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.

In Joe Nocera's editorial today, "The Simplicity Solution," he calls for financial reforms to be more focused on solutions that are both simple and market-based. He draws on recent writing by Sallie Krawcheck who "lays out a handful of market-oriented ideas that would almost surely pare back the complexity risk posed by banks." Nocera goes through Krawcheck's reforms, which are focused on corporate boards and dividend policy for financial institutions.

I think people have a good sense of the arguments for simple rules in financial regulation. The clearer the lines are drawn, the less likely they are to be gamed, financially engineered-around, or ignored by regulators. As Elizabeth Warren noted in an interview with Ezra Klein, financial institutions "want layers and layers of complexity because it’s in complexity that there are loopholes. That’s where it’s possible to back up regulators who are not quite certain about the ground they stand on. And it’s a larger problem with our regulatory structure: Complexity favors those who can hire armies of lobbyists and lawyers." This is part of the big battle over the Volcker Rule.

But what about market-oriented reforms? What about reforms designed to make financial markets work better, more transparently, and in a way that prevents both cronyism and instability? The Roosevelt Institute's big financial reform program was named Make Markets Be Markets because we think that a focus on markets will be essential to the future of financial reform. There are two things worth noting: first is that the best parts of Dodd-Frank build on this insight, and secondly the first wave of battles brought by financial institutions were over smaller parts of Dodd-Frank, but parts that embraced market-based reforms.

If you look at the derivatives component of Dodd-Frank, it builds on the core essentials of New Deal financial reform for traded instruments: transparency, disclosure, clearing, capital adequacy, the regulation of intermediaries, anti-fraud and anti-manipulation authority, and private enforcement. The insight and practice is to set up the financial markets so that private entities regulate each other through transparent prices and adequate capital. Regulators need a gentler touch because they empower other parties to regulate the financial institutions in question. Clearing institutions make sure that counterparties are properly capitalized, something that was missing in the financial crisis; exchanges make sure that price information gets into the market broadly.

The same happens with the Consumer Financial Protection Bereau. The idea is to provide simple, clear rules across all firms for consumer financial products, regardless of banking charter, and let them compete against each other on price and product. Rather than racing to the bottom in terms of fees and mangled contracts, standardization of terms allows real market competition to take place. This extends across large parts of Dodd-Frank.

What's interesting is that, as I read it, the first two major battles over Dodd-Frank were precisely over these types of reforms. The first major lawsuit against Dodd-Frank, from September 2010, run by the Chamber of Commerce and the Business Roundtable, was against proxy access. Proxy access allows "[a]ny investor, or a group of investors, with at least 3 percent of a firm's shares for three years...to nominate directors." It re-balances the relationship between dispersed shareholders and boards: it allows shareholders to hold ineffectual boards accountable for everything from business practices to executive pay.

Notice that no regulator is necessary here. Shareholders are granted the power to take these actions on their own, which they'll use their their advantage as necessary. Indeed, just the threat forces boards into action, even if no proxy access is formally held. And shareholders, representing their own money and interests, are going to be more forceful as de facto regulators than a handful of actual regulators staring at and trying to regulate board composition.

The other big initial fight was over "interchange fees." On the urgent lobbying of financial firms, Congress came very close to repealing the part of Dodd-Frank that dealt with these fees in 2011, but that ultimately failed. Interchange balances the relationship between vendors and financial firms in regard to the fees charged on credit cards. It allows vendors to price discriminate between credit and debit cards, and it moves debit cards to clear at par so that people's money actually reflects their transactions. Again, no regulator is needed here. Every small business owner who feels squeezed by financial firms' fees becomes a regulator in this case. Their ability to price discriminate helps keep interchange on credit cards from spiraling out of control in a way a handful of regulators sitting in Washington DC could never pull off.

Going forward, we need Dodd-Frank implimented in the simplest, clearest regulatory way. But we also need to make sure that it makes financial markets work the way they are supposed to and allows the market itself to be the best regulator. Financial lobbyists know this, and will respond accordingly.

Wall Street image via Shutterstock.

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.

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President Roosevelt's legacy of public works programs offers insight into the importance of increased government spending to create jobs and restore the economy.

