The New Deal in Reverse How the Obama Administration Ended Up Where Franklin Roosevelt Began

by Steve Fraser

On March 4, 1933, the day he took office, Franklin Roosevelt excoriated the "money changers" who "have fled from their high seats in the temples of our civilization [because...] they know only the rules of a generation of self-seekers. They have no vision and where there is no vision, the people perish."

Rhetoric, however, is only rhetoric. According to one skeptical congressional observer of FDR's first inaugural address, "The President drove the money-changers out of the Capitol on March 4th -- and they were all back on the 9th."

That was essentially true. It was what happened after that, in the midst of the Great Depression, which set the New Deal on a course that is the mirror image of the direction in which the Obama administration seems headed.

Buoyed by great expectations when he assumed office, Barack Obama has so far revealed himself to be an unfolding disappointment. On arrival, expectations were far lower for FDR, who was not considered extraordinary at all -- until he actually did something extraordinary.

The great expectations of 2009 are, only a year later, beginning to smell like a pile of dead fish with new rhetoric -- including populist-style attacks on villainous bankers that sound fake (or cynically pandering) when uttered by Obama's brainiacs -- layered on top of the pile like deodorant. Meanwhile, the country is suffering through a recovery that isn't a recovery unless you happen to be a banker, and the administration stands by, too politically or intellectually inhibited or incapacitated to do much of anything about it. A year into "change we can believe in" and the new regime, once so flush with power and the promise of big doings, seems exhausted, vulnerable, and afraid. A year into the New Deal -- indeed a mere 100 days into Roosevelt's era -- change, whether you believed in it or not, clearly had the wind at its back.

A Tale of Two Presidencies

If, a few days after Roosevelt pronounced them ex-communicant, the "money-changers" were back inside the temple -- "temple," by the way, was how the Federal Reserve used to be known before its recent fall from grace -- no one was too surprised. He, like Obama, was initially worried about alienating big business and high finance. He arrived in the Oval Office, in fact, still a prisoner of his own past and the country's. He believed, for example, in the then-orthodox wisdom of balancing the budget and would never entirely abandon that faith.

Not long before he assumed office, his predecessor, Herbert Hoover, vetoed a bill calling for the accelerated payment of bonuses to World War I veterans. Many of them had only recently gathered in makeshift tents on Anacostia Flats in Washington D.C., an army of the destitute, to plead their case. Hoover, to his lasting dishonor, ordered Army Chief of Staff General Douglas McArthur to have their tents set on fire and drive them away at bayonet point. Not long after FDR took the oath of office, he vetoed the same bill. He shared, as well, in a broad cultural repugnance for what was then called "the dole," and today is known as "welfare."

The legendary first 100 days of the Roosevelt administration, memorable for a raft of reform and recovery legislation, also prominently featured an Economy Act designed to reduce government expenditures. Fearing the possibility of a break with the commercial elite, the president tried forging a partnership with them, much as Hoover had. As a matter of fact, the first two pieces of recovery legislation his administration submitted to Congress -- the National Industrial Recovery Act and the Agricultural Adjustment Act -- were formulated and implemented in a way that would seem familiar today. They gave the country's major corporations and largest agricultural interests the principal authority for re-starting the country's stalled economic engines.

However, even as the administration tried to maintain its ties to powerful business interests and a traditional fiscal conservatism, it broke them -- and it severed those connections in ways, and for reasons, that are instructive today.

*The Glass-Steagall Act: This emergency banking legislation passed during those extraordinary first 100 days separated commercial from investment banking. It was meant to prevent the misuse of commercial bank deposits (other people's money like yours and mine) in dangerous forms of speculation, which many at the time believed had helped cause the Great Wall Street Crash of 1929, prelude to the Great Depression. Today, ever more people wish Glass-Steagall had never been repealed (as it was in 1999), as its absence helped open the door to the financial misadventures that brought us the Great Crash of '08.

The bill infuriated what was called, in those days, "the Money Trust," especially the once omnipotent house of Morgan, the dominant member of an elite group of Wall Street firms that had run the financial system since the turn of the century when J.P. Morgan, America's most famous banker, was revered and feared around the world. (Jack, the patriarch's son, was so incensed by New Deal financial reform that he banned all pictures of the President from the bank's premises.) Glass-Steagall, as well as the two Securities Acts of 1933 and 1934 which created the Securities and Exchange Commission and left the doyens of the New York Stock Exchange apoplectic, represented real reform, and so were different in kind from TARP and all the other contraptions designed by the Bush and Obama Treasury Departments simply to bail out the financial sector.

*The Tennessee Valley Authority (TVA): Offspring also of those first 100 days, the TVA uplifted a vast, underdeveloped, and impoverished rural region of the country by bringing it electric power, irrigation, soil conservation, and flood control. It introduced the then-alien (and once again alien) idea of government-directed economic planning and development. It left the private utility industry irate at the prospect of having to compete with effective, publicly owned electrical-power-generating facilities. Fast-forward to today when, on the contrary, the private health insurance and pharmaceutical industries, conniving behind closed doors with Obama's people, proved triumphant in a similar confrontation, leaving government competition in the dust.

