more and more obvious that millions of Americans were suffering from malnutrition. This fact was confirmed by the initiation of the military draft in World War I, where it was determined that a shocking number of young men across the country were ineligible for military service due to their poor physical condition. Equally important was the simultaneous realization that widespread malnutrition among the nation’s school children was having an enormous negative effect on the ability of millions of young people to achieve basic academic standards. Armed with this alarming information, an emerging class of experts trained in the science of nutrition began to argue that it was time to instigate programs aimed at alleviating this critical problem.

One of the suggested reforms was the initiation of a national school lunch program designed to help lessen the problem of hunger among the nation’s youth. The idea of serving hot lunches to hungry students in the nation’s public schools was in fact not new, as many progressive-minded reformers had been advocating for it for some time. One result of these early efforts was the establishment of privately funded school lunch programs in a number of American cities, including New York and Chicago, which by the early 1920s had been partially embraced by their local school boards. However, it would not be until the onset of the Great Depression and the subsequent arrival of the New Deal that we would see direct federal involvement in the issue.

Like many of the locally based public or private relief programs that were in place by the early 1930s, most establshed local and state school lunch programs found it impossible to continue in the face of the crisis that now confronted the nation. The devastating drop in local revenue due to the drastic downturn in the economy was one reason; a second was the inability of the millions of impoverished students to pay even the meager “at cost” fees that many districts charged in exchange for school lunches.

The economic collapse also meant that a good share of the nation’s farm production went begging for a market. Moreover, as surpluses of farm products continued to mount, their prices declined to a point where farm income provided only a meager subsistence. It soon became apparent that one way to tackle the growing problem of malnutrition among Depression-era young people was to link it to agricultural aid through the school lunch program. In 1935, therefore, under the auspices of an Amendment to Agricultural Adjustment Act, Congress passed Public Law 320, which created the Commodity Donation Program. Under its terms, the Secretary of Agriculture was provided the funds and charged with the responsibility for removing “price-depressing surplus foods from the market through government purchase” and disposing of this surplus “through exports and domestic donations to consumers in such a way as not to interfere with normal sales."

Needy families and school lunch programs became constructive outlets for the commodities purchased by the Department of Agriculture under the terms of this legislation. And as the food used for school lunches would not otherwise be purchased in the marketplace, farmers benefitted by obtaining an outlet for their products at a reasonable price. The purchase and distribution of the food was assigned to the Federal Surplus Commodities Corporation, which had been established in 1933 as the Federal Surplus Relief Corporation to distribute surplus dairy products, pork, and wheat to the needy. By March 1937, nearly 4,000 schools were receiving food and serving 342,031 children daily. Two years later, the number of schools participating had grown to just over 14,000 and the number of children being served had climbed to 892,259.

As was the case with many New Deal programs, the Federal Surplus Commodities Corporation employed special representatives in each state to work with state and local school authorities, parent teacher associations, and similar organizations in an effort to expand the school lunch program. These efforts were enormously successful, and by 1942 the number of schools participating increased by over 75,000 and the number of pupils participating exceeded 6 million.

As a further benefit to the economy, many of the individuals involved in preparing and distributing the school lunches were employed by the Works Progress Administration (WPA). The Community Service Division of the WPA employed thousands of needy women in nearly every city, town, and rural community of the country. The supervisory staff chosen to spearhead the effort to prepare and distribute the lunches was most often chosen from people who had special knowledge in the preparation of food. In addition, manuals were developed at the state and district supervisory levels, which did much to improve the quality of the meals served as well as to set standards for equipment, sanitation, and safety in the lunch program. A further benefit of the WPA’s involvement in the program was that much of the labor was provided without cost to a school district. As such, lunch prices were held to a minimum and more children were able to participate, with the result that the program expanded rapidly throughout the nation.

Not surprisingly, the onset of World War II had a significant effect on the school lunch program. The rise of defense industries, for example, resulted in a sharp drop in the number of people employed by the WPA, and in early 1943 the agency's activities came to a close. In the meantime, the enormous amount of food required to support the U.S. Armed Forces and the Allied war effort soon depleted farm surpluses, and the quantities of food available for the school lunch programs declined sharply. But by this point federal government support for the school lunch program had gained enormous popularity, both among the public and in Congress, and in 1943 the latter voted to authorize the funding needed to continue the program for another year. Similar laws were enacted in 1944 and 1945, so that the school lunch program continued in spite of the demands of the war.

