What Would Keynes Do? More Stimulus, More Monetary Policy

Oct 24, 2011Mike Konczal

Keynes's advice to FDR still holds overwhelmingly true for combatting our own crisis.

Keynes's advice to FDR still holds overwhelmingly true for combatting our own crisis.

The Franklin D. Roosevelt President Library and Museum has put scans up of several important documents that highlight FDR's transition from trying to balancing the budget in the Great Depression to, after the crash of 1937, his ability to see that Keynesian deficit spending could help the recovery. The page that has the resources, plus a history, is located here: FDR: From Budget Balancer to Keynesian.

It includes several campaign speeches by Roosevelt as they evolved over the 1930s, and it also includes John Maynard Keynes's 1938 private letter to President Roosevelt. The Keynes letter is great. He is a model of clarity, wit, and seriousness with a towering intellect on all matters economic.

After the fiscal and monetary contraction that brought on the crash of 1937, liberals in the Roosevelt administration weren't sure what to do. Keynes, in his letter, outlined a five step plan including both what had just worked and what to continue doing until the economy healed:

This is how we should judge our current elites and opinion leaders. How well do they understand this game plan for addressing a massive crisis like the one we are in, and under what economic ideology and rationality are they deviating from it? Right now it is a full-time job trying to convince elites that this is the right program for the country, rather than rewriting federal and state law to businesses' liking and focusing obsessively on the deficit. So little has been learned, and what we've learned has been forgotten.

Keynes also noted that getting the housing market straightened out is one of the best ways to handle the Depression. "Housing is by far the best aid to recovery because of the large and continuing scale of potential demand; because of the wide geographical distribution of this demand; and because the sources of its finance are largely independent of the Stock Exchanges." Getting the housing market right is also an uphill battle for our recession and administration.

Keynes Does the Twist

There's a debate within left-liberal economic circles over the relative importance of monetary versus fiscal policy in dealing with the economic downturn. Often you hear that all the stuff Bernanke is doing, from QE to Operation Twist, is a rejection of what Keynes would advise if he was living today.

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Since we are looking at Keynes' letters to President Roosevelt, let's look at his 1933 open letter to FDR, published in the New York Times. Among other recommendations, he advises the new administration to do two things on the domestic front (my bold):

If you were to ask me what I would suggest in concrete terms for the immediate future, I would reply thus... In the field of domestic policy, I put in the forefront, for the reasons given above, a large volume of Loan-expenditures under Government auspices. It is beyond my province to choose particular objects of expenditure. But preference should be given to those which can be made to mature quickly on a large scale, as for example the rehabilitation of the physical condition of the railroads... You can at least feel sure that the country will be better enriched by such projects than by the involuntary idleness of millions.

I put in the second place the maintenance of cheap and abundant credit and in particular the reduction of the long-term rates of interest. The turn of the tide in great Britain is largely attributable to the reduction in the long-term rate of interest which ensued on the success of the conversion of the War Loan. This was deliberately engineered by means of the open-market policy of the Bank of England. I see no reason why you should not reduce the rate of interest on your long-term Government Bonds to 2½ per cent or less with favourable repercussions on the whole bond market, if only the Federal Reserve System would replace its present holdings of short-dated Treasury issues by purchasing long-dated issues in exchange. Such a policy might become effective in the course of a few months, and I attach great importance to it.

His first suggestion constitutes fiscal stimulus. But his second suggestion is urging the Federal Reserve to replace its short-term bonds with long-term bonds to bring down the rates on the long-term bonds -- just like Operation Twist! Equally interesting, instead of naming an amount of Treasuries to buy, like $800 billion or $2 trillion, Keynes says to hit a specific rate. The Federal Reserve can either set a rate or an amount, and we've been doing QE through setting purchase amounts. Maybe this other way that he suggests, having QE set a target for long-term rates, is a better way of doing QE? He's a pretty smart fellow.

Keynes "terrified lest progressives causes...suffer injury"

Going back to the 1938 letter, I find Keynes' conclusion chilling.

