In less than two months we come to the eightieth anniversary of the inauguration of Franklin Delano Roosevelt as the thirty-second president of the United States (4 March 1933). With some confidence I predict that the anniversary will be celebrated by very few in the United States and only noted in passing by President Obama (if he does that much).
It should be celebrated at home, because it represents the beginning of the brief and halting attempt at social democracy in the United States. It should be celebrated in Europe because many of the “New Deal” measures previewed far more progressive social democratic reforms in several countries, most obviously in Britain. After campaigning with the jolly song, “Happy Days are Here Again”, and few clues to his policies (or politics), Roosevelt initiated a radical transformation in the United States.
Not a person burdened with self doubt or indecisiveness, Roosevelt, with the guidance of key advisors, rapidly initiated an extraordinary series of legislative changes. Within a week of his inauguration Congress passed and Roosevelt signed the Emergency Banking Act, providing transitional regulation of the collapsing financial sector until the more famous Glass-Steagall Act in June 1933. It is no exaggeration to attribute to Glass-Steagall the prevention of another financial crisis for fifty years. Thanks to a law in the late 1970s reducing restrictions on the financial sector, this run of stability would come to an abrupt end with the so-called savings and loan crisis. As the saying goes, the rest is history, and we sink deeper into a recession created by further liberation of finance to run rampant.
The Agricultural Adjustment Act quickly followed banking regulation, and it sought to support farm prices and incomes. Perhaps more important than its legislative details, the “AAA” would focus the conflict between progressive change and reactionary obstruction. The Supreme Court, controlled by anachronistic septuagenarians, would declare it unconstitutional. In an extraordinary and broad attempt to prevent the letter and spirit of the New Deal, the Court would add several other major programs to its unconstitutional list, perhaps most famously the National Industrial Recovery Act (struck down in 1935).
Roosevelt, who relished a good fight, went after the Court itself. His counterattack took advantage of the absence in the US constitution of a specification of the number of members of the Court. In 1937 he introduced the Judicial Procedures Reform Bill, which would have allowed him to add a new judge for every sitting one over the age of 70 and six months (up to a maximum increase of six judges). Had the bill become law he could have immediately increased the Court from nine to thirteen judges. However, congressional enthusiasm for the judicial reform waned when the reactionaries on the Court sensed that their day had passed. With the legislation before Congress, the Court upheld as constitutional, by a vote of 5-4, a state of Washington minimum wage law. This blatant reversal of earlier rulings by the same court would earn the famous comment, “a switch in time saved nine”.
In 2013 an amazing list of anniversaries will unfold, for Glass-Steagall and the AAA, as mentioned above, the Civilian Conservation Corps (public works), the Securities Act (leading to the Securities and Exchange Commission), and the repeal of the twenty-first amendment to the constitution (which had prohibited production and consumption of alcoholic beverages).
As these anniversaries arrive the reforms they mark should be noted and appreciated. Even more important is the political message from the first days of the New Deal, that economic crises create the possibility of bold, radical and rapid change. Roosevelt and his advisors achieved these basic changes through a combination of optimism, commitment and willingness to “think outside the box”.
Today few may remember that a central element in FDR’s campaign against incumbent Herbert Hoover was his attack on the sitting president for not maintaining a balanced federal budget. We can find the explanation of the conversion of Roosevelt from putative budget balancer to supporter of deficit finance for fiscal expansion in his own words. “Do something. If it works, do more of it. If it doesn’t, do something else.” Therein lies a lesson for both the European Commission and the German government as they seek to manage the euro zone crisis. They also might recall Albert Einstein’s view of repetitive failure, “insanity is doing the same thing over and over again and expecting different results.”