Big Fat Story
Gifted oratory may be more important than economics
There are many parallels between the election of 1932 and that of today. McCain finds himself, like Hoover, the unlucky one—the Republican who has to fight a campaign for the incumbent party in the middle of an economic crisis. "There is no absolute rule that the incumbent is bound to lose in a recession election, but the bigger the panic the worse the prospect for the party in power," argues William Rees-Mogg. Obama and FDR "were, or are, gifted orators, relying as politicians on an ability to communicate to the public, and move them." Obama has readily quoted Roosevelt on the Slump: "Now is not the time for fear. Now is not the time for panic. Now is the time for resolve and steady leadership." Both Obama and McCain are largely ignorant of economics, as was FDR. But what Roosevelt delivered was clear leadership, a reassuring manner, a kindly, smiling visage, and the prospect of a job and a better life. "In the 1930s, Roosevelt was the prophet of hope for the United States, just as he was for the free world in the 1940s. He was a very, very great President," writes Mogg. Oliver Wendell Holmes Jr. said of FDR that he had a "second-class intellect, but a first-class temperament." Whether Obama or McCain has the temperament to preside over the current financial troubles may prove the key to the election.
Photo: John Minihan/Evening Standard/Getty
FDR's Gift to the People in Shock: Hope
Franklin Delano Roosevelt (32nd president 1933-45) was a wealthy patrician from New York who could inspire the American people as Herbert Hoover, the 31st president could not. The theme tune associated with Hoover was "Brother can you spare a dime?" With FDR: "Happy Days Are Here Again." He was the first president to accept that the federal government must be responsible in any economic downturn. But contrary to folklore, FDR's New Deal did not end the slump from 1929 to 1941, nor was the Wall Street crash of 1929 the principal cause of the decade of depression. Only in one year before 1940 did unemployment fall below 8 million. FDR was baffled, as were many more expert in economics. He was reluctant to embrace really massive deficit spending. His attempt to balance the budget in 1936 with public spending cuts brought unemployment roaring back. Only the massive deficit of rearmament spending ($50 billion) got America back to work. But FDR's bright spirit and faith in democracy preserved democratic capitalism while it was falling to fascism in Germany, Italy, and Japan.
Photo: AP
Roosevelt's job creation measures sometimes took away individual rights
Roosevelt is remembered as the president who by force of rhetoric and strength of personality restored faith in the future to Americans buffeted by the 1929 stock market crash and the subsequent Slump. But with the hindsight of 70 years it is clear he did not actually cure the effects of the Depression until he joined the struggle against the Axis powers and put the country on a war footing. Amity Shlaes has explored the unintended consequences of FDR's public works program and his blithe intervention in the free market and has found that a great deal of money was wasted and civil liberties were sometimes curtailed while the length of the Depression was, if anything, extended. She is not alone. Shlaes warns that arbitrary decisions by the current administration—saving one company while condemning another—have unsettled those who are used to the certainties of the market.
Photo: Daniel Acker/Bloomberg News/Landov
The return of Franklin Roosevelt
With shares tumbling and the financial sector frozen, the reputation of FDR is being revived. Did the hero of the Great Depression make intervention in the free market respectable? Or was his New Deal a waste of money?
Will this be the example President Obama follows? Roosevelt was careful not to be associated too closely with Herbert Hoover, his predecessor, who was blamed by the voters for the stock market crash of 1929 and the subsequent Slump. Hoover was eager to present a united front on economic policy to voters in the 1932 election and repeatedly called on Roosevelt to join him. In 1933, ahead of Roosevelt's inauguration, Hoover begged him to join in endorsing an emergency bank holiday. "Like hell I will," Roosevelt replied, according to Jonathan Alter's The Defining Moment: FDR's Hundred Days and the Triumph of Hope. "If you haven't the guts to do it yourself, I'll wait until I'm president to do it." Which may explain in some part Obama's reluctance to join McCain in Washington to boost the bailout package. The key to the New Deal, the Reconstruction Finance Corporation, which distributed $10 billion to business in the 1930s, was Hoover's invention. But Roosevelt took full credit for its effects.
We couldn't have a Fed chairman better prepared for the turmoil in the financial markets than Ben Bernanke, who has made his special field of study the reasons for the stock market crash of 1929, the Slump, the New Deal, and the subsequent recovery. As a devotee of the free marketeers Milton Friedman and Friedrich Hayek, however, he has been wary of intervention into the markets by governments. The bailout plan he hatched with Treasury Secretary Henry Paulson, however, is shamelessly intrusive. The financial industry is slowly being taken over by the state. What began as a bailout has quickly turned into the nationalization of the banks. Come back Keynes, all is forgiven. Bernanke's academic work into the causes of the Slump blames a failure of the markets to operate efficiently, leaving households, farmers, and small firms unable to obtain credit, just as today. One of the main reasons the comparison between 1929 and 2008 is inapt is exactly because Bernanke and Paulson are unafraid to do what is necessary in timely fashion, regardless of their personal ideology.
Photo: Susan Walsh/AP
The meltdown has resurrected the legacy of John Maynard Keynes
Roosevelt's ideas were in part inspired by the brilliant young British economist John Maynard Keynes, whose 1919 book The Economic Consequences of the Peace predicted that loading defeated Germany with debt would only lead to another world war. His daring approach to economics caused him to encourage governments to spend their way out of a recession. When asked whether in the long run this would not lead to price inflation, Keynes replied, "In the long term we are all dead." Keynes and Roosevelt were not close—Keynes thought FDR "not clever" and was disappointed he was not "more literate, economically speaking," while FDR grumbled that Keynes "left a whole rigamarole of figures. He must be a mathematician rather than a political economist." But both concluded that by spending borrowed money governments could ameliorate the effects of a recession. Although for a time Keynes fell into disrepute, largely because governments continued to use deficit spending during times of prosperity to boost their chances at the polls, the actions of Bernanke and Paulson show his influence is alive and well. Left to the devices of Keynes' nemeses, monetarists Friedrich Hayek and Milton Friedman, a full scale crash would now be upon us.
Photo: Bettmann/Corbis
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