*Jobs: And then there was, as there is again, the question of jobs and how to create them. In 1933, American politicians still took the notion of balancing the budget each year with deadly seriousness. In our present era, every president from Ronald Reagan and Bill Clinton to George W. Bush and now, apparently, Barack Obama talks the talk without any intention of walking the walk. What made the Roosevelt moment remarkable was this: balanced-budget orthodoxy notwithstanding, the new administration soon forged ahead with a set of jobs programs that not only implied deficit spending but an even more radical departure from business as usual.

Initially, the Public Works Administration (PWA), created as part of the National Industrial Recovery Act, relied on large-scale infrastructure projects farmed out to private enterprise. Undertaking such projects inevitably entailed government borrowing and deficits. Partly for that reason, the PWA proceeded at a glacial pace, put few to work right away, and -- in the way it looked to the private sector to take the lead -- resembled the latest thinking of the Obama administration whose newest tepid suggestions for creating jobs depend almost solely on funneling tax relief to business.

Simultaneously, however, the New Deal pursued a more daring alternative. FDR diverted a third of the PWA's budget to the Civil Works Administration (CWA), out of which was born the legendary Civilian Conservation Corps, an agency that deployed hundreds of thousands of unemployed young men to restore the country's forests and parklands. The CWA skipped the private sector entirely and simply put people to work: four million people in the summer and fall of 1933. (That would be the equivalent, today, of ten million Americans back on the job.)

During the first nine months of the Roosevelt administration manual laborers, clerks, architects, book-binders, teachers, actors, white and blue collar workers alike became Federal employees. They laid millions of feet of sewer pipe, improved hundreds of thousands of miles of roads, and built thousands of schools, playgrounds, and airports. Harry Hopkins, who ran the CWA, was authorized to seize tools, equipment, and materials from Army warehouses to get the new system up and running. (The Works Progress Administration, a subsequent incarnation of the CWA, would later create eight million jobs on the same principle of public employment.)

This isn't even within hailing distance of where the current Administration is now as it frets about the deficit and pledges to freeze domestic spending (and implies, without having the courage to say so, that Medicare, Medicaid, and Social Security had better watch out). Coming from a regnant Democratic Party this is change we can't or don't want to believe in.

Heading Backwards

Like Obama, Roosevelt was denounced by his enemies in the Republican Party and the business community as a closet socialist (not to mention a cripple, a Jew, and a homosexual). While the administration would sometimes trim its sails considerably to weather the right wing storm, its general reaction to Republican opposition was the opposite of Obama's. Even during that first year, and at an accelerating pace afterwards, the momentum of the New Deal carried it irresistibly to the left.

This was true, in fact, of the whole Democratic Party. The Congress elected in the off-year of 1934 was not only more overwhelmingly Democratic, but the Democrats who won were considerably more progressive-minded. They were far readier to jettison the shibboleths of the old order and press a still cautious President in their direction. By 1936, the essentials of the social welfare and regulatory state were in place, an insurgent labor movement had won the elementary right to organize (while becoming the New Deal's most muscular constituency), and the president was denouncing "economic royalists" and "tories of industry" whose "hatred" for him he "welcomed."

Today the Obama administration and the Democratic Party are visibly moving in the opposite direction. They read the lesson of humiliating defeat in Massachusetts and the voluble hostility of the populist right as an advisory to move further to the right. Tacking rightward, tailoring policy to match the tastes of business and finance, cautioning Americans that they'll need to tighten their belts (as if they hadn't already been doing so), adopting the parsimonious sanctimony of the balanced budget, slimming down their great expectations until what little is left mocks the hopes of so many who elected them -- all of this is seen as smart politics.

Smart like a chicken. This is the same cleverness that, beginning with Ronald Reagan's triumph, turned the Democratic Party into Republican-lite. Shrewdness like this helps explain, in part, why Obama's inner circle and Democratic leaders took the early, fateful steps that were bound to land them where they find themselves today.

Would the Republican right and its tea-party populists -- marginal, mockable political freaks less than a year ago -- have enjoyed their current growth spasm if the administration hadn't been committed to bailing out the very institutions most people considered the villains responsible for running this country into a ditch? Would the Democratic Party have been in imminent danger of losing its faltering grip on Congress had it found the will to pursue serious health-care reform and environmental legislation, or wrestled the financial oligarchy to the mat as Roosevelt did? A long generation spent cowering in the shadows of the conservative ascendancy has left the newly empowered Democrats congenitally incapable of seizing their own historic moment.

After a year of feinting to the left without meaning it, how seriously is anyone going to take the administration's latest call to tax the banks or break their addiction to reckless speculation? Even if Obama now means to push ahead with some sort of health-care reform or put some teeth into new financial regulations, he has spent so much political capital moving in the opposite direction and seeking partners where there never were any that his quest, even if genuine, may now be purely quixotic. As for the surge in Afghanistan and the endless war that goes with it, by election time 2010, it's an even bet that it will have further undermined any hopes of a late-inning Democratic Party revival.

Conventional wisdom notwithstanding, off-year elections do not always favor the minority party. Indeed, 1934 may be the best example of the opposite effect. Exactly because the New Deal showed itself ever readier to junk the ancien régime, break with economic orthodoxy, and above all say goodbye to its erstwhile corporate friends, it was rewarded handsomely at the polls. None of that apparently will be repeated in 2010, given an administration that seems to be running a New Deal in reverse.