Congress finally decided to make the program permanent with the passage of the National School Lunch Act of 1946, which among other things declared that “as a measure of national security, to safeguard the health and well-being of the Nation's children and to encourage the domestic consumption of nutritious agricultural commodities” the federal government would provide assistance to the States to provide “an adequate supply of food and other facilities for the establishment, maintenance, operation and expansion of nonprofit school lunch programs.”

The national school lunch program that emerged from the New Deal is just one more example of how the sensible use of nation’s national resources—including government revenue—may be used to improve our nation’s economic and physical well-being. In the years since the New Deal, however, the school lunch program has often come under assault from conservatives as too expensive. One result was an effort to privatize much of the program in the 1970s and '80s. As a result, many districts adopted “kid friendly” fast foods menus of pizza and fries while allowing vending machines – which dispensed the very sugary drinks Mayor Bloomberg is now limiting – to be placed within school buildings. Most experts now agree that this was a mistake and that, as was the case in the 1930s, it is critical for those in a position of responsibility to ensure that the food served to our young people meets basic nutritional standards.

Given all of this, it would appear that attacks on government nutrition programs follow the same pattern of our abandonment of the Glass-Steagall Act, our move away from proper regulation of the banking and financial sector, and our refusal to recognize the short- and long-term benefits of a massive infrastructure building program. We turn away from the common-sense ideas of the New Deal at our peril.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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The Insane Idea Hidden in the Debate Over Obama's Spending

May 24, 2012Mike Konczal

Instead of debating whether Obama is responsible for a spending surge, we should ask why anyone expects the ratio of spending to GDP to remain constant in a recession.

Instead of debating whether Obama is responsible for a spending surge, we should ask why anyone expects the ratio of spending to GDP to remain constant in a recession.

There's a recent debate about whether or not a federal government spending boom has happened on President Obama's watch. This was kicked off two days ago by Rex Nutting's post at MarketWatch, "Obama spending binge never happened." Nutting notes that "federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s." He argues that the 2009 fiscal year, outside the stimulus spending, belongs to President Bush, as it was four months into that budget when Obama entered the presidency. He draws on OMB's numbers, which you can access here.

As you can imagine, the right wing has gone into action. Here's "Actually, the Obama spending binge really did happen" by AEI's James Pethokoukis, which argues that you must look at the government spending as a percentage of GDP to see the increase. Now there's a technical debate about how to approach the numbers in the 2009 fiscal year, and there's a fair debate on how to understand the increase in automatic stabilizers, such as unemployment insurance. Do they "belong" to Obama, given that they were already starting up due to a recession that started in December 2007? And then there's the economic debate: shouldn't the proper response have been to run a much larger federal government spending program?

But underneath it is an insane debate about an insane idea -- that the government should keep a consistent ratio of government spending to GDP in a recession. The attack on Obama is focused on this number without acknowledging the crazy part of what this number actually does in a recession.

Let's run through a quick example to show why I think this is insane. Imagine a government spends 20 percent of GDP this year, there is no expected GDP growth in the next year, and the government will spend the same exact amount of money next year. And then imagine that GDP drops 2.7 percent for the year, as it did from 2008-2009, for this hypothetical economy.

Now even though there is no additional money spent, government spending as a share of GDP will go up. The number goes up if the numerator increases (governments spend more) or the denominator decreases (GDP falls in a recession). It goes up to 20.6 percent in this hypothetical example. If the government wanted to keep the 20 percent ratio consistent, it would have to cut spending. But in a weak economy, in the middle of a recession, the last thing you want to do is cut government spending -- that will make the recession worse, which will decrease GDP further. Then you have to cut government spending even further, which creates a nasty loop.

Federal government spending as a percentage of GDP went from 20.8 percent in 2008 to 25.2 percent in 2009. How much was GDP falling? If GDP had grown 3.4 percent as it had done the year before, instead of dropping 2.7 percent, spending as a percentage of GDP would have gone to 23.7 percent. That means a third of the rise in government spending as a percentage of GDP is a mechanical effect of GDP falling in the Great Recession. And if GDP didn't fall in the Great Recession, automatic stabilizers wouldn't have kicked in and there wouldn't have been the stimulus bill, meaning less spending.