In this letter, Keynes is saying that if FDR didn't handle the recovery correctly the whole New Deal would be at risk. Full employment is hard to accomplish, very hard, but it isn't impossible. And the stakes are higher than just the economic recovery -- failure means that progressive governance and polices are both at "risk to their prestige" from a prolonged downturn. Taking the economic downturn "too lightly" puts all of it -- from responsibly combating global warming, to bringing fairness and justice to those working in the shadows of labor market, to making sure everyone has access to insurance against sickness and poverty in old age, to the rest of the liberal governance project -- at risk. And, as we see the years pass by, it is too easy to lose precious time.

Mike Konczal is a Fellow at the Roosevelt Institute.

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FDR, Obama, and Occupy Wall Street: Time for Another New Deal?

Oct 20, 2011David B. Woolner

FDR didn't just extend his sympathies to protesters. He listened to their demands and worked to implement real solutions to their problems.

As the Occupy Wall Street protests that originated in lower Manhattan gain momentum, a good deal of speculation has arisen in the press. Will the protesters coalesce around a set of demands? Will President Obama and the Democratic Party embrace the movement? What impact will the protests, which have now spread to other parts of the country, have on the 2012 presidential election?

FDR didn't just extend his sympathies to protesters. He listened to their demands and worked to implement real solutions to their problems.

As the Occupy Wall Street protests that originated in lower Manhattan gain momentum, a good deal of speculation has arisen in the press. Will the protesters coalesce around a set of demands? Will President Obama and the Democratic Party embrace the movement? What impact will the protests, which have now spread to other parts of the country, have on the 2012 presidential election?

Although there has been some resistance to the idea of the movement adopting a formal agenda for reform, many of the demands and some of the rhetoric generated by the protesters echo similar calls for reform that emanated during the New Deal. Last Sunday evening, for example, it was reported that Occupy Wall Street's Demands Working Group had endorsed the idea of a New Deal-style public works program that would put millions of Americans on the government payroll rebuilding the nation's crumbling infrastructure. Another idea that has surfaced within the movement is the restoration of the Glass-Steagall Act.

What is most significant, however, is the possibility that the Occupy Wall Street movement might spur the Obama administration and Congress to embrace reform and take stronger government action to combat the current economic crisis. In this respect, it has the potential to mirror the powerful social justice movements that emerged during the 1930s -- movements that not only drew national attention to the great disparities in wealth between the rich and the poor in the United States, but also pushed the Roosevelt administration and Congress to adopt some of the most significant pieces of reform legislation in U.S. history. The passage of the all-important Wagner Act, which established a permanent National Labor Relations Board and enshrined the right of private sector workers to form unions, was inspired in large part by the more than 1,800 strikes that broke out in 1934. The Social Security Act, which provided an old-age pension and established unemployment insurance, was spurred on in part by the 2 million-member Townsend movement that put forward a tax and pension scheme that made it clear that the government had to do something to provide basic economic security for the elderly. For the millions of unemployed, who often took to the streets in frustration, Roosevelt created the Works Progress Administration, which put over 8.5 million Americans to work building the roads, bridges, airports, and schools that still make up a significant portion of our nation's economic infrastructure.

On Oct. 23, the FDR Library presents a free forum on FDR’s foreign policy advisers. Click here to find out how you can join the conversation!

President Obama has recently indicated that he sympathizes with the concerns of the Occupy Wall Street movement, but he has yet to embrace it. FDR was not nearly so circumspect. It is true that during his initial year in office, FDR -- much like President Obama -- adopted what can best be called national unity politics. This, coupled with his innate political caution and abhorrence for ideology, made him reluctant to join ranks with those who were in the streets demanding reform.

But as early as mid-1934, the president -- who in his heart of hearts agreed with the calls for more progressive government -- began to change his tune. In one of his famous Fireside Chats, delivered near the end of June 1934, FDR took note of the fact that in spite of the great progress that had been made stabilizing the economy and meeting the immediate crisis, it was time to look to the future -- time for the country "to find a way once more to well-known, long established but to some degree forgotten ideals and values," and time for the Government and Congress to "seek the security of the men, women and children of the nation." He continued:

That security involves added means of providing better homes for the people of the Nation. That is the first principle of our future program.

The second is to plan the use of land and water resources of this country to the end that the means of livelihood of our citizens may be more adequate to meet their daily needs.

