Stiglitz: The Invisible Hand is Invisible Because It Isn't There

Apr 2, 2012Elena Callahan

Americans have had it drilled into them that government is bad, but a new narrative is surfacing.

Americans have had it drilled into them that government is bad, but a new narrative is surfacing. Last Thursday, Roosevelt Institute Senior Fellow Jeff Madrick kicked off the Roosevelt Institute's new flagship initiative, Rediscovering Government, at an event in New York City, declaring, "There is no economy without government. There is no America without government. Government doesn't have a role; it is integral." In a keynote address, Roosevelt Institute Senior Fellow Joseph Stiglitz also argued that healthy societies have strong governments and that his research has shown that "the reason the invisible hand often was invisible was that it wasn’t there." Watch the full video of the opening remarks and keynote below:

 

Stiglitz says that "most Americans don’t realize that we are no longer the country of opportunity that we think of ourselves, that America today has less equality of opportunity than any of the other advanced industrial countries." He points out how many like to say that our economy is doing well because GDP is growing, but that "if you’re going to be judging how well an economy is doing, clearly I think the key metric that one wants to focus on is what is happening to the living standards of most citizens.” He says that most Americans don't realize how bad we're doing, including the fact that "the median income of a full-time male worker today is the same as it was in 1968," and "if you look at median household income it is the same today as it was a decade and a half ago."

Join the conversation about the Roosevelt Institute’s new initiative, Rediscovering Government, led by Senior Fellow Jeff Madrick.

How did our society get to a place where government has taken a back seat and where people are wary of government control? Stiglitz thanks the conservatives who have successfully touted false ideology about markets over the past 40 years. While they like to blame the government for inequality, Stiglitz notes that not even Adam Smith thought markets were anything beyond efficient. "Nobody ever said that they were fair, that they would lead to a distribution of income that was socially acceptable." Furthermore, he says, "many of the aspects of our inequality are a result of market failure. People who don’t have health insurance when they get sick wind up in extreme poverty and they can’t get health insurance because of a whole set of market failures." He says it's "striking that in spite of the fact that there is no intellectual basis for what you might call a 'Smithian' view that unfettered markets lead to efficiency," conservatives have marched ahead with this idea.

So why was there so much economic growth after World War II? Stiglitz says one reason is "the legacy of the Roosevelts, the legacy that government made a difference.” In making the case for government he also points out that "government has played an important catalytic role in a whole variety of other areas. If you think about our modern economy, you think about Internet, you think about biotech, you think about telecommunications and all of these things rest on government-funded basic research." He recalls a conversation with a Scandinavian finance minister who, when asked how his economy was so successful, answered "high taxes." Stiglitz took away that "if you’re going to have a well-functioning economy... you have to pay for what you get. You need to have a well-functioning government that provides education, infrastructure, research, technology, all these things, and we have to pay for it." Given that markets are not predictable nor interested in social problems, our government should stop bailing the financial institutions out and start investing in its people and the institutions that benefit them.

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Progress on Trial: How FDR Fought to Make SCOTUS Serve the Greater Good

Mar 30, 2012David Woolner

FDR struggled to make a reactionary Court recognize that the government served a greater purpose than defending property. Today President Obama faces a similar battle over health care reform.

FDR struggled to make a reactionary Court recognize that the government served a greater purpose than defending property. Today President Obama faces a similar battle over health care reform.

In our generation, a new idea has come to dominate thought about government, the idea that the resources of the nation can be made to produce a far higher standard of living for the masses of the people if only government is intelligent and energetic in giving the right direction to economic life. - Franklin D. Roosevelt

The hearings of the Supreme Court this week over the Patient Protection and Affordable Health Care Act have led some commentators to compare President Obama's potential difficulties with the Supreme Court to the troubles FDR had with the Court in the mid 1930s, when some of the key provisions of the New Deal were struck down as unconstitutional. In response to the Court challenge, Roosevelt ultimately decided to pursue a court reform effort -- his famous "court-packing" scheme -- that aroused widespread opposition from both the public and those holding public office, even among members of his own party.

Most historians agree that Roosevelt's attempt to alter the Court in 1937 was both ill-conceived and badly handled. But the debate over the legal dimensions of FDR's attempt to alter the make-up of the Court -- like today's debate over the legality of Obama administration's Affordable Health Care Act -- has to a certain extent obscured the real issue that stood at the heart of the New Deal reforms: how the nation might, as FDR said, "use the agencies of government to assist in the establishment of means to provide sound and adequate protection against the vicissitudes of modern life."

Using government to pursue this goal was somewhat of a novel idea in early 20th century America. But it was not something that FDR came up with on his own. As the nation made the 19th-to-20th century transition from an agrarian to a modern industrial economy, questions about the health, safety, and living conditions of the working class -- more appropriately called the working poor -- gave rise to ever-increasing calls for social legislation to protect working Americans, including women and children, from dangerous employment practices like starvation wages and other forms of economic exploitation. The same sentiments also gave rise to a series of laws, such as the 1906 Pure Food and Drug Act, to protect American consumers from tainted foods and poisonous and/or useless "medicines," as well as anti-trust legislation to prevent the establishment of anti-free market monopolies that would lead to exploitative prices of key commodities and other goods and services.

Not surprisingly, all of these efforts aroused considerable opposition from conservative business interests, who frequently argued that such legislation was an infringement on their liberties. This was especially true in FDR's day, when, in the wake of the 1929-1932 financial crisis and the failure of the free market to provide adequate levels of employment to roughly 25 percent of the American workforce, the Roosevelt administration launched a series of efforts to reform the financial sector, offer employment to the jobless, and provide a basic measure of economic security to the average American through Social Security, unemployment insurance, and the right to collective bargaining.

