Commentary Magazine


Topic: Great Depression

Obama’s Ominous FDR Precedent

Polls have consistently shown that far more Americans still blame George W. Bush for the country’s economic difficulties than those who were prepared to place responsibility on the man who has been president for the last few years. That fact, along with an economy that wasn’t very good but still not as terrible as many thought it might be, was enough to re-elect Barack Obama earlier this month. In doing so, Obama became the first president to successfully run for a second term, while blaming his predecessor for his own failures, since Franklin Delano Roosevelt, who buried Alf Landon in 1936 by running against his predecessor Herbert Hoover.

That was quite a trick, but President Obama should be wary of emulating FDR in every respect. As Amity Shlaes wrote yesterday in Bloomberg News, Roosevelt’s second term provides some ominous precedents for an Obama second term. As our colleague John Steele Gordon wrote earlier this year, it may always be 1936 for liberals who believe conservatives are doomed to perpetual defeat. But what the president and his supporters should be worrying about is whether 2013 turns out to be a repeat of 1937, when a country mired in the Great Depression suffered another economic setback that heightened the country’s misery. As Shlaes points out, signs abound that the “Great Recession” that Obama claimed to save the country from during the campaign may be about to get worse.

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Polls have consistently shown that far more Americans still blame George W. Bush for the country’s economic difficulties than those who were prepared to place responsibility on the man who has been president for the last few years. That fact, along with an economy that wasn’t very good but still not as terrible as many thought it might be, was enough to re-elect Barack Obama earlier this month. In doing so, Obama became the first president to successfully run for a second term, while blaming his predecessor for his own failures, since Franklin Delano Roosevelt, who buried Alf Landon in 1936 by running against his predecessor Herbert Hoover.

That was quite a trick, but President Obama should be wary of emulating FDR in every respect. As Amity Shlaes wrote yesterday in Bloomberg News, Roosevelt’s second term provides some ominous precedents for an Obama second term. As our colleague John Steele Gordon wrote earlier this year, it may always be 1936 for liberals who believe conservatives are doomed to perpetual defeat. But what the president and his supporters should be worrying about is whether 2013 turns out to be a repeat of 1937, when a country mired in the Great Depression suffered another economic setback that heightened the country’s misery. As Shlaes points out, signs abound that the “Great Recession” that Obama claimed to save the country from during the campaign may be about to get worse.

The key clue is the drop in industrial production that set off a decline in the stock market in the aftermath of the president’s victory. One can’t compare that drop to the precipitous decline that America suffered in 1937 (when most stocks lost half their value). But as Shlaes writes, the link between the two situations may be the federal government spending sprees that both Democratic presidents engaged in, followed by tax hikes that spiked any chance for growth.

Another troubling parallel is what she calls the fallout from first-term legislation. In FDR’s case, the New Deal may have given many Americans hope, but the result of the vast expansion of federal power and the consequent diversion of money from taxpayers to the government was “reduced available cash, increased uncertainty and lower business confidence.” As Bethany wrote earlier today, the impact of the implementation of ObamaCare on business has the potential to raise unemployment and send the country into another “Great Recession.” In both cases, governments that have tried to “play God” with the economy may bring down on the nation policies that can “spook markets and employers whatever the decade.”

While FDR was able to keep blaming the country’s ills on Hoover until Tojo and the Japanese imperialists bombed Pearl Harbor and finally ended the Depression, it remains to be seen whether Americans will still be grousing about George W. Bush if a year or two from now that they are stuck in another “Great Recession” brought about by Obama’s policies.

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Only FDR Could Sell Obama’s Reset

As we noted yesterday and earlier today, President Obama’s attempt to make the election a referendum on George W. Bush is a rather slender reed to use as the foundation for his re-election campaign. As expected, the president’s speech in Ohio today on the economy pushed the idea that the choice this year was between his policies and those of the preceding decade, for which he blamed all of the nation’s problems. Obama’s call for a “reset” may have satisfied panicked liberals who want him to be nastier about his opponents. In a nearly hour-long rant, the president sought to refute criticisms of his administration as being too dependent on government intervention to save the economy, but at the same time claimed the way forward was to spend a lot more on public sector jobs. Predictably, he also threw in a red herring about Mitt Romney ending Medicare without reference to any ideas of his own about reforming the entitlement spending that is dragging the country into insolvency.