And, finally, the third principle is to use the agencies of government to assist in the establishment of means to provide sound and adequate protection against the vicissitudes of modern life -- in other words, social insurance...

A few timid people, who fear progress, will try to give you new and strange names for what we are doing. Sometimes they will call it "Fascism," sometimes "Communism," sometimes "Regimentation," sometimes "Socialism." But, in so doing, they are trying to make very complex and theoretical something that is really very simple and very practical.

I believe in practical explanations and in practical policies. I believe that what we are doing today is a necessary fulfillment of what Americans have always been doing -- a fulfillment of old and tested American ideals.

In the coming 18 months, FDR -- inspired and motivated by the determination of the millions of Americans who embraced a number of mass movements demanding social and economic justice -- would launch his famous Second New Deal. It was a wave of legislation that, through such programs as Social Security and the Wagner Act, is still very much with us to this day.

As the Occupy Wall Street movement continues to grow, perhaps the president and our leaders in Washington should do more than merely extend their sympathy. Perhaps they should take a lesson from the New Deal and act to address the concerns of a new generation -- a generation that may not yet have articulated a specific set of demands, but one that is crying out for a government animated by the same spirit that stood at the heart of the New Deal, driven by the desire to provide social and economic justice for all.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book on U.S.-UK economic relations in the 1930s, entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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Is Occupy Wall Street Our Triangle Moment?

Oct 10, 2011Frank L. Cocozzelli

triangle-fireToday's outrage has the potential to be another turning point in American politics.

triangle-fireToday's outrage has the potential to be another turning point in American politics.

Frances Perkins, FDR's future Secretary of Labor, was an eyewitness to the Triangle Shirtwaist Factory fire of March 25, 1911. It was a tragic day in our history, one in which 143 workers lost their lives due the indifference of their employers.

Triangle was the culmination of licentious economic behavior. Powerful business interests fought on-the-job safety regulations; exit doors that were kept locked to keep out union organizers also kept workers from escaping the building; proposed fire safety standards were fought tooth and nail, all in the name of economic freedom.

But as tragic as the fire was, it was also a turning point. The tragedy of that horrible fire made Americans begin to truly realize that working people were not merely a means to wealth, but ends in and of themselves, worthy of being treated with dignity. On a political level, it was the singular event that transformed Al Smith and Robert Wagner Sr. from Tammany Hall hacks into champions of reform. It caused the Democratic Party to better live up to its moniker, “the party of the people.” It is why Perkins came to say that day of that fire was “the day the New Deal began.”

Similarly, today we now endure an economy set on fire by this same perverse notion of “freedom.” Freedom? What many on Wall Street call economic freedom is nothing more than anarchy and license. While workers see wages and benefits taken away, the top one percent live lives filled with conspicuous consumption -- and conspicuous waste. True freedom requires discipline, the structure of regulation, laws of oversight that curb and deflect destructive greed. And yet after thirty years of savings and loan failures, fraudulent CDOs, and Wall Street bailouts followed by million dollar bonuses, economic libertarians still want to tear down the very framework that provides order.

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But something has stirred in the American people. We are witnessing protests on Wall Street demanding that this stilted notion of freedom be revisited and revised. Despite what many free market types claim, a healthy form of capitalism cannot survive by being indifferent to the workers who physically build the products or provide the services. As Paul Krugman put it, “…we may, at long last, be seeing the rise of a popular movement that, unlike the Tea Party, is angry at the right people.”

Just as it was in the wake of the Triangle Shirtwaist Factory fire, the public is outraged and is demanding change. The rising of a popular movement comes at a moment none too soon. It is an opportunity for the Democratic Party to again turn out its present-day hacks and replace them with advocates of an already proven New Deal capitalism.

Then perhaps one day we will look back at the events of today and be able to say, “that was when the New Deal was reborn.”

Frank L. Cocozzelli writes a weekly column on Roman Catholic neoconservatism at Talk2Action.org and is contributor to Dispatches from the Religious Left: The Future of Faith and Politics in America. A director of the Institute for Progressive Christianity, he is working on a book on American liberalism.