It is worth noting that one reason why the Great Recession wasn't a Great Depression was likely because of the increased size of government spending in the economy compared to the 1920s.  Here's Josh Mason in a great post:

We always ask, why was the Great Recession so deep? But you could just as well turn the question around and ask why, despite initial appearances, did it turn out to be not nearly as deep as the Depression?
 
I can think of four families of answers....The second answer would be that the sheer size of government makes a Depression-scale collapse of demand impossible, regardless of policy. In 1929, with government final demand only a couple percent of GDP, autonomous spending basically was investment spending, especially if we think at the global level so exports wash out. Today, by contrast, G is significantly larger than I (about 20 vs 15 percent of GDP), so even if private investment had collapsed at the same scale as in 1929-1933, the percentage fall in autonomous demand would have been much less. (And of course that fact alone helped keep private investment from collapsing.) Interestingly, despite Hyman Minsky's association with stories about finance, this, and not anything to do with the financial system, was why his answer to the question Can "It" Happen Again was, No. Policy is secondary; big government itself is the ballast that stabilizes the economy.

And, for the record, it's a massive shame that government spending didn't go up more, reducing unemployment, getting the economy back on track, and ultimately really bringing down the debt-to-GDP ratio.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Curing the Causes, Not the Symptoms, of the Job and Debt Crises Facing Today’s Graduates

May 24, 2012David Woolner

The country is doing little to make college an affordable and realistic goal for American families.

We have believed wholeheartedly in investing the money of all the people on the education of the people. That conviction, backed up by taxes and dollars, is no accident, for it is the logical application of our faith in democracy.

The country is doing little to make college an affordable and realistic goal for American families.

We have believed wholeheartedly in investing the money of all the people on the education of the people. That conviction, backed up by taxes and dollars, is no accident, for it is the logical application of our faith in democracy.

Man's present day control of the affairs of nature is the direct result of investment in education. And the democratization of education has made it possible for outstanding ability, which would otherwise be completely lost, to make its outstanding contribution to the commonweal. We cannot afford to overlook any source of human raw material. Genius flowers in most unexpected places; "it is the impetus of the undistinguished host that hurls forth a Diomed or a Hector." –Franklin D Roosevelt

As has been widely reported in the press of late, students graduating from college this spring are not just facing a jobs crisis; they are also facing a debt crisis. The New York Times recently reported, for example, that the average debt burden for graduating college seniors is now approaching $25,000, with ten percent of all graduates owing more than $50,000 and three percent owing more than $100,000. Taken together, total student loan debt in the United States now exceeds $1 trillion—more than all credit card debt in the country.

Equally daunting are the job prospects that current graduates face. It is estimated that more than half of all 2012 graduates will still be out of work a year from now, as was the case for the 2010 and 2011 graduating classes. What is more, even those graduates lucky enough to find a job will earn wages far below their counterparts who graduated in the years before the Great Recession, making it all the harder for them to keep up with—much less pay down—their student loans.

Facing high debt, bleak job prospects, and low wages, many students (and parents) are asking themselves if the high cost of education is really worth it. Current statistics suggest that pursuing a college degree is still a good investment. The unemployment rate among 21- to 24-year-olds with a college education is roughly half what it is for those with only a high school diploma, and the lifetime earnings of a college graduate still exceed the earnings of those without a four-year degree. But if—as some economists argue—our economic problems are more structural than cyclical and high unemployment and low wages will be with us for some time, then taking on a significant debt burden in the pursuit of higher education may in fact be a mistake.

In light of growing concerns about student debt, the Obama administration is pushing a proposal that would require schools to provide straightforward, standardized information on how much debt students should expect to incur over the course of their tenure in college. In addition, a bill has been put forward in the Senate that would require lenders and college financial aid officers to provide students with better information about their borrowing options, including the difference in cost between federal loans and private loans.