Even before many of these measures were fully put in place, FDR anticipated what the wealthy conservative opposition would say about them. In a June, 1934 Fireside Chat on the subject, for example, FDR noted that a "few timid people, who fear progress," would try to give "strange names" to these efforts.

Join the conversation about the Roosevelt Institute’s new initiative, Rediscovering Government, led by Senior Fellow Jeff Madrick.

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...

All that we do seeks to fulfill the historic traditions of the American people...We are restoring confidence and well-being under the rule of the people themselves. We remain, as John Marshall said a century ago, 'emphatically and truly, a government of the people.' Our Government 'in form and in substance . . . emanates from them. Its powers are granted by them, and are to be exercised directly on them, and for their benefits.'

What emerged from the New Deal, then, was an attempt to use government as an instrument to provide basic economic safeguards within the free enterprise system, to mitigate the worst excesses of capitalism, so that all Americans could enjoy its benefits.

As was the case in previous governmental efforts to provide a measure of social and economic protection for the average American citizen, these measures were challenged in the Supreme Court as an infringement of contract and property rights, and up until 1937 -- the year that FDR's struggle with the Court came to its head -- the Court tended to rule in favor of property. For progressives like Theodore Roosevelt, this tendency on the part of the Court was unacceptable. Indeed, roughly two decades before his cousin Franklin was sworn in as President, TR articulated his firm belief that government had a responsibility to serve as "the steward of the public welfare." As such, he insisted that the judiciary should "be interested primarily in human welfare rather than in property... just as... the representative body shall represent all the people rather than any one class or section of the people."

It was this basic idea that government had a responsibility to serve the "public welfare" that animated both the social justice legislation of the progressive era and the social and economic reform legislation of the New Deal. Hence, FDR's frustration with the inability of the Court to embrace this fundamental  -- or what he would term modern --concept was not unique and in fact had led many other public figures before him to call for some type of judicial reform.

This is not to say that FDR was correct in pursuing his so-called Court packing scheme; he was most surely wrong to do so. But we should not allow this misguided attempt to bring the Supreme Court into the modern world to mask the reasons why he -- and others -- felt such drastic measures might be necessary. In the end, of course, the Court would reverse itself and from 1937 forward would uphold every New Deal provision that came before it, including two prior pieces of legislation -- the Agricultural Adjustment Act and a minimum wage law -- that the Court had previously struck down.

In the decades that followed the New Deal, Americans came to accept and understand the idea of government as the keeper of the public welfare. But in the past two decades, this basic concept of governance has come under a sustained assault from the same special interests that fought this idea in FDR's day. As a result, President Obama's attempt to provide equal access to health care for the nearly 50 million Americans who remain uninsured through the so-called individual mandate has been attacked as an infringement on our liberties. But in embracing this point of view, the Court (should it decide to strike down the law) will have failed to take in the larger argument that the purpose of the law is to provide a means to secure a greater good for all. Viewed from this perspective, requiring all Americans to purchase health care is perhaps the most important step we can take "to provide sound and adequate protection against the vicissitudes of modern life."

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 Call for an End to Selfishness Echoes in Today's Debates

Mar 23, 2012Philip Klinkner

fdr-profile-serious-150FDR knew that in order to create positive, lasting change, we had to look beyond our own interests and work to make the country and the world better for everyone.

fdr-profile-serious-150FDR knew that in order to create positive, lasting change, we had to look beyond our own interests and work to make the country and the world better for everyone.

Every candidate running for office this year is offering change. But what kind of change? Is it change that appeals to the interests of small and narrow groups, or change that appeals to the broader interests of the nation and the world?

President Roosevelt addressed these questions on March 23, 1936 when he and Mrs. Roosevelt travelled to Winter Park, Florida. Both were likely happy for their brief sojourn to warmer climes. The president had been invited to receive an honorary degree from Rollins College, where he began his speech by thanking Rollins President Hamilton Holt. The two had been friends for many years. Before entering academia, Holt had been an important figure in progressive politics as a crusading journalist, a founding member of the NAACP, and the (unsuccessful) Democratic candidate for the U.S. Senate in Connecticut in 1924.

The president praised Holt for his educational reforms, moving from dry lectures to more interaction between faculty and students. Such changes were to be welcomed since, according to FDR, "In education, as in politics, and in economics and social relationships, we hold fast to the old ideals, and all we change is our method of approach to the attainment of those ideals. I have often thought that stagnation always follows standing still. Continued growth is the only evidence that we have of life."

As necessary as such changes might be, he added, "growth and progress invariably and inevitably are opposed -- opposed at every step, opposed bitterly and falsely and blindly." As an example, the president spoke of how he had recently seen a motion picture of the life of French scientific pioneer Louis Pasteur. In the film, when Pasteur was being attacked for his claims, a fellow scientist told him, "My dear Pasteur, every great benefit to the human race in every field of its activity has been bitterly fought in every stage leading up to its final acceptance."

The president added that not only was this true of science, "it is true of everything else that enters into our lives -- true of agriculture, true of living conditions, true of labor, true of business and industry, and true of politics."

Roosevelt's own experience surely confirmed that it was true of politics. His New Deal programs had sought to reform the nation's political and economic system. Like Holt's education reforms, Roosevelt saw the New Deal not as a rejection of American ideals such as freedom, liberty, and democracy, but as a new method of attaining those enduring values.

