Читать книгу Shattered Consensus - James Piereson - Страница 12
ОглавлениеMuch as generals make the mistake of fighting the last war, politicians are prone to recycle old nostrums that were previously successful in getting us (and them) out of one crisis or another. The financial meltdown of 2008 thus led to a revival of Keynesian public-spending remedies and the dream of replaying FDR’s New Deal. So strong is the hold of the New Deal over the liberal imagination that few people stop to consider how different the world is today from the one that Franklin Roosevelt faced when he took office in 1933 at the very bottom of the Great Depression.
It was not surprising, following Barack Obama’s election in 2008, to hear liberal pundits and Democrats in Congress calling for another New Deal and a rerun of Roosevelt’s “first hundred days,” but even more ambitious this time. One influential columnist called our new president “Franklin Delano Obama,” while lamenting that the original New Deal was far too modest and lacking in vision to achieve reform on the required scale. Shortly after the election, an issue of Time magazine carried on its cover an image of the president-elect’s face merged into a famous photo of FDR in a convertible, wearing a fedora and a wide smile. Accompanying the image was an article titled “The New New Deal,” drawing parallels between Roosevelt’s leadership during the Depression and the opportunities now arrayed before Obama. Many said (with much relief) that the financial collapse combined with Democratic electoral sweeps marked the end of the Reagan–Thatcher era with its focus on free markets, open trade, and low taxes.
President Obama and his advisers have been of two minds about these associations with FDR, at times embracing them to burnish his image as a reformer and at others rebuffing them out of concern that he may not be able to fulfill the hopes thereby ignited. They did, however, adopt the concept of a New Deal–type stimulus package including funds for public works programs, “clean” sources of energy, and other projects designed to stimulate consumer demand and create new jobs. The Wall Street Journal reported, “President-elect Obama is promising to intervene in the economy in ways that Washington hasn’t tried since the 1970s, favoring some industries and products while hobbling others.” It is sobering to recall that the policy experiments of the 1970s, which gave us a decade of alternating recession and inflation, were modeled on the New Deal. There was little reason to expect that they would work any better today.
The New Deal metaphor in wide circulation today is based on a misconception: the belief that the kind of interventions that were effective during the Great Depression are the right medicine for dealing with a financial crisis and a stagnant economy today. This misconception rests in turn on a faulty analysis of the recent past: the notion that the market-oriented policies of the past quarter century were a great mistake and should be replaced by a more coordinated set of policies that (it is argued) will yield more stable growth and a fairer distribution of income. Thus the New Deal metaphor is now invoked as a call to overturn the free-market revolution of the 1980s, just as the New Deal threw overboard the Wall Street–favored policies of the 1920s. Such hopes are based on a fairytale version of the New Deal and a highly ideological interpretation of recent history.
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The New Deal was erected in an unprecedented calamity, with the American economy at a near standstill. Between 1929 and 1933, unemployment rose from 3 to 25 percent of the workforce, national output fell by more than 30 percent, the dollar value of U.S. exports fell by more than two-thirds, the stock market dropped close to 90 percent, and more than a third of the nation’s banks failed. The Great Depression, as it came to be called to distinguish it from the mini-depressions of the 1870s and 1890s, was a catastrophe on a scale far beyond what anyone previously thought was possible. No one knew what to do about it, certainly not Franklin Roosevelt, who had campaigned on a platform calling for a balanced budget.
When FDR took office, things were about as bad as they could possibly get, and there was little reason to worry about what we would today call “downside risk.” Thus, Roosevelt took an experimental approach to the crisis, adopting various contradictory policies in the hope that some of them might work to reverse the slide. He also had more room to maneuver than is the case with policymakers now, operating as he did in an environment in which the federal government spent (in 1932) only about 3 percent of GDP, by contrast with today’s 20-plus percent. There were no social programs to speak of. The economic collapse removed the traditional political restraints on federal spending, while international factors of trade and exchange rates did not significantly restrict Roosevelt’s options after he took the United States off the gold standard. Thus there was much room to increase federal spending, and, by blaming the rich for the catastrophe, FDR had a justification for raising their taxes.
At that time, however, the federal government did not command a large enough share of the economy to “prime the pump” with Keynesian-style deficits. (That would come later.) Since most workers were employed on farms or in factories, they could be diverted in a time of high unemployment to public works programs, building roads, bridges, and schools. FDR did not have to worry about putting hordes of unemployed investment bankers, lawyers, or accountants back to work; nor did he have to worry about environmental regulations or cumbersome permitting rules of the kind that hold up road and bridge building today. Any public works program proposed on the model of Roosevelt’s Works Progress Administration would now have to be tailored to the characteristics of the unemployed in a service economy, to the current regulatory environment, and to the objections of public sector unions.