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Mark Schmitt: Reinvent Government So Americans See the Benefits

Oct 4, 2011

FDR and his New Deal programs may best be remembered for how they transformed the way the American people related to their government. He himself reminded them, "Let us never forget that government is ourselves and not an alien power over us."

FDR and his New Deal programs may best be remembered for how they transformed the way the American people related to their government. He himself reminded them, "Let us never forget that government is ourselves and not an alien power over us."

But times have certainly changed. A much-circulated graph in an article by Suzanne Mettler showed that half of Americans who have been the recipients of a social program say they have "not used a government program." This is on full display when Tea Partiers demand government get its hands off their Medicare. And as Roosevelt Institute Senior Fellow Mark Schmitt draws out in his fantastic review out today of Mettler's new book, The Submerged State, this is a feature of our current governmental system, not a bug.

Want some recent evidence? As Mark points out, in one poll only 12 percent of voters said their taxes had gone down under the Obama administration, even though they received a tax credit that was more likely to be spent than even the Bush tax cut we all received in the mail. This is because the tax credit, while delivered efficiently, was invisible to those whom it benefitted. As Mark puts it:

Countless federal benefits are delivered so unobtrusively, through the tax system or through public-private partnerships, that their beneficiaries hardly know government played any role. It is difficult to have a real democratic debate about the role of government, Mettler argues, when so much of what government does is unknown and unseen.

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The answer to this problem isn't just a better PR machine spreading the gospel of all the good government does for its people, though. As Mark points out, "Mettler is not calling for a change in the public image of government; she wants to change government itself." He wants to take this even further by sparking a totally new era of government:

[I] is not just a matter of "revealing" submerged policies or replacing them with more visible ones. It is time for a new era of reinventing government, in which the goal is to establish certain clear, unambiguous public functions, and put energy and resources behind them... Responsibilities should be clearly delineated between the public and private sectors, and between governments at different levels. If providing affordable housing is a public responsibility, for example, agencies such as Fannie Mae should be fully public and fully accountable to the public, and to the extent that it's not a public function, they should be private. Such a radical rethinking of government would not only make it more efficient and more effective, but possibly better respected. It would also allow a level of public engagement that is impossible in the current world of half-seen and little understood programs. And instead of making small gestures to show government cares about problems, this approach might actually solve them.

FDR couldn't have put it better himself. Read his full review here -- it's definitely worth reading in its entirety.

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"Action and Action Now": America Can't Afford to Waste Its Human Resources

Sep 6, 2011David B. Woolner

Desperate times call for bold measures. President Obama need look no further than the WPA.

Desperate times call for bold measures. President Obama need look no further than the WPA.

To those who say that our expenditures for Public Works and other means for recovery are a waste that we cannot afford, I answer that no country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance... I stand or fall by my refusal to accept as a necessary condition of our future a permanent army of unemployed... [W]e must make it a national principle that we will not tolerate a large army of unemployed and that we will arrange our national economy to end our present unemployment as soon as we can and then to take wise measures against its return. - Franklin D. Roosevelt

With unemployment still hovering at over 9 percent nationwide, and with some economists and historians arguing that the present economic crisis should not be referred to as the "Great Recession," but as the "Great Depression II," a good deal of anticipation has arisen over what President Obama will propose in his message to Congress on Thursday. Despite widespread Republican opposition to further government spending, many economists and business leaders -- not to mention liberal members of the Democratic Party -- argue that what the country desperately needs is another stimulus package. A jobs program could provide hope and relief to the millions of long-term unemployed, restore confidence, and stem the U.S. economy's steady slide back into recession. Even the ever demure Chairman of the Federal Reserve, Ben Bernanke, has indicated that "putting people back to work" must be made a priority if the country wishes to avoid long-term damage to the economy.

Just over 75 years ago, in the midst of a long-term unemployment crisis not unlike the one we face today, President Roosevelt issued Executive Order 7034 to create one of the largest federal employment programs in American history: the Works Progress Administration (WPA). Roosevelt created the WPA in part out of his conviction that when the private sector fails to provide basic economic security in the form of employment to millions of Americans, it is right and proper for the government to step in to pick up the slack. Like President Obama, FDR presided over an economy that was expanding, in fact at a much faster rate than the meager growth we see today. But the growth was not strong enough to absorb the many millions still looking for work. Even though the unemployment rate had fallen by more than five percent since his assumption of office in 1933, FDR was not content to sit on his laurels and wait for the long hoped for return to full employment. So the president did what the American people expected him to do: he took action.