Check out the new special issue of The Nation, guest-edited by Roosevelt Institute Senior Fellow Jeff Madrick.

Despite the benefits the New Deal brought to Americans suffering from the Great Depression, it had been opposed by many, often "bitterly and falsely and blindly." Roosevelt's opponents charged that he was leading the nation down the path to socialism and dictatorship. The Supreme Court, relying on an interpretation of the Constitution's commerce clause drawn from what FDR called the "horse and buggy" days, had overturned many early New Deal programs, such as the National Recovery Administration and the Agricultural Adjustment Act. The same fate seemed likely for more recent measures, such as Social Security and the Wagner Labor Relations Act.

The answer, Roosevelt believed, was for a new approach to balancing interests in politics. To illustrate this, the president related the following anecdote:

Not long ago two nationally known gentlemen visited me, one in the morning, the other in the afternoon. I asked the opinion of each of them in regard to a suggested new tax to replace a former tax which had been declared unconstitutional. My friend of the morning replied, "I could not approve of that kind of tax. It would cost me many thousands of dollars." My friend of the afternoon said, "Why, a tax like that would, it is true, cost me many thousands of dollars, but I am inclined to think, Mr. President, that it is a fair tax, a tax equitable for the people of the Nation, the people as a whole, and, therefore, I would favor it."

For the president, the latter individual, the person who thought of the nation rather than just a narrow individual or group interest, represented the type of thinking that the nation needed and was indeed "growing by leaps and bounds throughout the country."

Roosevelt concluded by pointing out that this rise of public spiritedness was not important just to America, but to the world as well. Despite the claims of his critics, the president abhorred dictatorships and he grew increasingly worried as authoritarian regimes grew more numerous and more powerful. Just a few weeks before, Nazi Germany had destroyed the last vestige of the Treaty of Versailles by marching its troops into the demilitarized area of the Rhineland.

Roosevelt understood that United States stood as the great bulwark against the ultimate success of such regimes. But America could only undertake this role if it rejected narrow and selfish thinking and was instead guided by the most broad and inclusive concerns. If it did, this thinking "will in the long run assert itself so strongly, so victoriously, that it will spread to other peoples and other lands throughout the world."

Roosevelt's words are still instructive today. We must always remember that progress will always engender opposition from those with narrow and parochial concerns. Nonetheless, progress in all endeavors, from education to science to politics, is necessary and the mark of a vital healthy society. Most importantly, an America that understands the necessity of positive change and thinks both broadly and boldly is still the best hope for the world.

Philip Klinkner is the James S. Sherman Professor of Government at Hamilton College. He is the author (with Rogers Smith) of The Unsteady March: The Rise and Decline of Racial Equality in America and he is currently writing a book on the 1936 election.

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FDR Countered Wall Street's Greed With Mass Prosperity

Mar 22, 2012David Woolner

Today's financial giants pursue greater wealth at any cost, but in order to build a sustainable economy, we have to make life richer for all Americans.

Today's financial giants pursue greater wealth at any cost, but in order to build a sustainable economy, we have to make life richer for all Americans.

Today, national progress and national prosperity are being held back chiefly because of selfishness on the part of a few... 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.

It is that attitude which leads such people to give little thought, to give anything but lip service, to the one-third of our population which I have described as being ill-fed, ill-clad, and ill-housed. The majority of them say, "I am not my brother's keeper" -- and they "pass by on the other side." Most of them are honest people. Most of them consider themselves excellent citizens.

But, my friends, this Nation will never permanently get on the road to recovery if we leave the methods and processes of recovery to those people who owned -- I say "owned" -- the Government of the United States from 1921 to 1933. -Franklin D Roosevelt

The recent publication of an editorial in the New York Times by a top executive at Goldman Sachs has sparked a fierce debate about the culture of greed that has permeated Wall Street in recent years. Critics argue that the author of the article, Greg Smith, is right to point out that Wall Street has lost its moral compass and that firms like Goldman are no longer interested in their clients and couldn't care less about the long-term implications of their investment strategies. Today's Wall Street, they insist, is driven by one motive and one motive only: to make as much money as possible for themselves and for the firms they work for in the shortest possible time, whatever the consequences for the customers the company is supposed to be serving. On the other hand, the defenders of Wall Street insist that the desire to make money is nothing new -- that greed, in fact, has always been a part of the culture of the investment banking community, and that we should not be so surprised or alarmed that the people who work in the financial sector do so out of a desire to become rich.

Given the consequences of the recent financial crisis, the fact that Mr. Smith's article has provoked a debate about the culture of Wall Street seems understandable. With unemployment still over 8 percent nationwide, a good share of the population remains concerned about the possibility that the "toxic atmosphere" Mr. Smith describes on Wall Street might lead to another financial meltdown. Yes, we do have Dodd-Frank, but will this piece of legislation prove adequate to prevent a repeat scenario?

These are all legitimate questions, but given the poor state of our economy and the millions who remain unemployed or underemployed a full four years after the onset of the collapse of the financial sector, the real question that needs to be addressed concerns not just the behavior of Wall Street, but the impact that the singular pursuit of wealth in whatever field has on the nation as a whole.

Seventy-four years ago, on March 23, 1938, Franklin Roosevelt addressed this very question in a speech he made to the people of Gainesville, Georgia. Two years before, Gainesville had been devastated by a violent tornado that left over 200 people dead and destroyed much of its downtown area. But with the help of over $1 million in federal aid from the Reconstruction Finance Corporation (RFC) and a number of construction projects carried out by the Public Works Administration (PWA) and the Works Progress Administration (WPA), along with the financial support, hard work, and "unselfish cooperation" of the citizens of Gainesville, the city was rebuilt. Moreover, the new Gainesville was better than the old, with less congestion, better housing, and more parks and green space for the people to enjoy.