Some of the most constructive and long-lasting features of the New Deal are those that today’s would-be reformers ignore when calculating its achievements—most particularly, the broad financial reforms that FDR implemented during his first hundred days. He moved quickly in 1933 to address the failures in the financial system that were obvious sources of the continuing deflation and downward spiral in the economy, immediately declaring a bank “holiday” (to stop bank panics) and removing the United States from the gold standard to free the Federal Reserve from its deflationary restrictions. In short order, Congress approved a series of reforms that created a system of deposit insurance, brought more banks under the supervision of the Treasury and the Federal Reserve, established standards of transparency in the public sale of securities, and built a wall of separation between commercial and investment banks in order to curtail the speculation with bank deposits that many saw as a cause of bank failures. Roosevelt also effectively devalued the U.S. dollar in relation to gold, raising the exchange value from $21 to $35 per ounce. In combination, these measures stopped the slide and re-established the banking system on a stronger and more stable foundation. Most of them continue to function today as underpinnings of the financial system (save for the split between commercial and investment banks, which was repealed in 1999).
At the same time, many of the New Deal measures most favored by reformers today were either unhelpful or counterproductive in addressing the economic crisis. FDR’s farm programs, designed to raise prices by cutting agricultural production, may have helped some farmers, but they did not promote farm exports nor did they help consumers with tight family budgets. In a misguided effort to raise prices, New Deal functionaries destroyed meat and produce and took cropland out of production even as hungry Americans stood in bread lines. The National Industrial Recovery Act (NIRA), designed to bring unions and corporations together to set prices, production levels, and working conditions, proved to be a bureaucratic tangle as businessmen tried to use it to guarantee profits, unions to drive up wages, and government officials to expand public power. Through its complex codes, NIRA succeeded not only in raising prices—a dubious achievement—but also in sowing confusion throughout the economy as to what business practices were and were not permitted. It was soon declared unconstitutional by the Supreme Court and FDR never tried to revive it.
The main elements of the so-called Second New Deal—the Social Security Act, the National Labor Relations Act, and the Revenue Act of 1935—added new burdens to business in the form of payroll taxes, higher corporate taxes, and collective bargaining for labor unions. Whatever their long-term benefits, these measures did not improve the climate for investment and job creation in the 1930s. The NLRA, predictably, led to more union organization and to a spike in industrial strikes. The passage of these measures was accompanied by a good deal of antibusiness rhetoric, which was not helpful either. Indeed, the Revenue Act, because it raised the highest marginal tax rate to 78 percent, was sometimes called the “soak-the-rich tax.” When a severe recession followed in 1937 and 1938, sending the unemployment rate from 14 percent to 19 percent, FDR attributed the crisis to a “capital strike” engineered by business leaders exercising “monopoly power.” Such demagoguery may have succeeded as a political strategy in deflecting blame from the administration to the business community, but it failed miserably as an approach to economic growth, as Amity Shlaes argued in The Forgotten Man, her counterestablishment history of the Depression era. Unemployment remained high throughout Roosevelt’s second term, never going below 14 percent until the nation began to mobilize for war in 1941.
The antibusiness rhetoric of the New Dealers had its source in a misguided understanding of the causes of the Depression, which they located in industrial concentration and monopoly and an overproduction of goods that drove down prices after the stock market crash of 1929. Lurking behind all these ills, supposedly, were the rich bankers and industrialists whose speculation and abuse of monopoly power caused the entire system to collapse. But none of these factors, as economists now agree, could have caused a collapse on the scale of the Great Depression, nor could they have accounted for the generalized deflation that occurred. By April 1930, moreover, stocks had regained much of the value that had been lost in the meltdown of the previous October.
The real causes of the Depression are to be found elsewhere, and they are instructive for today’s economic problems. Though economists and historians still debate the subject, several interconnected factors appear to have combined to turn a serious stock market correction in late 1929 into a full-scale depression by 1932: (1) An ill-advised tariff policy passed by Congress in 1930 to protect U.S. manufacturers had the unintended effect of shutting down international trade and U.S. exports. (2) A monetary policy adopted by the Federal Reserve raised the discount rate and allowed the money supply to shrink through 1932 even as the economy faltered. (3) A cascade of bank failures wiped out savings and credit for large swaths of the economy. (4) A mountain of international war debt destabilized exchange rates, undermined the prewar gold standard, and impeded economic growth in debtor countries. These factors worked together in a reinforcing process from 1930 to 1933 to send the world economy into a downward spiral.
The economic collapse was thus accelerated by policy errors made by Congress and especially by monetary authorities that did nothing as the money supply contracted and banks failed. All those involved had failed to take into account and make accommodations for the unprecedented international situation created by the war. Today’s financial authorities, apparently mindful of history’s lessons, seem determined to prevent a replay of the falling dominoes of the 1930s. To the extent we avoid that experience, it will undoubtedly be through the use of monetary levers that were untried, unknown, or unavailable at that time.
