Eighty years ago, Franklin Roosevelt rode into office at the height of the Depression. In many ways the election of 1932 has much in common with the current American presidential campaign. The economic record from 1929 to 1933 was grim. Unemployment spiked to close to 25 percent from a pre-1929 figure of about 4 percent. World trade was down by a third, partly in response to the ill-advised Smoot-Hawley tariffs of 1930, which sparked retaliation from around the globe. And persistent deflation of 20 percent meant debtors could not repay their debt with these new expensive dollars. Today’s situation is nowhere near as desperate, but there is little doubt that America is stagnant and uneasy. So what can we learn about the current election from Roosevelt’s New Deal days? Comparisons race to mind, given the conscious efforts of President Obama’s supporters to hark back to Roosevelt’s rhetoric. Richard Trumka, president of the AFL-CIO union, used similar language at a rally recently in Philadelphia.
How will this effort to follow in FDR’s footsteps fare? In 1932, Roosevelt could campaign as the outsider by attacking the record of the Republican incumbent, Herbert Hoover—who, ironically, was a progressive himself. Roosevelt pledged himself “to a new deal for the American people. This is more than a political campaign. It is a call to arms.” The object was “a more equitable opportunity to share in the distribution of national wealth.” Today, the shoe is on the other foot. Obama must now defend his record against an assault that will become more pointed now that Paul Ryan has become Mitt Romney’s running mate. No longer can Obama plead for his team to be given a chance to implement an agenda of hope and change. Instead, he must argue that his old team needs four more years to implement a program that has generated so many dashed expectations. It will be more difficult for Obama to play defense in 2012 than it was for FDR to play offense in 1932.
Roosevelt’s New Deal campaign was not limited to soaring speeches. Every campaign also needs villains whose misdeeds frustrate the will of the people. Today, they are the “1 percent.” For Roosevelt, the villains were the “self-seekers.” These “rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated.” In Washington, Roosevelt used the language of war and religion to conclude that “the money changers have fled from their high seats in the temple of our civilization.” His biblical reference could not be clearer, for when Jesus came to Jerusalem he too went into the temple of God to cast out the money lenders. The parable plays into the New Deal story that all financial transactions are sterile exchanges over which, Roosevelt insisted, government must impose “a strict supervision of all banking and credits and investments,” in part to undo “the overbalance of population in our industrial centers.” But “our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy”—as if the two could be separated.
Roosevelt’s creation of public works programs to offset the decline in private spending did modest good, far more than Obama’s bloated stimulus programs. But Roosevelt’s enduring achievement was to put government muscle behind agriculture and labor cartels that persist to this day. He may not have understood why cartels are less efficient than monopolies—namely, because they set quotas to allocate some production to its least efficient members—but what he did understand was that cartels have a political pop that no monopoly firm can match. A cartel can muster a large membership base that works overtime to bolster its political allies. Trumka’s rallies and Obama’s backing of the ethanol coalition both take a page out of Roosevelt’s New Deal playbook.
Although Roosevelt never confronted the grim consequences of his economic initiatives, he was without peer in packaging partisan programs in the language of universal truths. His use of the phrase “Second Bill of Rights” tied his political vision to one of America’s greatest achievements, its first Bill of Rights. He did so, however, without awareness that implementing Bill of Rights 2.0 necessarily undermines Bill of Rights 1.0. His devilishly simple strategy was to list all the benefits that individuals could claim under 2.0 without stating what correlative duties were needed to generate these new rights and who would foot the bill for them.
The protected interests under 2.0 were tailored to his political constituency: “The right to earn enough to provide adequate food and clothing and recreation; The right of every farmer to raise and sell his products at a return which will give him and his family a decent living; The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad; The right of every family to a decent home; The right to adequate medical care and the opportunity to achieve and enjoy good health; The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment; The right to a good education. All of these rights spell security ... ”
All of these are positive rights: some unidentified individuals or groups have the duty to provide decent wages, home, health, and education to the people. The individual so taxed can discharge that duty only by forfeiting his own right to reap the fruits of his own labor. Yet the incidence and size of these hefty correlative duties were left unaddressed by Roosevelt. We are witnessing a rerun of his incomplete strategy: Obama’s healthcare plan designates a generous set of “essential health benefits” to numerous individuals entitled to affordable care on the newly created government exchanges. But these benefits cannot be funded with higher taxes on the “millionaires and billionaires,” whose combined wealth falls short of what is needed. So what duty will undergird the new right?
This sort of funding crisis could never arise under the Bill of Rights 1.0, whose correlative duties are negative—i.e., they impose a “keep off” sign on other people. If I have the freedom of speech, your duty is to forbear from disrupting the speech with force. Each of us can demand forbearance from the use of force by all others. So if freedom of contract allows me to take whatever job I wish from any employer, your job is not to block the door because the lower wages that the employer offers amount to “unfair competition” to the higher wages I could command elsewhere. The “security” supply against aggression under 1.0 is sustainable in the long run. The mission of government is to collect enough in taxes so that it can create the social institutions that support these rights.
The “social security” championed in Bill of Rights 2.0 imposes far more extensive correlative duties, but only on select portions of the population. The taxes needed to sustain them cut into the productive wealth from which they are collected in the first place, which is why Social Security (the name is no accident), Medicare, and Medicaid are all in financial distress. So it is instructive to ask just how Roosevelt’s Second Bill of Rights fared in his own time. During the war, economic demands were kept in check by the need to fight a common enemy. But once war ended, America endured a “strike wave” that led to a major shift to the Republicans in the 1946 election, similar to 2010. A consequence was the passage of the Taft-Hartley Act, which cut back on union collective bargaining rights and allowed the government to impose 80-day “cooling off” periods that would give mediators the opportunity to avert strikes. The legislation passed over President Truman’s veto, but once in place, he took advantage on a dozen occasions to impose “cooling off” periods to prevent strikes.
How could labor statutes not foster industrial unrest? The basic premise of the New Deal labor reforms was that a regime of collective bargaining would force management to sit down with labor because of its statutory duty to bargain with the selected union. The statutory rigidity led to the confrontations that a competitive market can avoid by making continuous wage adjustments in response to shifts in supply and demand. But open markets hurt unions, which is why Trumka wants Congress to strengthen the union’s bargaining position by card check and mandatory arbitration. Yet even he must recognize that the growth of free trade around the world has reduced union power to the point where strikes against profitable companies such as Verizon and Caterpillar cannot raise union wages above competitive levels.
These recent developments in labor relations show how changed market conditions offer welcome correctives to the New Deal approach. It is these changes that are at risk under an Obama administration whose main agenda tracks Roosevelt’s early one: Vilify the rich and work toward a progressive-tax-rate structure; be hostile toward the growth of international trade by denouncing firms that outsource jobs as the enemies of domestic labor; continue to favor extensive agricultural subsidies for ethanol, no matter how great a disruption these impose on food markets; and insist on a set of unsustainable benefits through Medicare and Medicaid.
There is much that is familiar in these two approaches. But there is a key difference: Roosevelt played an offensive game against nameless enemies in 1932. In 2012, Obama is playing defense, and his attacks on Mitt Romney, Bain Capital, and Paul Ryan are personal. In light of this, it is unclear whether the president’s progressive message of hope and change will prevail again. It is time for the New Deal, which has championed cartels and massive, unsustainable wealth transfers in the name of the public good, to be brought to its long overdue end.
Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is a professor of law at New York University Law School and a senior lecturer at the University of Chicago. This is adapted from Defining Ideas, a Hoover publication.