Buy a copy of The Unfinished Revolution: Voices from the Global Fight for Women’s Rights, featuring a chapter by Roosevelt Institute Senior Fellow Ellen Chesler.

Taking note of this, FDR observed that the efforts of the people of Gainesville to rebuild their city touched "the interest and life of the whole Nation" because they typified the concept of citizenship "which is latent in the American character." It was true that in the wake of the destruction the city had "great needs," but these needs "were met," he said, "in accordance with the democratic principle that those needs should be filled in proportion to the ability of each individual to help."

Not one to miss a teachable moment, FDR then went on to address the larger question of economic inequality that still plagued the country. Much of this inequality, he insisted, was the result of the selfishness and greed of those at the top end of the income ladder who refused to accept or acknowledge that a society built on such vast disparity of wealth was not only undemocratic, but also economically unsustainable. These individuals, he went on:

...are the kind of people who...were saying, "Oh, yes, we want nobody to starve" but at the same time were insisting that the balancing of the budget was more important than making appropriations for relief. And when I told them that I, too wanted to balance the budget but that I put human lives ahead of dollars and handed them the book of the government estimates and asked them just where they would out the appropriations, inevitably they folded up and came back and told me, "Mr. President, that is not my business, that is yours."

FDR then went on to speak about how such attitudes affected the nation as a whole, of the consequences of economic inequality and the critical need to provide work and better wages for the "bottom third" of the U.S. population. He insisted it was vital to improve the "buying power" of the millions of unemployed and other workers "who are so under-employed or so underpaid that the burden of their poverty affects the little business man and the big business man and the millionaire himself." Moreover, he also reminded his listeners that better buying power meant not just greater purchases in hard-hit industries but also "many other...things -- better schools, better health and hospitals, better highways."

In short, FDR insisted that the best way to work our way out of the Great Depression and sustain capitalism was to make sure it worked for all our citizens, rich and poor alike. Happily, the actions of the people of Georgia in the wake of tragedy had convinced him that more and more Americans from workers and farmers to bankers and businessmen were coming to see "that the continuation of the American system calls for the elimination of special privilege, the dissemination of the whole truth, and participation in prosperity by the people at the bottom of the ladder, as well as those in the middle and those at the top."

It is certainly not a bad thing that Mr. Smith's article about the culture of Wall Street has stirred up a debate about the values and motivations of the individuals working in the financial sector. But in a society where the same newspaper has recently reported that the number of poor and near poor in America -- those living "either in poverty or in the fretful zone just above it" -- has now reached approximately 100 million Americans, one wonders why more people are not focused on the "one third of a nation" that, as in FDR's day, sadly finds itself "ill-housed, ill-clad, ill nourished." Would an editorial bemoaning the increasing level of poverty in America have sparked the same amount of interest?

Viewed from this perspective, the culture on Wall Street, with its huge bonuses and drive for ever-increasing wealth no matter what the consequences for the client, becomes all the more disturbing. Not so much for what it says about the financial sector, but rather for what it says about the state of the country as a whole. The pursuit of wealth for wealth's sake is a poor foundation upon which to build a modern economy well-suited for the 21st century. Surely FDR is right when he reminds us that it is better for us to become "our brother's keeper" than to "pass on to the other side."

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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From the Archives: President Obama Reaffirms the "Special Relationship" with the U.K.

Mar 15, 2012David Woolner

Editor's note: As President Obama's state visit with British Prime Minister David Cameron grabs headlines, we recommend reading Roosevelt Institute Senior Fellow David Woolner's column on how the Special Relationship was forged in the fires of World War II. This post was originally published on May 26, 2011.

The bond between the U.S. and the U.K. runs deep, especially when it comes to their economies.

Editor's note: As President Obama's state visit with British Prime Minister David Cameron grabs headlines, we recommend reading Roosevelt Institute Senior Fellow David Woolner's column on how the Special Relationship was forged in the fires of World War II. This post was originally published on May 26, 2011.

The bond between the U.S. and the U.K. runs deep, especially when it comes to their economies.

In an historic speech before both houses of the British Parliament yesterday, President Obama reaffirmed the "special relationship" between Great Britain and the United States. He made reference to the joint sacrifices both countries have made on the battlefield in defense of freedom, taking special note of the wartime alliance and friendship between Winston Churchill and Franklin Roosevelt that helped give birth to the relationship as the two nations fought "side by side to free a continent from the march of tyranny."

References to the alliance between Great Britain and the United States in World War II are of course entirely appropriate, as the "special relationship" as we know it began in the dark days of 1939-40. But the president also made reference to the two countries' strong economic ties and the fact that today we "live in a global economy that is largely of our own making."

Here, too, the president is correct. Yet most Americans remain largely unaware of this economic aspect of the "special relationship." Much of the global economy we operate in today does indeed have its origins not in the 1980s or 90s, but the 1940s, as Great Britain and the United States struggled to defeat fascism in Europe and Asia.

To understand this, let's take a look at the link between the Great Depression and World War II -- especially from the American perspective. For Franklin Roosevelt and his Secretary of State Cordell Hull, this link was not only obvious, but tragic. The two men, in fact, were absolutely convinced that the cause of the Second World War lay in the economic depravity and dislocation of trade and commerce that were the hallmarks of the Great Depression. Near the end of the war, for example, in his State of the Union address of January 1944, FDR observed that we "had come to a clear realization...that true individual freedom cannot exist without economic security and independence. Necessitous men are not free men. People who are hungry and out of a job are the stuff of which dictatorships are made." And as early as the early 1930s, Cordell Hull was frequently quoted as saying, "If goods cannot cross borders, armies will."