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Admirers of the New Deal point to the prosperity of the 1950s and 1960s as evidence that FDR’s reforms, rather than undermining American capitalism, actually smoothed out its rough edges and permitted it to operate more efficiently. FDR himself claimed that his New Deal had saved market capitalism from its own inherent excesses. That is the case he made to critics from the business community during a campaign speech in Chicago on October 14, 1936: “It was this administration which saved the system of private profit and free enterprise after it had been dragged to the brink of ruin by these same leaders who now try to scare you.” Many mainstream economists and historians have elaborated upon FDR’s claims. John Kenneth Galbraith, for example, argued in American Capitalism (1952), The Affluent Society (1958), and The New Industrial State (1967) that the New Deal put into place a modern economy in which large corporations and labor unions control markets and work with government to maintain demand for products and to set wages and prices. Such a system, he contended, was required by technological advances that called for large business enterprises, which in turn needed to be regulated by government in the public interest.
The corporatist ideal, along with a bipartisan foreign policy, was a pillar of the governing consensus during the Eisenhower and Kennedy–Johnson years. Conservative Republicans were sorely disappointed when Eisenhower maintained the essential contours of the New Deal following his landslide election. Richard Nixon also endorsed that consensus, declaring in January 1971 that he was “now a Keynesian in economics.” That year, he removed the dollar from the international gold standard and imposed wage and price controls in the hope of battling inflation. By the mid-1970s, though, it was clear that the policy prescriptions of the New Deal—stimulus packages, loose money, job training programs, bailouts of bankrupt cities and corporations—had failed to stem the accelerating “stagflation.”
The postwar governing consensus was built upon a temporary and artificial situation in which America’s chief competitors in Asia and Europe were on the sidelines as a result of the war. It took at least two decades for those economies to recover (with American aid) to the point where they could compete with American industry in fields like automobiles, steel, and energy. The U.S. economy operated at high levels during the 1950s and 1960s, exporting products around the world and maintaining balance-of-payments surpluses, notwithstanding the high personal and corporate taxes, the regulatory structure, and the adversarial labor unions that were the legacies of the New Deal.
That system came under increasing stress in the 1970s as the global economy began to impinge on those comfortable postwar arrangements, as European and Japanese companies challenged our industrial supremacy with high-quality and efficiently produced exports, and as the oil shocks of 1973 and 1979 caused energy prices to soar. By early 1980, unemployment was running at 7.5 percent, inflation at 14 percent, and interest rates at 21 percent—marking a decade of slow growth and inflation.
Liberals have often criticized Ronald Reagan’s policies of low marginal tax rates, deregulation of business, and free trade as an ideologically motivated attack on key features of the New Deal. It would be more accurate, though, to view those policies as adaptations to a changing global economy and as remedies for a severe and prolonged economic crisis. Some such measures would have had to be adopted sooner or later to break the cycle of inflation and unemployment. Those adjustments in policy have been ratified not only by two decades of robust growth but also by the tacit endorsement of leading Democrats. After all, despite much weeping and wailing, prominent Democrats gradually accommodated themselves to the new framework, much as President Eisenhower adapted his administration to the New Deal reforms. President Clinton, after being elected to reverse the Reagan-era policies, instead signed the North American Free Trade Agreement, kept marginal tax rates low, did little to promote unionization, and signed a welfare reform bill that dismantled a main feature of FDR’s Social Security Act of 1935. As a consequence of these steps, Clinton left office with a strong economic record.
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The desire to overturn the market revolution that began in the 1980s and replace it with an updated version of the New Deal was thus the ultimate snare for Democrats when the Obama administration began. High marginal and corporate tax rates, managed trade and protectionism, the undoing of NAFTA and other trade agreements, private sector unionization, new health-care mandates on business, subsidies for politically favored industries, increases in public sector employment—all of which have been enacted or proposed in one form or another during the Obama presidency—are a recipe for an extended period of slow growth and stagnation. The recovery from the recession of 2008 has thus been the most anemic of all postwar recoveries, with annual growth rates rarely exceeding 2 percent. President Obama’s decision to embrace a “government agenda” rather than a “growth agenda” is largely responsible for this unfortunate outcome, which is discrediting Democrats once again as ham-fisted on the great question of economic growth. While this approach has been much to the advantage of Republicans, it has done immeasurable harm to the country, which may take decades to repair.
A wiser though less exciting course would have been to accept the inherited framework of policy with its emphasis on growth rather than redistribution, while finding other avenues by which to address Democratic priorities. More than six years into the Obama presidency, it is now far too late to reverse course. The Obama years are destined to be recalled as a time of wasted opportunity and stagnation for the American economy. One hopes that things will not get worse over his final two years in office, though that possibility cannot be discounted. If the president and his supporters wanted to find inspiration in the New Deal, they could have done worse than to look to FDR’s successful efforts to modernize the financial system as a foundation for economic recovery. FDR understood, even if many of his aides and advisers did not, that if a party in power cannot deliver economic growth, there is little else that it can hope to accomplish.
A version of this chapter appeared in The Weekly Standard, January 19, 2009.
