Franklin Delano Roosevelt, the 32nd president of the United States, Democrat, and architect of the New Deal, was a giant. Through his visionary leadership and courageous actions, FDR helped define a new era for the American economy and indeed our democracy that would resonate for another 80 years. Over an unprecedented four terms as Commander-in-Chief, he designed and implemented a variety of programs to lift America from the Great Depression, including programs to create jobs for the unemployed, spur economic growth, and reform our financial system (by regulating Wall Street and the banks). FDR's administration also established the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Administration (FHA), the Securities and Exchange Commission (SEC), and Social Security. It would not be an exaggeration to say that FDR laid the foundation for the bulk of our nation's modern economic and social framework. It is almost unimaginable what the United States would be like today without the groundbreaking work of that administration.
Which is why the Republicans hate him so much.
FDR succeeded in doing something that Republicans detest from the bottom of their hearts, which is using government as a tool to better the lives of middle-class and poor Americans. In the Republican eye (then and now), he was a socialist; but in reality he was an aristocrat, a populist, a dynamic leader, a crusader, and a politician -- never a socialist. FDR believed fervently in free markets and capitalism, but he also believed in strong government action at times of crisis, a safety net for the weakest members of our society, and a regulatory framework that ensured fairness in all aspects of American life, including business. This is not socialism but pragmatism and responsible government. FDR rejected the mercenary values of his Republican peers and stood up to the self-serving interests of the wealthy, and for that he deserves our gratitude and admiration.
What FDR realized when he first took office in 1933 was that American capitalism could not save itself once the Great Depression had set in. From 1929 to 1933 manufacturing output in the United States had declined by a third, unemployment had risen to a staggering 25 percent, banks were going under in alarming numbers, and the economy was teetering on the brink of collapse. A sense of panic had set in. During a time that eerily foreshadows the period following the bankruptcy of Lehman Brothers in 2008, it was clear to FDR that the government needed to take decisive action in order to avert a catastrophe. The response was the First New Deal, a set of trailblazing programs that sought to create jobs through massive investment in infrastructure, manufacturing, and housing; to provide relief for the destitute; to rescue and reform the banking industry; and to re-establish a solid foundation for commerce in America. The result was a period of rapid economic growth in the United States for several years.
It was not until the end of FDR's first term that Republican sabotage of New Deal initiatives, judicial activism on the part of the Supreme Court (sound familiar?), and FDR's own obsession with a balanced budget brought American recovery to a halt. Confronted with the criticism that his policies had ultimately failed, FDR had two choices -- to reverse course entirely or to double up. He did the latter, leading to the Second New Deal, which took an even more direct approach to government intervention in the nation's economic and social affairs. Its achievements included creation of the Works Progress Administration (WPA) to employ millions of workers to carry out public works projects; rural electrification; breakup of the monopolistic utility holding companies; the Wagner Act to promote labor unions; the Fair Labor Standards Act to prevent exploitation of workers by businesses through the setting of maximum work hours and minimum wages; and the landmark Social Security Act to provide citizens with a critical safety net in their old age. The Second New Deal was even more successful than the first and carried the United States till the Second World War, when a war economy took over. The rest, as they say, is history.
What FDR demonstrated through the New Deal was that government had the ability to jumpstart a stalled economy and to revive commerce through spending and sensible business reforms. It was actually only when the president raised taxes to balance the budget and the Federal Reserve ran a contractionary policy that the economy began to stall again at the end of the First New Deal. The reason is that stimulative policy only works when money is added to the system through deficits, not just higher taxes. This Keynesian view was unpopular at the time but FDR realized his mistake and corrected course, leading to the Second New Deal and its more expansive policies. In hindsight, it was the right move.
It is also worth noting that despite setbacks in the Supreme Court on the constitutionality of some reforms, and fierce opposition in Congress, some key pieces of the First New Deal survived, such as the Securities Act of 1933, which required public companies to disclose their financial statements and other information; the Glass Steagall Act of 1934, which separated commercial and investment banking to protect consumers from risk; the FDIC to insure consumer deposits in banks; and the SEC to regulate the stock market and prevent corporate abuses. Except for the Glass Steagall Act, which was dismantled by the banking lobbies over the past two decades but which has now been replaced by the Volcker Rule, all the other initiatives still remain in place.
All this was then, but the parallels between what happened during the Great Depression and what is happening now are striking. Four years after the financial crisis our economy is still struggling: GDP is flat; the unemployment rate, at 8.2 percent, is still dangerously high; consumer confidence is down; the housing market flounders; stock market volatility is high; major banks like JPMorgan Chase continue to take the type of risks that nearly destroyed us in 2008; workers are losing the battle for their rights; a Democratic president sits in the White House while the Republican party and its financial backers do everything they can to sabotage his efforts to provide Americans with relief; and fear reigns supreme. You would think that we would learn from history and apply some of the solutions that worked before.
You would be wrong.
In Part 2 of this article, I will address the Republican agenda today and President Obama's opportunity to rise to the challenge by becoming the FDR of our time.
...To Be Continued.
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