Wednesday, February 17, 2010

Fraser: The New Deal in Reverse,_a_tale_of_two_presidents__/

The New Deal in Reverse

by: Steve Fraser 11 February 2010

How the Obama Administration Ended Up Where Franklin Roosevelt Began

On March 4, 1933, the day he took office, Franklin Roosevelt excoriated the
"money changers" who "have fled from their high seats in the temples of our
civilization [because...] they know only the rules of a generation of
self-seekers. They have no vision and where there is no vision, the people

Rhetoric, however, is only rhetoric. According to one skeptical
congressional observer of FDR's first inaugural address, "The President
drove the money-changers out of the Capitol on March 4th -- and they were
all back on the 9th."

That was essentially true. It was what happened after that, in the midst of
the Great Depression, which set the New Deal on a course that is the mirror
image of the direction in which the Obama administration seems headed.

Buoyed by great expectations when he assumed office, Barack Obama has so far
revealed himself to be an unfolding disappointment. On arrival, expectations
were far lower for FDR, who was not considered extraordinary at all -- until
he actually did something extraordinary.

The great expectations of 2009 are, only a year later, beginning to smell
like a pile of dead fish with new rhetoric -- including populist-style
attacks on villainous bankers that sound fake (or cynically pandering) when
uttered by Obama's brainiacs -- layered on top of the pile like deodorant.
Meanwhile, the country is suffering through a recovery that isn't a recovery
unless you happen to be a banker, and the administration stands by, too
politically or intellectually inhibited or incapacitated to do much of
anything about it. A year into "change we can believe in" and the new
regime, once so flush with power and the promise of big doings, seems
exhausted, vulnerable, and afraid. A year into the New Deal -- indeed a mere
100 days into Roosevelt's era -- change, whether you believed in it or not,
clearly had the wind at its back.

A Tale of Two Presidencies

If, a few days after Roosevelt pronounced them ex-communicant, the
"money-changers" were back inside the temple -- "temple," by the way, was
how the Federal Reserve used to be known before its recent fall from
grace -- no one was too surprised. He, like Obama, was initially worried
about alienating big business and high finance. He arrived in the Oval
Office, in fact, still a prisoner of his own past and the country's. He
believed, for example, in the then-orthodox wisdom of balancing the budget
and would never entirely abandon that faith.

Not long before he assumed office, his predecessor, Herbert Hoover, vetoed a
bill calling for the accelerated payment of bonuses to World War I veterans.
Many of them had only recently gathered in makeshift tents on Anacostia
Flats in Washington D.C., an army of the destitute, to plead their case.
Hoover, to his lasting dishonor, ordered Army Chief of Staff General Douglas
McArthur to have their tents set on fire and drive them away at bayonet
point. Not long after FDR took the oath of office, he vetoed the same bill.
He shared, as well, in a broad cultural repugnance for what was then called
"the dole," and today is known as "welfare."

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

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

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

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

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

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

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

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

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

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

Heading Backwards

Like Obama, Roosevelt was denounced by his enemies in the Republican Party
and the business community as a closet socialist (not to mention a cripple,
a Jew, and a homosexual). While the administration would sometimes trim its
sails considerably to weather the right wing storm, its general reaction to
Republican opposition was the opposite of Obama's. Even during that first
year, and at an accelerating pace afterwards, the momentum of the New Deal
carried it irresistibly to the left.

This was true, in fact, of the whole Democratic Party. The Congress elected
in the off-year of 1934 was not only more overwhelmingly Democratic, but the
Democrats who won were considerably more progressive-minded. They were far
readier to jettison the shibboleths of the old order and press a still
cautious President in their direction. By 1936, the essentials of the social
welfare and regulatory state were in place, an insurgent labor movement had
won the elementary right to organize (while becoming the New Deal's most
muscular constituency), and the president was denouncing "economic
royalists" and "tories of industry" whose "hatred" for him he "welcomed."

Today the Obama administration and the Democratic Party are visibly moving
in the opposite direction. They read the lesson of humiliating defeat in
Massachusetts and the voluble hostility of the populist right as an advisory
to move further to the right. Tacking rightward, tailoring policy to match
the tastes of business and finance, cautioning Americans that they'll need
to tighten their belts (as if they hadn't already been doing so), adopting
the parsimonious sanctimony of the balanced budget, slimming down their
great expectations until what little is left mocks the hopes of so many who
elected them -- all of this is seen as smart politics.

Smart like a chicken. This is the same cleverness that, beginning with
Ronald Reagan's triumph, turned the Democratic Party into Republican-lite.
Shrewdness like this helps explain, in part, why Obama's inner circle and
Democratic leaders took the early, fateful steps that were bound to land
them where they find themselves today.

Would the Republican right and its tea-party populists -- marginal, mockable
political freaks less than a year ago -- have enjoyed their current growth
spasm if the administration hadn't been committed to bailing out the very
institutions most people considered the villains responsible for running
this country into a ditch? Would the Democratic Party have been in imminent
danger of losing its faltering grip on Congress had it found the will to
pursue serious health-care reform and environmental legislation, or wrestled
the financial oligarchy to the mat as Roosevelt did? A long generation spent
cowering in the shadows of the conservative ascendancy has left the newly
empowered Democrats congenitally incapable of seizing their own historic

After a year of feinting to the left without meaning it, how seriously is
anyone going to take the administration's latest call to tax the banks or
break their addiction to reckless speculation? Even if Obama now means to
push ahead with some sort of health-care reform or put some teeth into new
financial regulations, he has spent so much political capital moving in the
opposite direction and seeking partners where there never were any that his
quest, even if genuine, may now be purely quixotic. As for the surge in
Afghanistan and the endless war that goes with it, by election time 2010,
it's an even bet that it will have further undermined any hopes of a
late-inning Democratic Party revival.

Conventional wisdom notwithstanding, off-year elections do not always favor
the minority party. Indeed, 1934 may be the best example of the opposite
effect. Exactly because the New Deal showed itself ever readier to junk the
ancien régime, break with economic orthodoxy, and above all say goodbye to
its erstwhile corporate friends, it was rewarded handsomely at the polls.
None of that apparently will be repeated in 2010, given an administration
that seems to be running a New Deal in reverse.

Steve Fraser is the co-editor of The Rise and Fall of the New Deal Order and
author, most recently, of Wall Street: America's Dream Palace. He is
Research Associate at the Joseph Murphy Center for Labor and Community
Studies at the Graduate Center of the City of New York. (To catch him in an
exclusive TomDispatch audio interview discussing why Obama has ignored the
public-works job model Franklin D. Roosevelt pioneered, click here.)

Copyright 2010 Steve Fraser

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