Buy a copy of The Unfinished Revolution: Voices from the Global Fight for Women’s Rights, featuring a chapter by Roosevelt Institute Senior Fellow Ellen Chesler.

As a consequence of these beliefs, the Roosevelt administration committed itself to the concept of freer trade, beginning with the passage of Hull's Reciprocal Trade Agreements Act in 1934 and continuing right up through the war. Hull's policies took the United States in a new direction away from the high tariff policies of the Hoover years, and in many respects laid the foundation for the opening up of the world's trade immediately after the end of the Second World War. This was best exemplified by the establishment of the General Agreement on Tariff and Trade (GATT) in 1947.

Ironically, in response to the high tariffs of the Hoover administration, the British had established an intra-Empire trading system called "Imperial Preference" in 1932 that allowed most goods within the British Commonwealth to be traded with little or no tariff while keeping US goods out. This was an anathema to Hull, and during the war he used the leverage of Lend-Lease aid to try to get the British to drop it. Hull was never able to get the sort of rock solid commitment to ending Imperial Preference he would have liked, but under Article VII of the 1942 Lend Lease Consideration Agreement (governing Lend-Lease aid), the British did agree to take "joint action directed towards the creation of a liberalized international economic order in the postwar world."

By 1944, U.S. military and economic preponderance was such that there was little doubt the Roosevelt administration had the upper hand in the "special relationship." As such, the agreements that were negotiated and signed at Bretton Woods and Dumbarton Oaks that year (establishing the International Monetary Fund, the World Bank, and laying the groundwork for the United Nations) largely reflected the American, as opposed to the British, negotiating positions. The same was true a few years later when the GATT was signed in Geneva.

Viewed from this perspective, the Second World War was as much about the re-ordering of the world's economic system along American -- and away from British -- lines as it was about defeating fascism in Europe and Asia. Still, there is no question that during these years the United States considered British cooperation in this effort not only vital, but essential, for without it they doubted their plans for a new world order could succeed. While it may true that Great Britain has always been America's junior in the transatlantic partnership, President Obama is correct when he says that the Anglo-American relationship is not merely "special" but "essential" to the development of "a world that is more peaceful, more prosperous, and more just."

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, Obama, and the True Meaning of Class Warfare

Mar 1, 2012David Woolner

FDR knew America's promise of democracy and economic opportunity meant nothing if it didn't include the average worker.

FDR knew America's promise of democracy and economic opportunity meant nothing if it didn't include the average worker.

In this country we insist, as an essential of the American way of life, that the employer-employee relationship should be one between free men and equals. We refuse to regard those who work with hand or brain as different from or inferior to those who live from their property. We insist that labor is entitled to as much respect as property. But our workers with hand and brain deserve more than respect for their labor. They deserve practical protection in the opportunity to use their labor at a return adequate to support them at a decent and constantly rising standard of living, and to accumulate a margin of security against the inevitable vicissitudes of life. - Franklin D. Roosevelt

During this election campaign, a good deal of criticism has been hurled at President Obama from his conservative opponents for his support of the so-called "Buffet Rule" -- his insistence that individuals making $1 million a year or more in annual income should pay a minimum tax of 30 percent. Republican leaders such as Congressman Paul Ryan and Senator Mitch McConnell have even gone so far as to label the president's proposal nothing less than "class warfare" -- an attack on the wealthy "job creators" they see as a vital to the U.S. economic recovery.

Three quarters of a century ago, Franklin Roosevelt faced similar criticism and a similar problem. In trying to come to grips with the worst economic crisis in our history at a time when the nation lacked the adequate state apparatus and institutions to deal with massive unemployment and poverty, FDR launched a series of government initiatives designed to mitigate the worst excesses of unfettered capitalism and to provide the average American with the one thing he or she needed above all else: economic security.

In this sense, FDR attacked the problem of economic decline from the opposite end of the spectrum under discussion today. For him, the goal was not to see to it that the free enterprise system delivered vast sums of wealth to those at the top of the economic pyramid, today's so-called "job creators," but rather to ensure that the average worker was paid a wage decent enough to enable him or her to be able to purchase the myriad goods and services the U.S. economy was capable of producing. This would contribute to the overall health of the economy and was in his view a far more reliable means of generating sustainable economic growth. This growth would not only benefit the average worker, but also his employer, as the increased purchasing power of the lower and middle classes would also generate greater profits for those in a position of ownership.

Check out “The 99 Percent Plan,” a new Roosevelt Institute/Salon essay series on the progressive vision for the economy.

As is the case today, FDR's focus on trying to generate greater economic opportunity and equality through progressive taxation and government initiatives aimed at putting people to work was labeled "class warfare" by his critics. The president, they said, was taking the nation down the path of "socialism" or "fascism," pitting capital against labor and dividing the country along the lines of rich and poor. But for Roosevelt, nothing could be further from the truth. Indeed, his goal was not to try to initiate class warfare, but to eliminate it. As he once observed in one of his fireside chats on the subject:

There are those who fail to read both the signs of the times and American history. They would try to refuse the worker any effective power to bargain collectively, to earn a decent livelihood and to acquire security. It is those short-sighted ones, not labor, who threaten this country with that class dissension which in other countries has led to dictatorship and the establishment of fear and hatred as the dominant emotions in human life.

