On a cold March day in 1933 in Washington D.C., a man in a wheelchair sat alone in a room in the Capitol, working on the final words of a speech that he hoped would resurrect the spirit of a frightened, hungry, weary people.
As Franklin Delano Roosevelt prepared to speak to the American people, outside a crowd of 100,000 waited in the cold. One out of every four was unemployed. There was no unemployment insurance. Troops with machine guns surrounded the grounds with good reason. Two months before, over a thousand men had marched into Washington demanding jobs, pay…food. In the absence of government leadership, the country was organizing…socialists, communists, fascists…any group that promised a brighter future. Crowds as large as 35,000 people gathered to hear revolutionary orators offer solutions.
One out of four citizens were out of work. Banks were closed. Factories were shuttered. Huge numbers of workers had been laid off and their homes foreclosed. They lived in tar paper shacks and tin shantytowns. Republican policies had not succeeded in doing anything but making things worse since the stock market crash of October 1929. From late 1929 to 1932 the unemployment fell from 8 million, which was bad enough, to 15 million, with no end in sight. At a time when there was no FDIC protection, 5000 banks had failed. When the bank went away, so did your money.
Mobs organized around farm foreclosures, at bank and factory closings. By 1933, anarchy and the Red Scare were more than mere conversation. They were real. As the new President prepared to take office, the country had come to a complete halt. Numerous contemporaneous reports indicate clearly that armed rebellion was a distinct possibility.
The idea of the Republican Hoover Administration was then, as is the Republican idea today, to cut back on government spending, balance the budget, get out of the way and let the economy recover. Money spent on each of the one-out-of-four who were unemployed amounted to the grand total of $6.68 per year. A few people began to see that this would not work. A visionary economist, John Maynard Keynes asked if anything short of war would make the government run a deficit to stimulate the economy.
In addition to the domestic problems facing Roosevelt, he faced an even more challenging situation abroad. Under the same or worse economic stress, European nations were making far different choices in their governments. In January of 1933, two months prior to Roosevelt’s inauguration, Adolph Hitler, perhaps the most dangerous and destructive man who ever lived, took office as Chancellor of Germany.
From the day Roosevelt took office, and particularly within the first 100 days, he began to shake things up. The bankers and the conservative manufacturing giants and the wealthy establishment class from which he came…were in shock. Obviously, to this day the Republicans are still in shock. Now they worry about the “second-coming” of FDR in the person of a young, bright, and aggressive Liberal named Barack Obama. So they will throw any message out there…true, false…anywhere in between that they think will confuse the issue. Their political agenda, a typical Rove-like plan is to halt spending, continue the Depression, hope to be re-elected and then put the country another $5 trillion into debt on top of the $5 trillion debt they added over the last 8 years. (Not to mention the $5.6 trillion from a combination of Reagan and Bush the First.) No jobs. No stimulus. More tax cuts for the rich.
So what have they done? They have tried to generate at least some minimal enthusiasm for a Republican Party that has no credibility by marching back 70 years to re-write history. Unfortunately, the arguments of paid Right-Wing propagandists like the Right-Wing journalist Amity Schlaes or James Powell of the Cato Institute do not work. Or the comments of a professor from UCLA, Lee Ohanian, who says that Roosevelt held wages so high that it caused the extension of the Depression. Even though there were already 25% of the people unemployed when Roosevelt came in and his policies not only put people to work and kept others from starving, but reduced unemployment every year that they were in effect.
Ohanian, it should be noted, commenting on the recent severe downturn where now over 5 million additional people have lost their jobs in less than a year, said that people “panicked” and that the “fundamentals are sound” and that consumers are basically causing their own problems. Yeah. Thanks, professor. We’ll get back to ya! Ohanian says that Roosevelt prevented small businesses from hiring workers, thereby inhibiting growth. Here is what is wrong with their arguments that FDR prolonged the Depression. The first thing is that their arguments are 21st century comments about an early 20th century situation. Here’s the difference.
In 1933, March, when Roosevelt took over, unemployment had been growing at an unprecedented rate and after 3 years stood at 24.9%. Even though his programs reduced unemployment every year, in 1937, he was finally persuaded by Democrats to balance the budget. He raised taxes and cut spending. Those policies, which he was against, sent the economy back into a tailspin. Four million people were unemployed again in less than a year and unemployment went from 14% to 19% and the economy took a nose dive. He promptly went back to his previous policies, poured $5 billion into the economy and unemployment decreased and continued to do so until the war economy took hold and by 1943 only about one person in a hundred was unemployed.
Here is what he did to stimulate the economy and many serious economists to this day think that, because there was no one in government…no one…who was for deficits in those days, that he would and should have done more in the beginning. We now know that Hoover, who did try to balance the budget in the midst of what was already a Depression, did virtually nothing that had any effect on the worsening economic situation. Had something been done in the first six months, there might not have been a Depression. But it was already full blown by 1933 when Roosevelt took office. This is the lesson that experts on the Depression like Bernanke and Krugman and Galbraith and Baker and others use to advise that we act quickly and decisively.
