Getting an Economic Consensus
There are no perfect historical parallels. Nothing is ever precisely like it was in another time. At best, history can help illuminate the present and should, if we’re paying attention, help us avoid making the same mistakes over and over again. Take 1938, for example.
But, alas we are Americans. We can’t get agreement on how to crown a national college football champion, how can we possibly get consensus on what to do with the economy?
President Obama went to Cleveland this week to roll out a plan for more stimulus spending on infrastructure and small buisness tax cuts as a way to get people back to work. He was greeted by reactions ranging from ridicule to yawning. Meanwhile, House Speaker-in-Waiting John Boehner, developing economic policy while he measures the drapes, started dropping hints about what a Republican Congress would do with spending (cut it, including unspent stimulus dollars), the economy (grow it) and taxes (leave the Bush cuts in place). All the while leaving room for a few well placed subpoenas.
These two versions of economic policy couldn’t be more at odds. It does sound a good deal like 1937 and 1938.
As Franklin Roosevelt’s Democrats faced the mid-terms in his sixth year in office, the Great Depression was in its eighth year. Wall Street was restive. Labor unions were sitting down on the job. Democrats were frantic and the president’s counselors were divided. Should FDR double down on spending and fiscal policy aimed at reducing unemployment or should the administration send a message to the markets and business that it was determined to get a ballooning budget under control?
Confronted with what historian David Kennedy has described as, “repeated budget deficits, escalating regulatory burdens, threats of higher taxes, mounting labor costs, and, most important, persistent anxiety about what further provocations to business the New Deal had in store,” business confidence was sapped. “Capital,” Kennedy said, “was hibernating.” Sounds familiar, eh?
At a pivotal Cabinet meeting late in 1937, FDR fumed about his advisers constantly telling him about the sorry state of the economy, but “nobody suggests what I should do.” His economic and political advisers eventually won the debate. The president’s Treasury Secretary, Henry Morgenthau, a balanced budget advocate, put it succinctly.
“What business wants to know is: Are we headed toward state Socialism or are we going to continue on a capitalistic basis?”
FDR’s chief political lieutenant, Jim Farley, chimed in. “That’s what they want to know,” that the administration would reduce spending and balance the budget to reassure business and the markets.
“All right, Jim; I will turn on the old record,” Roosevelt responded. A new fiscal policy aimed at reducing spending and balancing the budget was ordered.
The New York Times’ Paul Krugman argues that FDR’s decision brought on the “Roosevelt Recession” of 1938, caused unemployment to top out at 20% and contributed to stunning Democratic losses – six Senate seats and 71 seats in the House – in the 1938 mid-terms. What’s more, Krugman asserts – and he’s critical of Obama from the left for being too timid with his stimulus efforts – the public in the late 1930’s took exactly the wrong lesson from FDR’s shift in policy. Americans became convinced that stimulus spending and job creation efforts hadn’t worked and wouldn’t work. That debate, check the morning paper, still rages.
I keep thinking there must be some middle ground somewhere in the current debate, but I’ve been wrong before. Couldn’t we get something approaching national consensus around two or three major issues?
One, Wall Street and investment banking excesses must be brought under control. Does anyone really think that what happened in the run up to the financial collapse shouldn’t be avoided in the future if at all possible? Regulating greed and excess is not a partisan issue.
Two, spending on well-conceived public works (OK, infrastructure) is both a good long-term investment and good short-term job stabilizer and, one hopes, job creator. The non-partisan Congressional Budget Office said recently that the stimulus has – big surprise – increased the deficit and reduced unemployment.
And, three, the deficit needs to come down, but maybe in a planned, systematic way. Maybe the timing on the expiration of those Bush-era tax cuts is really not very conducive to getting capital out of hibernation. Perhaps a compromise is in order?
Someone, the president or John Boehner or the ghost of Henry Morgenthau needs to find a way to knit all the pieces together into a 2010 whole cloth of economic growth, job creation and fiscal sanity. Not holding your breath? I understand.
There is a poem entitled “Nineteen-Thirty-Eight” by Andrea Hollander Budy. It’s about a young woman who lies about not graduating from high school in 1938:
when her father lost his job.
Now it was her turn
to make herself useful, he told her.
Nineteen-Thirty-Eight was not a particularly good year and not one to repeat. That much history tells us very clearly.