It’s good to hear more economists talking about the foolishness of austerity in Europe and the United States. Some, including Joe Stiglitz and Paul Krugman, have been saying it for a long time, but the chorus has gotten louder recently. Still, I have yet to hear anyone put the argument in terms simple enough for the average citizen (including the average Republican not too tied in ideological knots) to understand. I’d therefore like to take a shot.

To reignite the economy, we need more people to buy things. For that to happen, we need to keep people in their present jobs, re-employ people who have lost jobs, and employ those just entering the job market. Once people are buying things, those who make the goods and services being bought will have reason to invest, hiring new workers and buying new machines that make things. They have no reason to invest now; there is no likely return on their investment.

Republicans have things backwards. They assume that investors will invest if we give them more money. But they already have lots of money. Why assume that giving them more will change their behavior? They’re not stupid (at least most of them aren’t). What they need is a prospect of profit.

Tax breaks aren’t any incentive. What good are lower taxes on income that you don’t have? What’s the point of hiring another worker if he or she will have nothing to do? Fewer regulations are equally irrelevant. This is why “uncertainty” and “confidence” (the claim that investors won't invest because they are uncertain what their taxes might be in the future or what new regulations they may face) are smokescreens.

What do you suppose investors would do if there were customers pouring through their doors? If goods and services were in demand and inventory was disappearing? They would not say, “No, I don’t think I’ll take advantage of this. I’ll forgo making a profit now because I don’t know what my taxes and regulations will be next year.”  More likely, the response would be, “Wow, we can sell more widgets now; let’s crank up production!”  

In the language of economists, this is a demand-side problem, not a supply-side problem. Republicans have been looking at the world through supply-side lenses for over 30 years and can’t see the total economy. They are blind to common sense.

So how do we get people to buy things? We can save good middle class jobs by aiding states so they can stop laying off teachers, police officers, firefighters, and other public workers. We can create new jobs with large infrastructure projects. There are so many things on the landscape in need of repair or replacement that it shouldn’t be hard to employ or re-employ millions of people. In 1933, the Civil Works Administration (CWA) put 4 million people to work in two months. 

But good heavens, this will cost money! Yes, it will drive the deficit to new heights, and deficits are worth worrying about. But a stagnant economy will not reduce deficits. Putting people out of work through an austerity campaign only decreases revenues and cripples our ability to deal with deficits. A robust economy will handle the problem much more quickly. Restarting the economy will be expensive, but we need to spend the money. If your house is on fire, you don’t tell the fire department, “Don’t use too much water, I want enough for my morning shower.”

If Obama’s $800 billion stimulus package hadn’t been weighed down with so many useless tax cuts, we might not be having this conversation. The experience of the New Deal is relevant here. At its beginning, 25 percent of workers were out of work; when World War II started, it was down to 10 or 12 percent. That is significant progress. And there would have been even greater progress had President Roosevelt not twice stalled the recovery he had created. In March of 1934, after it was only four and a half months old and employing 4 million people, he pulled the plug on the CWA in spite of the fact that even the Wall Street Journal noticed its effect on the economy. He just didn’t want to believe that it was going to cost so much money to end the Depression. 

Once he had replaced the CWA with the Works Progress Administration (WPA), and after his other giant public works programs—the Public Works Administration and the Civilian Conservation Corps—were fueling the recovery, Roosevelt again cut back. Despite the crisis, he still believed in a balanced budget. This return to orthodoxy produced a recession that by early 1938 was looking like 1929. His advisors finally persuaded him to restore the works programs, and thus he ended the recession. Had it not been for these two crises of confidence, the employment rate at the start of the war may have been lower than 10 percent, and we wouldn’t be hearing these claims that it was the war that ended the Depression.

Once demand is stimulated through public jobs, private investment will return and private jobs will increase. A healthy economy can then deal with deficits. It will be costly to regain that economy, but if we don’t, we will have both stagnation and deficits. 

Robert Leighninger is faculty associate in the School of Social Work at Arizona State University, and author of Long Range Public Investment: The Forgotten Legacy of the New Deal.