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Over the course of its eight-year history, the WPA employed approximately 8.5 million people, the vast majority of whom worked on projects aimed at rebuilding America's wholly inadequate 19th century infrastructure. That infrastructure was marked by feeble bridges, unpaved roads, little or no water or sewage treatment facilities, and tens of thousands of decrepit schools and other public buildings. Thanks to this massive effort, millions of Americans (including engineers, architects, and other skilled workers) gained meaningful employment and through their labor transformed the face of the nation. In New York City alone, for example, the WPA constructed the Triborough Bridge, the Lincoln Tunnel, FDR Drive, LaGuardia Airport, and the Belt, Grand Central, and Henry Hudson Parkways. It also rebuilt the Central Park Zoo, landscaped Bryant Park and Hunter College, and built or renovated hundreds of schools throughout the city -- not to mention put thousands of unemployed city teachers back to work in the newly constructed classrooms.

As this incomplete list of projects for New York City alone shows, the WPA was no "make work" operation, but a national endeavor aimed at transforming the nation's economic infrastructure and bringing the United States into the modern world by making use of our most precious resource: human capital. By the time it was finished, the WPA had constructed nearly 600,000 miles of rural roads, 67,000 miles of urban streets, 122,000 bridges, 1,000 tunnels, 1,050 airfields, 500 water treatment plants, 1,500 sewage treatment plants, 36,900 schools, 2,552 hospitals, 2,700 firehouses, and nearly 20,000 other state, county, and local government buildings. It was also widely popular among working Americans who wrote tens of thousands of letters to the White House thanking the president for his determination to counter the demoralizing effects of unemployment.

The infrastructure built by the WPA and other New Deal agencies helped lay the basis for the massive economic expansion that took place during World War II and the post-war years. All of us have benefited immensely from this visionary effort to simultaneously rebuild America and the American workforce. But after roughly 70 years, much of this infrastructure is in desperate need of replacement or repair.

If the president and Congress are serious about meeting the worst economic crisis this nation has endured since the Great Depression, remaining competitive in the global economy, and avoiding the atrophy of skills that comes after years of an idle workforce, then they should embrace the opportunity to rebuild America and the American workforce with the same sort of bold vision that inspired an earlier generation. With infrastructure that is now ranked a dismal 23rd among the world's industrialized states, and with millions of skilled and unskilled workers in desperate need of a job, this is no time for half measures. In light of this, isn't it time for the president to establish his own jobs program -- by executive order if necessary -- and to insist that Congress provide the funds needed to support it? The American people would no doubt support such a move. They understand that the real crisis in America is a jobs crisis, exasperated by a failure of leadership in Washington and the false obsession of Republican party extremists with cutting government spending at a time when we can least afford it. They are also tired of crumbling roads, burst levees, and collapsed bridges. They have heard enough talk of cuts, cuts, cuts when, in the spirit of the New Deal, they would much rather heed a call to "build, baby, build." Surely, as FDR said in his first inaugural, the time has come for "action and action now."

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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Jeff Madrick on Countdown: "The American Job Machine is Broken"

Sep 5, 2011

Friday's jobs numbers came out just in time to make today's Labor Day celebration highly depressing. We can look forward to Obama's jobs speech this week, but will he say anything to turn the situation around? Roosevelt Institute Senior Fellow Jeff Madrick joined Keith Olbermann on Countdown to discuss what needs to be done. "The country is in a mess," Jeff says. "The American job machine is broken."

Friday's jobs numbers came out just in time to make today's Labor Day celebration highly depressing. We can look forward to Obama's jobs speech this week, but will he say anything to turn the situation around? Roosevelt Institute Senior Fellow Jeff Madrick joined Keith Olbermann on Countdown to discuss what needs to be done. "The country is in a mess," Jeff says. "The American job machine is broken."