Archive for the ‘Stimulus’ Category
Getting an Economic Consensus
A Stimulus Round-Up
Is the stimulus working? Seems everyone has an opinion.
The Portland Oregonian editorialized recently and answered “yes.” The positive impacts of the stimulus are being felt, for example, at Portland State University where a serious backlog of maintenance is being tackled.
Dave Broder in The Washington Post weighs in that it is simply too early to tell for sure whether the first round of stimulus dollars are having the intended impact.
Elsewhere, Nevada’s embattled Governor Jim Gibbons (pictured above) – he’s in the middle of a messy divorce, staff defections and has approval ratings in the teens – picked a battle with the Silver State’s legislature over who is going to make stimulus spending decisions. The Las Vegas Sun said the battle has the makings of “a constitutional crisis.” Gibbons intends to hire a stimulus coordinator to oversee spending despite opposition for an interim legislative committee that told him not to make the hires.
USA Today had a nifty series of graphics last week showing, so the paper says, a very uneven picture across the country of how the stimulus dollars are rolling out in the states. California, where the economy is truly in a mess, leads the nation in the percentage (about 60%) of allocated stimulus dollars that have actually been received by the state. Idaho is a 29%, Montana at 20% and Washington and Oregon are at about 42%.
Alaska (are you surprised) leads the nation in total per capita stimulus spending at $1,094 for even citizen of the Last Frontier. Idaho is at $515 per person, Oregon at $543 and Montana at $621.
Meanwhile, a new report on “transparency” – how well the states are doing reporting and disclosing stimulus projects – was released by Good Jobs First. Of the Northwest states, Washington ranked best in this particular assessment. The Oregonian’s Harry Esteve reported on the survey. Idaho’s Governor Butch Otter highlighted some stimulus spending recently in eastern Idaho, making the point that the projects were needed and were not just a case of spending money for the sake of spending money.
This Has Happened Before
A bit of historical perspective may be instructive. The only other time in recent American history that compares to the current round of stimulus spending would be The Great Depression. The late, great Montana historian Mike Malone wrote of the situation in Idaho in 1933 in his fine book on the career of Idaho’s three-term, New Deal-era Governor C. Ben Ross. (Malone’s book is C. Ben Ross and The New Deal in Idaho.)
Ross was a fairly conservative Democrat and he initially supported “stimulus” spending from the Public Works Administration (PWA) and the Agriculture Department. Still, Ross became very frustrated with the bureaucratic delay of getting the “stimulus” money in circulation and the jobs on line.
The Idaho Governor complained about the bureaucratic delays to Agriculture Secretary Henry Wallace and to Interior Secretary Harold Ickes. Ickes – you might think of him as the Rahm Emmanuel of his day (son was Bill Clinton’s deputy chief of staff) – wasn’t going to sit by and allow a “western governor” to criticize the New Deal relief effort.
“I had a letter from a governor,” Ickes said in 1933 in a radio speech clearly referring to Idaho’s Ross, “raising hell about red tape and delay…there is a lot of political whizbanging and sharpshooting. There are a lot of persons trying to make a record for assiduity. They want to be in a position, in case the [relief] programs fails, to say ‘I told you so.'”
Assiduity, by the way, is defined as “persistent personal attention.” Ross became quite skeptical of the relief spending later in his term suggesting that administration of the federal dollars had been politicized.
Still, tough old Harold Ickes pointed out to the Idaho governor in 1933 that Idaho would get more relief dollars – the stimulus of The Great Depression – if Ross would only make certain Idaho had enough qualified engineers to manage all the construction projects that had been funded.
In the early 1930’s, spending to stimulate the economy was, as it is today, an “art” not a “science” and effectiveness depended on many factors, including the ability of an aggressive governor to make a state bureaucracy work efficiently, in order to maximize the stimulus impact.
In another few months, I’m betting, we will have a better take on which governors have not “cut the red tape lengthwise” and been able to maximize the use of stimulus dollars.
Nobel Prize winning economist Paul Krugman, the New York Times columnist, wrote recently that we “aren’t going to have a second Great Depression after all.” The recovery, Krugman wrote, will be slow and difficult, but “the economy has backed up several paces from the edge of the abyss.”
Is the stimulus working? Stay tuned.