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  • From: bobf <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] Then and now - Obama and Roosevelt
  • Date: Wed, 31 Dec 2008 05:01:27 -0800 (PST)

This article is in today's Washington Post. The author has been receiving a
lot of press because of the public fued with Paul Krugman over the economics
of the Great Depression. True history can sometimes be unkind to the deeds
of 'great' men. Some of the arbitrary actions by FDR were astonishing.

Obama, I think, will follow the lead of the Lindsays and Krugmans. He is
talking a trillion dollar stimulus, right off the bat. That isn't arbitrary
, but it is a dumbfounding number.

Obama, so far ,has exhibited above average leadership skills, I think. Many
people who were afraid of him are actually now comforted. The man has a real
Reagan-esque quality, that way. I know I will never support him becuase his
big government, collectivist, statist ideology is anathema to my ideas of
freedom and personal liberty. But, he does have a real essence of a
'leader', which is good. I don't hink he will panic the country.

Who knows, maybe he and Lindsay and Bernake & Krugman are all right, and this
will work itself out in several years. I don't think so, but, in 2000, I
thought that GWB would make a decent President. So, I am not a stranger to
being wrong

------------------------------------------------------------------------

A Chilling Uncertainty

The Lessons of Roosevelt's Experimentation


By Amity Shlaes
Wednesday, December 31, 2008; Page A15

The United States has entered the era of the experiment. President-elect
Barack Obama is putting forward an infrastructure program whose plans and
price tag are unclear. Treasury Secretary Henry Paulson whipped up the
Troubled Asset Relief Program to buy up bad mortgage instruments, and,
expanding on that experiment, President Bush wants to try extending TARP to
autoworkers.

The idea that experiments are warranted in current circumstances comes from
the New Deal. The official history is familiar: FDR put forward multiple
projects, some at cross-purposes. Yet New Deal inconsistency was not a
problem and might have been a virtue. Through "bold, persistent
experimentation," his catchphrase, Franklin Roosevelt brought recovery.

Modern economists, monetarist or Keynesian, have not rejected this story
line. The trouble with the 1930s, in their view, is that government did not
fiddle enough. Had the Federal Reserve, the Treasury or the White House
fiddled more, the Depression might have been shorter or less severe. The New
Deal Fed, they say, never got the price level quite right. Or, the New Deal
stimulus programs were too little. And so on.

But there is significant evidence that the very arbitrariness of the New Deal
made the Depression worse.

In 1932, stunned market players and citizens wanted to know what the new
rules were. They voted for a party with a platform so moderate it could have
been written by today's Concord Coalition: stability, sound money, balanced
budgets. That was the Democratic Party, led by Roosevelt.

Many of FDR's initial plans did bring stability: His first Treasury secretary
worked to sort out banks with the outgoing Hoover administration in a fashion
so fair that an observer noted that those present "had forgotten to be
Republicans or Democrats." By creating deposit insurance, FDR reduced bank
runs. His Securities Act of 1933 laid the ground for a transparent national
stock market. Equities shot up.


But other policies were more arbitrary. Using emergency powers, FDR yanked
the country off the gold standard. Both American and international markets
looked forward to a London conference at which a new monetary accord was to
be struck among nations. Over the course of the conference, though, FDR
changed orders to his emissaries multiple times. Some days he was the
internationalist, sending wires about international currency coordination.
Other days he was the cowboy, declaring that all that mattered was what the
dollar bought in farm states. The conference foundered.

Some of the worst destruction came with FDR's gold experiment. If he could
drive up the price of gold by buying it, he reasoned, other prices would rise
as well. Roosevelt was right to want to introduce more money into the economy
(the United States was deflating). But his method was like trying to raise an
ocean level by adding water by the thimbleful. What horrified markets even
more was that FDR managed the operation personally, day by day, over a
breakfast tray. No one ever knew what the increase would be. One Friday in
November 1933, for example, Roosevelt told Treasury Secretary Henry
Morgenthau that he thought the gold price ought to be raised 21 cents. Why
that amount, Morgenthau asked. "Because it's three times seven," FDR replied.

Morgenthau later wrote that "if anybody knew how we set the gold price,
through a combination of lucky numbers, etc., I think they would be
frightened."

They were. The "Roosevelt Rally" flattened. The arbitrary quality of other
initiatives reinforced concerns. The New Deal centerpiece, the National
Recovery Administration, helped some businesses compete and criminalized
others for the same behavior. Sometimes Roosevelt goaded federal prosecutors
into harassing corporate executives. Other times, he schmoozed the same execs
at the White House. In 1936, FDR pushed through deficit spending. In 1937, he
was Mr. Budget Hawk.

Uncertain, markets froze. Businesses refused to hire or invest in equipment.
Unemployment stayed stuck in the teens. The 'deal' part of the New Deal
phrase was problematic; businesses didn't want individual favors, they wanted
clear laws for all. Industrialist Ernest Weir summed up what his community
was desperate for FDR to do: "Above all to make the program clear and then
stick to it."

Today, uncertainty also chills. Questions abound over the future regulation
of stocks and derivatives, over tax policy, over bailouts. All this makes it
hard for the market to settle on equity or home prices. And Americans follow
stories about names -- Secretary Paulson, Secretary-designate Timothy
Geithner -- more than they do the news about the Fed or the Treasury.

Luckily, we are entering the optimal time for reducing uncertainty: a new
president's first hundred days, with a majority to back him on the Hill.
Obama might start by rebuilding key institutions: creating a super-Securities
and Exchange Commission, a tough regulator with clear plans for overseeing
stocks as well as those instruments that had been monitored unpredictably
because of vague status. He should also halve corporate tax rates, currently
some of the world's highest, and reduce the capital gains rate to 5 percent.
Rewriting the Fed law to clarify it will make avoiding an Alan Greenspan
bubble easier. Defining his infrastructure program clearly would have the
effect of putting up a sign: Open for Business.

Some will say all that sounds politically impossible. Until recently, though,
so did a trillion-dollar infrastructure project. A new hundred days spent
making good laws will bring sturdy recovery. A hundred days spent making more
deals will not.

Amity Shlaes, a senior fellow at the Council on Foreign Relations, is the
author of "The Forgotten Man: A New History of the Great Depression."

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123002660.html?hpid=opinionsbox1







  • [Homestead] Then and now - Obama and Roosevelt, bobf, 12/31/2008

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