Obama's jobs speech can't just be empty campaign rhetoric with an unemployment crisis like ours. "He has to be bold," Jeff says. After months of a stagnant economy, "he can say the facts changed," Jeff points out. "As John Maynard Keynes once said, 'When the facts change, I change my mind. What do you do, sir?'"

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So what are the solutions that could help real Americans? We can invest in infrastructure -- painfully obvious after Hurricane Irene -- and clean energy, Jeff suggests. On top of that, "it can be done through an FDR Washington hiring program," he points out. "There's a lot to be done in America," and Obama could take a page from the WPA and employ Americans to get it done.

None of this will come for free, but isn't it worth spending the money to put the country back on track? "What he can tell the American people is, 'Do you want a dumb deficit, or do you want a smart deficit?'" Jeff says. "If we don't do something bold we're going to get a dumb deficit and lots of people out of work and malaise. We can get a smart deficit and get us working again." The choice seems pretty obvious when Labor Day is marred by 9 percent unemployment.

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Obama Could Look to FDR to Tame Housing and Jobs Crises

Aug 25, 2011David B. Woolner

Unemployed and underwater, Americans need robust, FDR-style federal action.

Unemployed and underwater, Americans need robust, FDR-style federal action.

In a further indication of the weakness of the US economy, the Mortgage Bankers Association reported earlier this week that the number of Americans at risk of foreclosure is rising, while the number of mortgage applications to purchase a home has fallen to a 15-year low -- despite record low mortgage rates. The government also recently reported another sharp decline in the price of homes holding government-backed mortgages, by nearly six percent in the last quarter, the largest decline since 2009. In short, the housing crisis that played a key role in the initiation and perpetuation of the Great Recession is far from over and the risk that the ongoing trouble in the housing market will drag the country back into recession is becoming increasingly apparent.

In the face of these and other grim economic statistics, it has been reported that the Obama administration is considering further government action to help struggling homeowners keep their homes, including a proposal that would allow the millions of Americans who hold government-backed mortgages to refinance at today's historically low rates. The administration is also looking into the feasibility of a home rental program that would help keep hundreds of thousands of foreclosed homes off the market in an effort to stop home prices from falling further.

This is not the first time, of course, that the United States has faced a housing crisis. Nearly 80 years ago, President Roosevelt took office under circumstances not unlike those we face today. In 1933, for example, the non-farm foreclosure rate was running at roughly 1,000 homes per day, so that by the end of that year an estimated 50 percent of all urban mortgages in the US were either delinquent or in foreclosure. The number of housing starts had also fallen off dramatically, from a 1920s high of 937,000 in 1925 to only 93,000 in 1934.

To deal with the housing emergency and reverse this trend, the Roosevelt administration created the Home Owners Loan Corporation (HOLC) in June 1933. The HOLC -- which was a federal entity -- provided immediate relief to families facing foreclosure by buying out their existing mortgage and replacing it with a new one based not on the typical short-term mortgage agreement of the time (usually a non-amortized loan of seven to ten years terminating with a balloon payment), but rather on the far more affordable amortized mortgage of between 25 and 30 years. Over the course of its three-year history, the HOLC refinanced over one million homes or roughly 20 percent of all the urban mortgages in the country. Moreover, by the time the HOLC finally closed its books in 1951, it had turned a small profit, with the result that this remarkably successful mortgage program did not cost the U.S. taxpayer any money.

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In an effort to secure a long-term solution to the U.S. housing crisis, the Roosevelt administration passed the National Housing Act a year later. The housing act established the Federal Housing Administration (FHA), and through it significantly increased access to home ownership among average Americans by insuring loan institutions against default; by institutionalizing the 30-year amortized mortgage; and by establishing other standard criteria, such as the 10 percent down payment, building codes, and on-site inspections of new and existing homes for violations of the newly developed codes. The creation of the FHA had a tremendous impact on the US housing industry, increasing over home ownership from 40 percent in the 1930s to over 70 percent by the end of the century.

Like much of the New Deal, both of the efforts involved direct federal action inspired by a desire to provide both immediate relief and long-term reform. They were also part of a much broader effort to revive the overall economy -- spearheaded by the Roosevelt administration's determination to provide meaningful jobs to the millions of unemployed through such programs as the Works Progress Administration (WPA) and Civilian Conservations Corps (CCC), or the lesser-known Public Works Administration (PWA).