All American workers, brain workers and manual workers alike, and all the rest of us whose well-being depends on theirs, know that our needs are one in building an orderly economic democracy in which all can profit and in which all can be secure from the kind of faulty economic direction which brought us to the brink of common ruin seven years ago.

For Roosevelt, then, there was "no cleavage between white collar workers and manual workers," or between "artists and artisans, musicians and mechanics, lawyers and accountants and architects and miners." To insist on such was to misunderstand and challenge the "whole concept of American democracy," which, he believed, above all else was based on the concept that it was "our determination to achieve an economic freedom for the average man which will give his political freedom reality."

Given all of this, one would suspect that FDR would heartily agree with Warren Buffett and President Obama's assertion that taxing a multibillionaire like Mr. Buffett at a lower rate than his secretary is not only ridiculous and unsustainable, but also undemocratic. It also helps to generate and foster the one thing that both President Obama and President Roosevelt have argued is antithetical to American democracy: the creation of a class distinction between the privileged few and the rest of us.

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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Obama's Budget Should Prioritize People

Feb 23, 2012David Woolner

FDR understood that balancing America's budget would be futile if the health, skills, and morale of its people were lost in the process.

FDR understood that balancing America's budget would be futile if the health, skills, and morale of its people were lost in the process.

Before we can think straight as a nation we have to consider, in addition to the old kind, a new kind of government balance sheet -- a long-range sheet which shows survival values for our population and for our democratic way of living, balanced against what we have paid for them. Judged by that test -- history's test -- I venture to say that the long-range budget of the present Administration of our government has been in the black and not in the red. - Franklin D. Roosevelt

As the debate over President Obama's proposed budget rages, we might do well to reflect on what Franklin Roosevelt had to say about the nation's "balance sheet" roughly three quarters of a century ago. Facing much the same criticism over government spending from the right that President Obama has faced, FDR insisted that it was time to develop a new kind of government balance sheet -- one that took into account what he called "the true and ultimate assets and liabilities of a nation." He eschewed the traditional definition of "capital" and instead argued that the "only real capital of a nation is its natural resources and its human beings." Moreover, FDR insisted that it was critical that "we take care of and make the most of" both of these fundamental assets so as to ensure that "we shall survive as a strong nation, a successful nation and a progressive nation -- whether or not the bookkeepers say other kinds of budgets are from time to time out of balance."

In keeping with this point of view, FDR also argued that it was government's responsibility to ensure that the nation's "capital structure" -- by which he meant its "natural resources and human beings" -- was maintained at all times. "The plant has to be kept up and new capital put in year by year to meet increasing needs," he said, for "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."

For Roosevelt, investing in and maintaining the overall health of the nation took precedence over short-term demands to balance the federal budget. In this sense, FDR treated government less like a family that needs to meet its monthly obligations and more like a business -- a business that understands both the short-term capital requirements needed to maintain its competitive edge and the concomitant demand for well timed long-term investments to ensure continued growth and prosperity.

In articulating this philosophy, FDR placed great stress on the need to properly manage and preserve our nation's natural resources. But he also insisted that we must "husband" the resources of the other half our capital by "conserving...[the] health, energy, skill and morale of our population, and especially...that part of our population which will be the America of tomorrow." It was critical that we addressed the serious issue of long-term unemployment, for in FDR's view it was vital to maintain "the fullest use and development of precious resources of ability which cannot be stored and will be lost if they remain unused." Indeed, he went on:

Check out “The 99 Percent Plan,” a new Roosevelt Institute/Salon essay series on the progressive vision for the economy.

No nation can meet this changing world unless its people, individually and collectively, grow in ability to understand and handle the new knowledge as applied to increasingly intricate human relationships. That is why the teachers of America are the ultimate guardians of the human capital of America, the assets which must be made to pay social dividends if democracy is to survive.

President Obama has frequently alluded to the important role that education must play in building what he calls "an economy that is built to last." And his budget, which calls for increased funding to rebuild our schools and hire more teachers, reflects this. The president has also called for an increase in spending on research and development, and on our nation's crumbling infrastructure, both of which are urgently needed. But his budget also calls for deep cuts in social spending that would adversely affect a number of programs designed to assist low-income families, as well as the slashing of $33 billion from the Superfund to clean up toxic waste, a $359 million reduction in the Environmental Protection Agency's funds for safe drinking water, and nearly $500 million in cuts in heating oil assistance for the poor at a time when oil prices are on the rise.

The president has argued that it is necessary to make these cuts -- even those to the poor -- in order to provide a balance between the expenditures needed to keep the recovery on track and the long-term requirement to reduce the federal deficit. As part of this effort, he has also called for an end to the Bush-era tax cuts for incomes over $250,000 a year and introduced his so-called Buffett Rule, a minimum tax of 30 percent for those whose annual income tops $1 million.

On the surface, these all appear as logical goals. But in fashioning a budget that includes only modest spending increases and lays great stress on the need to cut spending, the president runs the risk of amplifying the right's failed deficit logic -- the falsity of which has been thoroughly exposed by the shrinking of the European economy in the wake of Europe's embrace of budget austerity. The president also insists that in calling for new taxes he is not engaged in class warfare. Indeed, in introducing his new budget to the students at Northern Virginia Community College, he insisted that "we don't begrudge success in America. We aspire to it... I want everybody here to go out there and do great. I want you to make loads of money if you can."