Powell claims that Roosevelt did little for the banks. It was difficult for Roosevelt to do much for the 5,000 banks that had already closed under the Republican Administration from 1929 through 1932. Because they did nothing. And there was no FDIC. The bank closed and you lost all your money. But what Roosevelt did, regulating and stabilizing the banking system, guaranteeing deposits…stabilized the financial system. He also claims that Roosevelt’s policies, prevented the country from reducing unemployment, at 25% in March of 1933, down to 5% by the fall of 1934. Anyone who believes this should invest in Credit Default Swaps!
Let us suppose that today were 1933. Does anyone in his or her right mind want to take the Republican approach, a totally failed policy, which, as in 1929 favors the very rich, and calls for cutting back government and social services as we are climbing through 8.5% unemployment on our way to perhaps 15% before we recover…even with all the current efforts? No sensible economist, familiar with economic history, politically objective, would advocate such a thing.
So, will some professor and lobbyist-writer in the future return to this era and say that we should have taken the Republican approach of cutting taxes for the very wealthy and balancing the budget? And when people have jobs in the public sector, building roads, because there are none in the U.S. private sector (except maybe in India or China) will they not go back to their previous jobs or careers when jobs are plentiful again?
To say that FDR prolonged the Depression because of higher wages is foolish for several reasons. First, if the argument is that industry should have been the engine of growth, then why had it not happened? Why, after all of 1930, 1931, and 1932 had the Republican policies of letting the economy recover on its own, had unemployment doubled? Roosevelt could have waited for the business cycle to turn and for the businessmen to fix it. Is that what we would want now? Should we turn things over to the Repbulicans and wait, unemployed, bankrupt, houses forclosed, college foregone for the businessmen who got us into this mess…to get us out?
None of these great minds of business of the late 1920s were any smarter than President Hoover. He was a successful self-made multi-millionaire who was so efficient that he earned the world-wide reputation that led him to the Presidency by organizing the feeding of the entire world after the disastrous period following the First World War. He did it so well that his work became the model for international relief even until today. Twenty years later after the Second World War, President Truman asked his help in the enormous project of reconstructing and feeding the world. So, if Hoover’s plans were not working, those of some bumpkin running the Chamber of Commerce wouldn’t have worked either.
The capital markets had collapsed. No one who had money would extend it and those who would have extended it had none. Hoover worked on an old set of economic rules that had worked in the past. This was a situation of much greater magnitude. It required a new paradigm, which FDR brought to it. He had a different vision, and it worked.
Another argument against FDR’s policies is that against his control of corporations through the National Industrial Recovery Act. The NIRA was simply to put people back to work at reasonable wages and hours. That would, in turn, increase their purchasing power and help grow the economy. Not complicated. It seems difficult to understand how conservatives can argue against a policy, which, while having considerable oversight, allowed industries to work together for the common good, including the careful government supervision to prevent predatory pricing practices. Because the country had been in a severe deflation for three years, Roosevelt needed to inflate the economy as quickly as possible.
In 1933, people were desperate for work. There were no protections for labor. Working hours and wages were whatever corporations said they were. The average workweek in 1929 was 50 hours as compared to an average of 40 hours by 1976. To understand the period better, there were many in Congress, who were actually outraged at the idea that the New Deal legislators wanted to prohibit child labor. Without some organized direction of production, the economy might have a tendency to stall out. With the economy, wages, productivity and consumer spending all in deflation, Roosevelt had to create a mechanism to inflate all those conditions.
Most economists consider that one of the reasons for the Depression was the fact that there was more and more profit being taken out of corporations with a downward pressure on wages in the latter part of the 1920s. Thus, corporations were thriving up to the point of collapse but workers had no excess income. When people stopped working, the whole basis for the economy collapsed because a very few people had any money. Many of those who did have funds were betrayed by banks who were swept away in the financial crisis. The spread between prices and productivity had not found its way back into the economy. The basis for the booming economy had been the stock market, which, as it turned out, had been exorbitantly over priced. After the crash the market retained only ten percent of its previous value.
So the idea that FDR’s jobs program or his policies to maintain wages kept companies out of the labor pool is foolish. Even by 1937, a full 14% of the people were still looking for work. The idea that corporations could not make money with a workforce that was so underutilized, in such a buyer’s market for labor, is inane. It’s like saying: “I can’t hire you if I have to pay you something.”
The Neoconservatives have been working this theme of FDR having prolonged the Depression. We know why they do it. They began it as soon as most of them knew that the kinds of financial instruments their Wall Street friends were hawking would eventually be discovered as worthless. They knew it when many of their friends told them of the huge numbers of unsustainable mortgages that they had seen being securitized. They knew what would happen. Financial collapse. And then would come the reckoning. And when it came, they would be ready with their arguments…valid or not…that the new Depression could not be fought as it had been in 1933. Because if it were, that would be a devastating result for Republicans.
One particular member of Congress, Rep. Steve Austria, of Ohio, who obviously not an economist, decided that he would get way out in front of his colleagues. So he let his mouth get ahead of his apparently somewhat miniscule brain. “When Roosevelt did this, he put our country into a Great Depression,” Austria said. “He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That’s just history.” With Roosevelt, we “ended up” in a Great Depression? Even Neoconservatives have not yet gone so far as to suggest that the timetable of history should be altered to suit their arguments. We must gently suggest to Rep. Austria that he revisit his American history to learn exactly when President Roosevelt took office and the condition of the economy at that time. As with the statements of Sarah Palin or Joe the “Plumber” however, the facts will probably make no difference.