Given the inability of President Obama's Home Affordable Modification Program (HAMP) to reverse the decline in the housing market, it is encouraging to see that the administration is considering further measures to shore up this critical sector of our economy. One would hope that the administration might look towards the HOLC for inspiration as it moves towards further action. But as most economists predict -- and as the New Deal instructs -- a massive refinancing program on its own may not be enough to restore the housing market. What we really need is more jobs -- perhaps a modern version of the WPA -- to rebuild the nation's crumbling infrastructure and further funding for education and job training to restore our competitiveness in the world economy.

With the deficit doomsayers now in charge of our nation's agenda, and with the American public and media hoodwinked into believing that the best way to revive our economy is by cutting government spending, the likelihood of a new federally funded jobs program in the near future is close to nil. This is bad news for the millions of unemployed who will not be able to pay their mortgages -- no matter how low the interest rate -- without the one thing they desperately need: a paycheck.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

 

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The English Riots: Just Meaningless Sound and Fury?

Aug 23, 2011Tom Ferguson

Zizek misses the point: Austerity politics is a social and economic disaster.

Zizek misses the point: Austerity politics is a social and economic disaster.

In a recent essay, Slovenian theorist and literary provocateur Slavoj Zizek attempts to unpack the political meaning of the riots in England. These broke out in response to the shooting of Mark Duggan by the Metropolitan Police and then spread rapidly from London to other cities. Zizek argues that the riots amounted to an exercise in sound and fury signifying nothing -- symptoms of an "ideological-political predicament" in which opposition can only be expressed through meaningless bursts of violence. This is the essence, he suggests, of global capitalism. He takes issue with both conservative and liberal responses, calling out the former for promoting an authoritarian crack down and the latter for trying to find "deeper meaning" in the social and economic conditions faced by the rioters.

The essay strikes me as similar to a lot of Zizek's other work: too clever by a half, with strained echoes of fashionable appeals across ideological divides reminiscent of, for example, Barack Obama. The difference is that Zizek is a theorist. Thus the discussion is framed in terms of High Theory: an abstract nod first to the left, then another equally ethereal gesture to the right, followed by the claim that both are plainly inadequate.

Alas, the thinner the ice, the faster Zizek skates. He is impatient to get a theory of resistance going, but the fact is that we are only three years into the Great Recession, so his efforts are a bit premature. If you look back at the Great Depression, you will see that distinctively new patterns of resistance usually took three to four years to form. Until then, there was discontent aplenty, but electorates in advanced countries mostly sullenly voted out the conventional politicians in office and replaced them with one or another of the existing moderate "out" parties. Occasionally, there were riots, and in peripheral countries, much worse. But only after the 1931 European financial crisis (sense a pattern?) dragged the whole world down another notch did real swamp creatures swarm out, as unbearable budget cuts and falling national incomes forced progressive social groups to organize more seriously. So I suspect it will be this time.

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In contrast to what Zizek proposes, I doubt that what we see now reveals the inner essence of global capitalism or anything else. It's probably not accidental that he finds political movements in Greece and Spain more constructive -- they are further into the crisis than the Brits, whose turn to the right is brand new. The British riots probably reflect the despair and anger of marginalized populations staggering under early shocks of austerity while local authorities themselves reel from cuts in their own budgets. The world has a lot more experience with macroeconomic austerity than most of the media or social science cares to talk about. The social disasters that sweeping budget cutbacks bring in their wake are plain to anyone who wants to see.

Zizek is right about one important fact: Repetition is a basic feature of social history. Unfortunately, it's not, as St. Augustine thought, the mother of learning. Its deadly spiral now mostly reflects the indifference of elites, the realities of political power, and wretched theories of free market fundamentalism. Zizek probably knows as well as anyone what Hegel's students reported he said in his famous lectures on Reason in History: "What experience and history teach is this: peoples and governments have never learned anything from history and acted according to what one might have learned from it." The euro crisis and the disastrous G20 Toronto Consensus in favor of austerity will churn world politics for a long time.