Franklin Roosevelt had a different vision. For him, the measure of the restoration of the U.S. economy could only be found "in the extent to which we apply social values more noble than mere monetary profit." And even in the midst of the worst depression in our nation's history, he was not afraid to remind the American people again and again that it was the forces of greed -- not class warfare -- that led to this great crisis. There were, in short, more important things in life than the accumulation of great wealth. As he observed in his first inaugural:

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

As the fight over the budget continues, the president and Congress might do well to focus not on how to cut spending, but on the far more urgent need to restore and protect what Franklin Roosevelt called "the true and ultimate assets and liabilities of [the] nation." In particular, we have to invest in the "precious resources of ability" -- human capital -- that continue to suffer the devastating effects of long-term unemployment. Surely this is an asset on our national balance sheet that we cannot afford to lose if we hope to build a better future for ourselves and for our children.

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 Knew Public Education is Vital to a Prosperous Nation

Feb 22, 2012Philip Klinkner

fdrmain-150At a time when government support for education is under attack, a reminder in FDR's own words that the progress of our nation depends on a well-educated citizenry.

fdrmain-150At a time when government support for education is under attack, a reminder in FDR's own words that the progress of our nation depends on a well-educated citizenry.

Today, many argue that the government can't afford some of its most fundamental tasks, including support for education. Some politicians have even gone so far as to question the very idea of public education. But President Franklin Roosevelt knew that mass education requires government support and that cutting such support in times of economic need is penny wise and pound foolish, since a prosperous economy and decent society require widespread education.

On February 22, 1936, President Roosevelt traveled to Philadelphia, PA, where he received an honorary degree from Temple University. Roosevelt used the occasion to emphasize the critical role of government in advancing education. He pointed out that it was altogether fitting that the day was George Washington's birthday, since "What President Washington pointed out on many occasions and in many practical ways was that a broad and cosmopolitan education in every stratum of society is a necessary factor in any free Nation governed through a democratic system."

Roosevelt went on to add that the progress of a nation cannot and should not be measured solely in material terms. Instead, a nation must also look to progress in "the things of the mind." He pointed to the great advances in education over the previous 50 years and how his administration had worked to ensure that the burden of the Great Depression "should not include the denial of educational opportunities for those who were willing and ready to use them to advantage."

Check out “The 99 Percent Plan,” a new Roosevelt Institute/Salon essay series on the progressive vision for the economy.

Increasing levels of education, according to Roosevelt, "has given to this country a population more literate, more cultured, in the best sense of the word, more aware of the complexities of modern civilized life than ever before in our history."

Roosevelt then described the timeless qualities of a true education. First is "a sense of fair play among men. As education grows, men come to recognize their essential dependence one upon the other." Second, true education instills "a sense of equality among men when they are dealing with the things of the mind. Inequality may linger in the world of material things, but great music, great literature, great art and the wonders of science are, and should be, open to all."

Finally, and most importantly, true education requires the unfettered pursuit of knowledge and the truth. At a time when Nazi storm troopers burned books and banned "degenerate" art, and Stalinist commissars sought to bend biology to the will of the state, Roosevelt declared, "No group and no Government can properly prescribe precisely what should constitute the body of knowledge with which true education is concerned. The truth is found when men are free to pursue it."

Though spoken over 75 years ago, Roosevelt's words still hold true. Today we must also confront challenges to sound education, as some still seek to impose their own agendas on the pursuit of knowledge. Most importantly, Roosevelt understood that the essence of democracy is a free people engaged in the search for truth and understanding in an effort to make a better world for themselves and their children. As Roosevelt said, quoting Kipling, "On your own heads, in your own hands, the sin and the saving lies!"

Philip Klinkner is the James S. Sherman Professor of Government at Hamilton College. He is the author (with Rogers Smith) of The Unsteady March: The Rise and Decline of Racial Equality in America and he is currently writing a book on the 1936 election.

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FDR Alleviated Americans' Anger and Suffering Through Action

Feb 10, 2012David Woolner

The Pecora Commission got to the root causes of the Depression and the HOLC addressed the aftermath. Hopefully Obama's fraud task force and mortgage settlement are on the same course.

The Pecora Commission got to the root causes of the Depression and the HOLC addressed the aftermath. Hopefully Obama's fraud task force and mortgage settlement are on the same course.

The news that President Obama has decided to establish a special new task force to investigate abusive and fraudulent lending practices during the housing boom, coupled with yesterday's announcement of a $26 billion settlement aimed at providing relief to struggling home owners, will certainly be greeted as welcome developments by the millions of Americans still struggling under the weight of the Great Recession. But with many of the details of the practical application of the settlement still to be worked out, and with the task force having just been established, it is too early to tell how much relief will actually reach desperate homeowners or how many banks and/or individuals will face prosecution.

Given the devastation caused by the reckless and often fraudulent behavior of many of the nation's leading banks, and the overwhelming need to stabilize the housing market and provide relief to millions of homeowners, one would hope that these measures would, at the very least, be as effective as the actions taken by the government roughly 80 years ago when we faced a very similar economic crisis.

Most Americans are well aware that the Great Depression was initiated by the collapse of the stock market in the fall of 1929. It was a collapse that came about in large part because of the bursting of a large speculative bubble that had built up over time in the reckless and virtually unregulated financial climate of the 1920s. What is less well known or understood are the many other factors that played a role in the onset of the Great Depression: the decline in agricultural prices, the maldistribution of wealth and income, the collapse of the banking sector, and an equally important urban mortgage crisis. Indeed, by the time Franklin Roosevelt took office in March of 1933, it is estimated that approximately 50 percent of all urban mortgages in the United States were delinquent or in foreclosure and that an average of 1,000 homes per day were being lost.