While these are welcome steps, they really boil down to treating the symptoms, not the disease. The real issue confronting students today is not the value of a higher education, but the cost. President Obama alluded to this in his 2012 State of the Union address, when he argued that our nation’s colleges and universities should do more to bring down the price of tuition. He also urged the states to make education a higher priority in their budgets. But the truth is that over the past ten years, state support for higher education has declined by about 25 percent, while the cost of tuition and fees at state schools has increased 72 percent.

Like the growing disparity in wealth and income that has emerged in this second Gilded Age, this combination of the decline in state support coupled with the rise in fees for both public and private colleges has rendered the dream of higher education less and less affordable for working families. And, as we have seen, those who do choose to pursue their educational ambitions do so at a huge cost, a cost that is becoming more suspect in a society where good jobs with decent wages are becoming a thing of the past.

In the middle of the 1930s, Franklin Roosevelt confronted a society that was equally burdened by the perils of structural inequality. But he was not content to merely provide relief to those suffering from the despair of unemployment or the scourge of poverty. Indeed, FDR often characterized the relief measures he initiated as temporary. What really concerned him was the far deeper question of structural reform: how to rid America of the one-third the nation that was “ill-clad, ill-housed, ill-nourished.”

It was this motivation that led to some of the most profound pieces of legislation that came out of the New Deal, including the Social Security Act, the National Labor Relations Act, the Fair Labor Standards Act, and the National Housing Act. It also gave us such critical financial reforms as the separation of commercial and investment banking and the creation of the Federal Deposit Insurance Corporation under Glass-Steagall, as well as the establishment of the Securities and Exchange Commission.

Roughly ten years later, as the Second World War was drawing to a close, FDR returned to this theme with his call for “a second bill of rights”—an “economic bill of rights”—that would include not only the right to “a useful and remunerative job” with an adequate income, but also the “right to a good education.”

To make good on the latter, the Roosevelt administration passed the “G.I Bill of Rights” later that year. The G.I. Bill represents one of the most significant government-led commitments to higher education and job training in our nation’s history. Under its terms, returning veterans received a host of benefits, including full tuition and book and living expense payments for those wishing to pursue a higher education. For those not wishing to go to college, the act also provided support for vocational training. The impact of the G.I Bill on postwar America was tremendous. In the next seven years, approximately 8 million veterans would take advantage of the education benefits. As a result, millions of Americans who might never have dreamed of going to college were able to do so, Millions more enhanced their earning power and job prospects through the vocational training and other educational benefits.

Of course, the G.I. Bill was not free; it required serious expenditures on the part of the federal government. But for FDR and his generation, this was an investment in America’s future well worth making. It was, as Roosevelt liked to say, an investment in our nation’s most precious resource, its “human capital.” To neglect America’s human capital, to cut back on our support for education, was simply not an option, for in FDR’s view if “we skimp on that capital, if we exhaust our natural resources and weaken the capacity of our human beings, then we shall go the way of all weak nations.”

If we are serious about the need to improve our economy, keep America competitive, and provide a hopeful and prosperous future for our children, then perhaps it is time we confronted the real issue that stands at the root of the student debt and jobs crisis: the woefully inadequate level of public support for higher education. No doubt the deficit soothsayers in Congress and elsewhere will tell us that we cannot afford such an investment. But the legacy of the 1930s and 40s suggests quite the opposite. Thanks to the G.I. Bill and the many other provisions of the New Deal, the better educated and better paid work force that emerged in the decades after World War II made the American economy—and the American worker—the envy of the world.

FDR warned us that “no country, however rich, can afford the waste of its human resources.” Yet the unfair burden we have placed on this generation of Americans—a generation that increasingly sees little reason to pursue post secondary education at such high costs and falling gains—suggests that we have chosen to abandon this lesson. In doing so, we have done much more than merely turn our backs on the millions of young people who dream of going to college. We have turned our backs on America.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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FDR's New Deal Shattered the Austerity Myth

May 7, 2012David Woolner

FDR understood that prosperity would be created through growth, not austerity, and today's leaders may finally be learning the same lesson.

To balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people. To do so we should either have had to make a capital levy that would have been confiscatory, or we should have had to set our face against human suffering with callous indifference. When Americans suffered, we refused to pass by on the other side. Humanity came first.

FDR understood that prosperity would be created through growth, not austerity, and today's leaders may finally be learning the same lesson.

To balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people. To do so we should either have had to make a capital levy that would have been confiscatory, or we should have had to set our face against human suffering with callous indifference. When Americans suffered, we refused to pass by on the other side. Humanity came first.

…This debt is not going to be paid by oppressive taxation on future generations. It is not going to be paid by taking away the hard-won savings of the present generation. It is going to be paid out of an increased national income and increased individual incomes produced by increasing national prosperity. — Franklin Roosevelt, 1936

The recent news that the U.K. and other major European economies have officially entered a double dip recession has led many observers to argue, as the New York Times did last week, that the economic policies followed by the Obama administration have been better than the austerity measures pursued by his European counterparts. Indeed, most mainstream economists now agree with the voters in France, who, in electing François Hollande as their next president, have endorsed the idea that “austerity need not be Europe’s fate.”

There is a growing recognition on both sides of the Atlantic that President Obama's approach, which has combined stimulus spending, capital injections, and quantitative easing, is largely responsible for the fragile yet steady recovery the United States has been experiencing since 2010. Granted, the U.S. economy remains weak, and as such there is real concern that the downturn in Europe might drag the U.S. back into recession. But there is another, perhaps greater risk to the U.S. recovery that emanates from our own shores: the incessant demand for European-style federal budget cuts from American austerity hawks.

As evidenced by last summer’s debt ceiling debacle or the draconian budget proposed this spring by Rep. Paul Ryan, the right wing of the Republican party will seemingly stop at nothing to achieve its goal of cutting the size of government. Moreover, its unremitting sky-is-falling rhetoric—which is based largely on fear—has become so pervasive in our political discourse that the question of cutting the federal deficit receives nearly equal footing with the issue of job creation in the media and on the campaign trail. We are told again and again that the way to create jobs is to reduce spending and cut the size of government. Never mind that these policies have failed in Europe over the past two years, while President Obama’s rejection of austerity has resulted in sustained economic growth over exactly the same period.

Roughly three-quarters of a century ago, a similar argument raged between Franklin Roosevelt, who firmly believed that it was right and proper for the government to intervene in the economy during a time of crisis, and those on the extreme right who insisted the way to end the Great Depression was to reduce the federal deficit and balance the budget, no matter what the short-term costs.

FDR had little time for such arguments, which he viewed as not only selfish, but un-American. In his view, most Americans, “if they know both sides of a question and are asked to support the public good, will step forward and lay aside selfishness.” But, he went on:

…we must admit that there are some people who honestly believe in a wholly different theory of government than the one our Constitution provides.

You know their reasoning. They say that in the competition of life for the good things of life “some people are successful because they have better brains or are more efficient; the wise, the swift and the strong are able to outstrip their fellowmen.” And they say that that is nature itself and you cannot do anything about it and it is just too bad if some, the minority of people, get left behind.

For Roosevelt, however—and the vast majority of Americans who voted for him over the course of four terms in office—such an attitude was unacceptable. They understood that there were times in the life of a nation when government had a duty to intervene in the economy, even if it meant going into debt. Thanks to their efforts, and to their faith in government, we continue to enjoy Social Security, unemployment insurance, Federal Deposit Insurance, and a host of other beneficial programs that came from the New Deal.

Conservative commentators today are fond of arguing that the New Deal did not work, that it was the war, rather than New Deal spending, which finally got the United States out of the Great Depression. What they fail to mention, of course, is that New Deal spending did work, just not enough to pull us out of the deep trough we were in. For that we needed much more spending, the kind of spending—and borrowing—that occurred in World War II. According to the logic of today’s budget hawks, such a massive level of deficit and debt should have brought the U.S. economy to a screeching halt once the war was over. But that did not happen. On the contrary, the period of economic growth that occurred in the United States after the war was the largest and longest the world had ever seen.

Much like the 1930s, our slow climb out of the Great Recession has been made all the more difficult and painful thanks in large part to the unwillingness of austerity hawks in Congress to pass the president’s ill-fated jobs bill and other pieces of stimulus legislation. Sadly, they seem far more interested in promoting the myth of austerity and the evils of short-term deficit spending than they do in confronting the overwhelming evidence from Europe and our own history that now is the time not to cut the federal budget, but to expand it.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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