Thomas Ferguson is Professor of Political Science at the University of Massachusetts, Boston and Senior Fellow at the Roosevelt Institute. The International Journal of Political Economy has just published a revised version of his paper with Robert Johnson on "A World Upside Down: Deficit Fantasies in the Great Recession."

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Lynn Parramore Defends Social Security on Fox

Aug 19, 2011

Appearing on Fox News Live with host Arthel Neville, ND2.0 Editor Lynn Parramore notes that many progressives see Obama "as a defector" who has been dragged to the right of the American people by Tea Party extremists. In particular, she says progressives worry that he will give in to Social Security hysteria and enact cuts that would betray the legacy of the New Deal. Check out the video below:

Appearing on Fox News Live with host Arthel Neville, ND2.0 Editor Lynn Parramore notes that many progressives see Obama "as a defector" who has been dragged to the right of the American people by Tea Party extremists. In particular, she says progressives worry that he will give in to Social Security hysteria and enact cuts that would betray the legacy of the New Deal.

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Avoiding That Other Mistake of 1937

Aug 18, 2011Mike Konczal

Pulling back on monetary policy would cancel out even the best stimulus bill.

For many historically minded liberals and progressives, stopping the mistakes of 1937 means preventing the president from going through with unnecessary, counter-productive, and economically dangerous fiscal cuts. Franklin Roosevelt tried to balance the budget in 1937-1938, which put the weak recovery back into a tailspin and created a second depression within the Great Depression.

Pulling back on monetary policy would cancel out even the best stimulus bill.

For many historically minded liberals and progressives, stopping the mistakes of 1937 means preventing the president from going through with unnecessary, counter-productive, and economically dangerous fiscal cuts. Franklin Roosevelt tried to balance the budget in 1937-1938, which put the weak recovery back into a tailspin and created a second depression within the Great Depression.

Trying to keep President Obama and the current Congress from doing the same exact thing right now -- cutting the deficit when financial markets are begging us with low rates to increase the deficit by putting people to work doing useful things -- is a full-time job for liberals and progressives. But there's another mistake of 1937 that we shouldn't ignore, and that's the mistake of pulling back on monetary policy.

Gauti Eggertsson and others have argued that in addition to the fiscal contraction, a monetary contraction taken through several means in 1937 helped pushed the United States economy off a cliff. And right now there are three members of the Federal Reserve dissenting, because they believe monetary policy needs to be contracted sooner rather than later. This is the first time there have been three dissenters in two decades, and there are increasing political pressures on the Federal Reserve by conservatives and Republicans.

What is motivating these attacks on the right? There seem to be three overlapping approaches to criticizing monetary policy from conservatives. The first is the screeching cry of inflation hawks -- people who are fundamentally fighting the last wars of the 1970s. They are worried about every type of inflation -- your inflation, stagflation, hyperinflation -- except one: deflation. This kind of critic is like the proverbial person crying "Fire! Fire!" while the water is creeping into the sinking Noah's Ark.

The group consists of people who think our economy has dropped anchor because this is the right place to be. They look -- using increasingly complicated and implausible theoretical and empirical evidence -- for excuses on how regulations, President Obama, and structural limitations are causing unemployment to be as high as it is. These arguments usually are light on the numbers -- they involve gut feelings and dubious assumptions.

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The second group is also big enough to contain conservatives who aren't interested in getting us back to full employment anytime soon, especially using any means necessary, with an important presidential election coming up. Cynical maybe, but so is politics these days.

The third group is made up of people who think monetary policy is fundamentally unsound and illegitimate. This is a further right, 19th century laissez-faire approach to the government, one an order of magnitude more conservative than people like Milton Friedman. Here, monetary policy is no longer about stabilizing prices, ensuring maximum employment and keeping the economy from overheating or stalling into free fall. Instead it's about deflation, wealth defense, the interests of rentiers and "job creators" above all else, and money as an emblem of natural order rather than a social creation designed to make the economy work.

These groups, though they conflict on important values and thoughts, are enough to push the debate further to the right than anyone would have imagined. And if they continue to succeed they can do major damage. Even if a dream package of deficit-financed infrastructure building went through, if monetary policy is contracted ahead of schedule it will instantly cancel out that stimulus.

Mike Konczal is a Research Fellow at the Roosevelt Institute.

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