To deal with the housing emergency and to get to the bottom of what led to the economic crisis in the first place, FDR did two things. First, he fully supported the activities of the 1932 Senate Committee on Banking and Currency that was established to investigate the causes of 1929 crash. Once in office, he moved quickly to provide relief to home owners through the establishment of the Home Owners Mortgage Corporation (HOLC).

Click here to buy Senior Fellow Richard Kirsch’s new book on the epic health care reform battle, Fighting for Our Health.

Thanks in large part to the zeal of Ferdinand Pecora, who was appointed to head the Senate committee investigating Wall Street in January 1933 and was quietly encouraged to carry out his work with vigor by President-elect Roosevelt, the "Pecora Commission" would uncover a whole series of unscrupulous practices in the banking and financial sector. These included interest-free loans to top executives at National City Bank (now Citibank); National City's disposal of bad loans to Latin American countries by packing them into securities and selling them to unsuspecting investors; and J.P. Morgan's list of influential "friends," including former President Calvin Coolidge, all of whom were given the opportunity to purchase stock at sharply discounted prices.

These disclosures, coupled with additional revelations about excessive salaries, bonuses, and the fact that many financial elites -- including the head of National City Bank -- did not pay any income tax in the past year, outraged the public and helped inspire the Roosevelt administration and Congress to push through some of the most important banking and financial reforms in American history. These included the Glass Steagall Act, which separated commercial from investment banking and gave us the Federal Deposit Insurance Corporation, and the 1934 Securities and Exchange Act, which created the Securities and Exchange Commission.

In the meantime, to meet the urgent housing crisis, the HOLC, which was established within FDR's first 100 days in office, provided direct relief to families facing foreclosure by buying out their existing mortgages and replacing them with new ones. The new ones weren't based on the typical non-amortized loan of seven to ten years, but rather on the far more affordable amortized mortgage of between 25 and 30 years. Over the course of its brief three-year history, the HOLC refinanced over one million homes -- roughly 20 percent of all the urban mortgages in the U.S. In the process, it revolutionized American home ownership through the institutionalization of the 30-year mortgage. It also did not cost the American taxpayer any money, as the HOLC turned a small profit when it finally closed its books in 1951.

Taken together, the measures inspired by the Pecora Commission and the relief brought to millions of American homeowners helped restore investor confidence, resuscitate the financial sector, and lay the foundations upon which our banking, financial, and housing sectors rested from more than half a century.

In making yesterday's announcement, President Obama alluded to both the new task force and the bank settlement by stating that with these measures "we begin to turn a page on an era of recklessness that has left so much damage in its wake." Eighty years ago, the twin combination of a federal investigation and direct action by the government helped alleviate the anger and anguish of the millions of Americans who suffered as the result of the greed and avarice of the wealthy few. Let us hope that the president's new task force and the agreement with our nation's major banks will do the same.

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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Did the White House Try to Get Me Fired for Pushing Health Care Reform to the Left?

Feb 2, 2012Richard Kirsch

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notices that FDR's message to his supporters was "I agree with you; now make me do it." In the health care fight, Obama's was, "I've got it covered; now leave me alone."

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notices that FDR's message to his supporters was "I agree with you; now make me do it." In the health care fight, Obama's was, "I've got it covered; now leave me alone."

Since the collapse into disarray of his plan for a grand budget compromise with House Republicans this summer, President Obama has moved dramatically to appeal to the Democratic base. From his speech pushing an aggressive agenda on jobs right after Labor Day to his fiery, populist address in Kansas in December, to the State of the Union address last week, Obama has been working to accentuate the differences in his philosophy from the right rather than bending over backwards to bridge the huge gap. Behind the scenes, the White House has worked strenuously to mend another set of battered bridges -- those with progressive organizations and constituency groups.

In the first year of the Obama administration, it was a very different story. As I found in leading Health Care for America Now, the administration concentrated its charm offensive on potential opponents of reform while trying to reign in any pressure from the left. Rather than following the inside/outside strategy made famous by FDR, who supposedly advised his allies to "make me do it," the White House worked to squelch health reform supporters from fighting in or outside the beltway against legislative concessions.

The White House stance created a major dilemma for the leading progressive organizations, which were eager to work with the new Democratic administration after eight years of Bush. It took almost three full years of the president waffling, and the growing disillusionment of the Democratic base, for many organizations to begin to push more aggressively against the White House's compromises. But that pushback was another big reason that the White House switched courses in the late summer of 2011, realizing it was running out of time to hold onto its organized base.

But in the fall of 2009, the simmering tension between the White House and Health Care for America threatened to come to a boil.

***

Early on a September morning I got a call from a member of the HCAN Steering Committee. The message was brief: Someone at the White House had called SEIU and asked that I be fired.

Whoa. I felt for a moment that I was in a movie. This couldn't be happening to me. My mind started racing, considering how awful the White House would look if it became public that they were going after the head of a big progressive campaign for not toeing the White House line at every step. I might become a symbol for progressives of their growing alienation from the White House. But that was not what I wanted. I wanted to handle the crisis quietly and keep pushing for health reform.

Still, I was upset. When we began this journey, I had expected to take on the insurance industry, big business, the rightwing, and conservative Democrats. I never expected to be blindsided by a Democratic president, particularly when I was spending every waking moment fighting for his top priority. And I had never expected politics to be so personal.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and a Senior Adviser to USAction. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform. Fighting For Our Health is available in bookstores February 1. You can also purchase a copy here. Follow the conversation on Twitter and Facebook.

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