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Tuesday, April 20, 2010

Nothing to Fear: FDR’s Inner Circle and the Hundred Days that Created Modern America

History buffs who focus on the world between the wars will find plenty to ponder in Adam Cohen’s Nothing to Fear. Openly critical books–from The Roosevelt Myth by John T. Flynn (1948) to FDR’s Folly by Jim Powell (2003)–have laid bare the politics and economics of Franklin Roosevelt’s New Deal, showing us how not to deal with a depressed economy. The minimum wage, rent control, administered prices, trade barriers, and the cartelization of industry all made matters worse. The tax on undistributed profits dimmed entrepreneurial spirits, while the crop-destruction program added insult and injury. Make-work projects prolonged the hard times by forestalling market adjustments.

Roosevelt dominates the dust jacket of the book but is the background throughout most of its nine chapters. Cohen puts the spotlight on the key operatives during the first hundred days–Raymond Moley, Lewis Douglas, Henry Wallace, Frances Perkins, and Harry Hopkins. These are the people who had Roosevelt’s ear. As Cohen suggests, what Roosevelt knew was whatever he’d heard most recently. The hard left turn that America took during those days didn’t come from any top-down planning of the administration but rather from the decisive triumph of the socialist-minded secretary of labor (Frances Perkins) and others over the ultraconservative budget director (Lewis Douglas). Douglas’s defense of fiscal responsibility was no match at all for the pre-Keynes Keynesianism touted by Perkins. And in matters of economic theory, Roosevelt himself was completely out of play. Perkins was accustomed to addressing issues on a theoretical level, or so Cohen reports, while FDR, in Perkins’s assessment, was “illiterate in the field of economics.”

But where did Perkins get her own economic literacy? Not from Keynes, although his ideas were in the air. Perkins’s belief that spending is the key to prosperity came from her studies at the University of Pennsylvania under Simon Nelson Patten, whom Cohen calls a “renowned economist.” Though Cohen doesn’t dig further into the Patten-Perkins connection, we can note that Patten (1852-1922) had studied abroad, becoming immersed in the ideas of the German Historical School. Hence, the views he imparted to Perkins could hardly be described as “theoretical.” In espousing policy Patten was guided by a Keynesianesque vision in which a spiral-prone economy can be controlled by government spending. Cohen quotes Perkins: “The depression is feeding on itself. . . .” And “[w]e must have mass consumption or we will never get a market for mass production.” From day one Perkins was the driving force for a large-scale public-works program meant to provide the income to get the mass consumption and production going.

As a coincidence of timing, Cohen’s book provides eerie insights into the first hundred days of the Obama administration. The parallels are impossible to miss. For instance, then as now, the political rhetoric entailed a commitment to budget cutting, while at the same time promising massive spending to stimulate the economy. This schizo fiscal posturing reminds us of the episode involving the Bush-initiated project to produce a fleet of 28 “Marine One” presidential helicopters. By the time Bush left office cost overruns had increased the projected cost per copter to $500 million. The Obama administration scrapped that wasteful project while simultaneously appropriating funds for a Harry Reid-supported high-speed rail service between Las Vegas and Los Angeles. (We wonder why the helicopter project wasn’t kept on track–with plans to press the copters into service shuttling Reid’s constituents between Vegas and L. A.) Senator Reid later gave up on this expensive folly, but the parallels between FDR’s and Obama’s cost-cutting-cum-reckless-spending propensities remain.

For another instance, the procedures for sizing the “stimulus” packages then and now should be enough to kill confidence in government spending policies. How did the Obama administration decide that its “stimulus” package needed to be $787 billion? Even the Obama-friendly media recognized that numbers were just cobbled together–and without anyone actually reading the final bill.

In 1933 a key determinant of the actual amount stipulated in the Industrial Relief Bill involved a failure to hear rather than a refusal to read–at least, according to Harold Ickes’s account as reported by Cohen. Just before submitting his bill, Senator Robert Wagner (D-NY) shouted to his secretary in an adjacent office, “Does the $3.0 billion for public works include the $300 million for New York?” The secretary shouted back, “I put it in,” but Wagner heard only “Put it in.” So, he made the adjustment and submitted a $3.3 billion spending bill.

Cohen ends his book on a warm and positive note. He offers a summary of Roosevelt’s accomplishments, focusing on the National Industrial Recovery Act, the capstone legislation of the first hundred days: “Although much of [the NIRA] failed, it still changed America. The workers’ rights and public works provisions not only improved the lives of millions of destitute Americans they marked the triumph of one faction of the administration, led by Perkins, Wallace, and Hopkins, and the defeat for another, led by Douglas. Taken together, these provisions stood for something fundamental: recognition of the federal government’s responsibility to look after its citizens.”

Alas, still another parallel–the rosy perceptions and favorable ratings of Roosevelt and Obama, despite the arbitrariness, incoherence, and perversities of their policies.

  • Roger Garrison, professor emeritus of economics at Auburn University and Associated Scholar of the Mises Institute, is the author of Time and Money: The Macroeconomics of Capital Structure