The Bushies' war on FDR.

Commentary about business and finance.
Jan. 28 2005 4:59 PM

He's Still "That Man"

The Bushies' war on Franklin Roosevelt.

The positive legacy of FDR
The positive legacy of FDR

Why are today's Republicans so hellbent on changing Social Security? Clearly they're not driven by concern over government deficits. After all, they've engineered a taxing and spending regime that intentionally created record deficits. And it can't be that they oppose entitlement programs as a matter of principle. Medicare has an unfunded liability larger than Social Security's, and they just expanded it a couple of years ago with the prescription drug benefit.

Maybe it's because Social Security is an opportunity to refight—and perhaps win—a series of arguments the Republicans lost badly 70 years ago. To put it another way, it's a chance to knock down Franklin Roosevelt, finally. "For the first time in six decades, the Social Security battle is one we can win," Peter Wehner, Bush's director of strategic initiatives, wrote in a memo to supporters in early January. In a column advocating the dismantling of Social Security, George Melloan of the Wall Street Journal editorial page last week wrote that "The Social Security Act of 1935 was the worthy achievement of the New Deal—almost the only one of any permanence—that gave relief to a Depression-battered nation." (In an interview, Melloan said he's aware that the Securities and Exchange Commission, the Federal Deposit Insurance Corp., the Tennessee Valley Authority, and Triborough Bridge are all New Deal products of permanence as well.) The Cato Institute, which has been leading the charge against Social Security, includes among its many distinguished fellows Jim Powell, author of the deeply ahistoric history FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression.

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Dead going on 60 years, FDR still makes self-styled champions of American-style capitalism fulminate, much the same way their counterparts in the 1930s raged against "That Man." Why? The New Deal era reminds national greatness Republicans like Wehner of their party's futility in a time of true national greatness. I also suspect that many Republicans are simply unable to forgive Roosevelt for what may have been his greatest and longest-lasting achievement: saving American capitalism through regulation. And since they can't tear down the Triborough Bridge or the Hoover Dam, these guys act out by going after Social Security.

The economy FDR inherited in March 1933, delivered to him by 12 years of Republican laissez-faire rule, was a shambles. Gross domestic product fell by more than a quarter between 1929 and 1933. "One out of every four American workers lacked a job," writes Arthur M. Schlesinger Jr. in his magisterial Crisis of the Old Order. "Hunger marchers, pinched and bitter, were parading cold streets in New York and Chicago." Only a small percentage of the unemployed received relief. Americans suffered a degree of long-term financial distress that is almost unimaginable.

The distinguishing features of America's economic system—its capital markets and credit system—were broken down. The Dow Jones industrial average fell 90 percent from its 1929 peak. Meanwhile, Senate hearings led by Ferdinand Pecora were exposing rampant abuses. The New York Stock Exchange resisted any reform. "The Exchange is a perfect institution," said Richard Whitney, the head of the NYSE, who would be arrested in 1938 for embezzlement.

The U.S. model of market capitalism combined with democratically elected representative government was under assault. The challenge came from all directions. At home redistributionist Sen. Huey Long and Father Coughlin, whose National League for Social Justice called for "control of private property for the common good," threatened from the populist left. (Such was the allure of left-of-center ideologies that Theodore Bilbo, the revanchist Mississippian, confessed, "in fact, I'm getting a little pink myself.") On the right, Sen. David A. Reed of Pennsylvania declared: "I do not often envy other countries their governments, but I say that if this country ever needed a Mussolini, it needs one now." Abroad, communism and fascism were ascendant in significant economies: Germany, Russia, Italy, and Japan.

FDR's task was to negotiate a course between illiberal solutions in a time of unprecedented stress. "The Securities Act of 1933 was a conservative response to the economic crisis known as the depression," wrote Joel Seligman in his definitive history of the SEC, Transformation of Wall Street. It called for issuers of new securities to register them with the government and provide financial statements. The FDIC, created by the Banking Act of 1933, established insurance on deposits up to $2,500. The Social Security Act established an initial 1 percent on payroll tax on both employers and employees to fund a guaranteed minimum income for seniors. A national minimum wage of 25 cents was established in 1938.

In each instance, FDR angered critics on the left—and in his own party—who wanted the government to go further. On the right, New Deal opponents—the editors of Forbes, Republican congressmen, the U.S. Chamber of Commerce—continually charged that FDR was turning the United States into Amerika. They routinely engaged in appalling moral equivalency between FDR on the one hand and Stalin and Mussolini on the other. Some of FDR's current critics do the same. Powell's book is larded with quotes like this: "The New Deal was the American version of the collectivity trend that became fashionable around the world, so it perhaps shouldn't be surprising that New Deal utterances by FDR and his advisers sometimes sounded similar to fascist doctrines associated with Italian dictator Benito Mussolini."

The theory that new taxes and regulation would inevitably hamper economic growth and destroy America exerted a powerful hold on the minds of the business establishment and the economic right in the 1930s—just as it does today. FDR's proposals seemed to fly in the face of everything these experts knew about how the economy works. In particular, FDR upended the hallowed equation: taxes and regulation equals tyranny and depression.

But a funny thing happened on the road to serfdom. FDR may have gone too far on occasion. He was great, not perfect. And the consumer-based economy that defines our age emerged only after World War II. But the economy did come back to life. Gross domestic product rose 90 percent between 1933 and 1941. Far from turning the United States into a Western version of the Soviet Union or Nazi Germany, the New Deal allowed the United States to function as the world's bulwark against both. The institutions that stood at the heart of the American experiment—representative democracy, the separation of powers, a system of managerial capitalism, liquid capital markets—survived in a world gone mad.

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