But the attacks on Romney and his personal wealth and branding Republicans in Congress as heartless wretches who want to throw grandma under the bus is still secondary to persuading the nation that even though he has been president for three and a half years, he should be held blameless for a bad economy. Gaining re-election by avoiding discussion of his failures and focusing solely on those of his predecessor is a difficult task, but it is not impossible. Franklin D. Roosevelt did exactly that in 1936 when, despite the fact that his policies hadn’t been enough to pull the country out of the Great Depression, the overwhelming majority of Americans were still prepared to blame Herbert Hoover for their woes. But this notable precedent shouldn’t provide much reassurance for Democrats who worry about the prospects of a president who thinks a troubled private sector is doing “just fine” and (as he showed again today) has no new ideas to present about the economy.

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As we noted yesterday and earlier today, President Obama’s attempt to make the election a referendum on George W. Bush is a rather slender reed to use as the foundation for his re-election campaign. As expected, the president’s speech in Ohio today on the economy pushed the idea that the choice this year was between his policies and those of the preceding decade, for which he blamed all of the nation’s problems. Obama’s call for a “reset” may have satisfied panicked liberals who want him to be nastier about his opponents. In a nearly hour-long rant, the president sought to refute criticisms of his administration as being too dependent on government intervention to save the economy, but at the same time claimed the way forward was to spend a lot more on public sector jobs. Predictably, he also threw in a red herring about Mitt Romney ending Medicare without reference to any ideas of his own about reforming the entitlement spending that is dragging the country into insolvency.

But the attacks on Romney and his personal wealth and branding Republicans in Congress as heartless wretches who want to throw grandma under the bus is still secondary to persuading the nation that even though he has been president for three and a half years, he should be held blameless for a bad economy. Gaining re-election by avoiding discussion of his failures and focusing solely on those of his predecessor is a difficult task, but it is not impossible. Franklin D. Roosevelt did exactly that in 1936 when, despite the fact that his policies hadn’t been enough to pull the country out of the Great Depression, the overwhelming majority of Americans were still prepared to blame Herbert Hoover for their woes. But this notable precedent shouldn’t provide much reassurance for Democrats who worry about the prospects of a president who thinks a troubled private sector is doing “just fine” and (as he showed again today) has no new ideas to present about the economy.

It’s not hard to see why FDR managed to beat Hoover twice, although the “Great Engineer” was not on the ballot in 1936. The suffering caused by the Great Depression was on a scale that is almost unimaginable to us today. Under the circumstances, a Roosevelt plea for more time seemed reasonable. Moreover, even after four years of the New Deal, Republicans still seem to own the country’s problems. Hoover was wrongly blasted at the time as a do-nothing though his ill-advised interventions in the crisis did more harm than good. But because the collapse occurred in his first year in office (1929), his identification with the Depression was so thorough that it would be another decade (which would include a World War that would finally end the Depression) before Republicans would be able to shake off Hoover’s taint.

But FDR’s ability to go to the people in 1936 without being held accountable for the continuance of the disaster on his watch wasn’t simply a matter of blaming the GOP. It was just as much due to the way he persuaded the country that he knew the way forward and that their only hope was to trust in him. We can look back now dispassionately and understand, as Amity Shlaes wrote in her classic history of the Depression, The Forgotten Man, that the New Deal failed in large measure to heal the economy. In fact, Roosevelt’s policies could fairly be blamed for the severe downturn in his second term that mired the country even deeper in the ditch from which it was extricated by the Japanese attack on Pearl Harbor. But Roosevelt’s leadership skills were such that he gave Americans the impression things would get better. As Jonah Goldberg has rightly pointed out, some of the ideas of the New Deal had more in common with fascism than democracy, but it could not be said in 1936 that FDR was going back to the people without any new proposals or by merely castigating Hoover.

Things are thankfully not nearly so bad today, but the contrast between FDR’s ability to galvanize the nation with the 44th president’s lackluster appeals for support could not be greater. Having been swept into office as much by the Wall Street collapse that occurred in the fall of 2008 as by the “hope and change” mantra that focused on the historic nature of Obama’s candidacy, he hasn’t much to offer to solve the nation’s problems other than a deeply unpopular health care bill and a stimulus that few outside of the left would even think of repeating.

As history shows, the White House’s plan to shift blame for the economy to the president who left office four years ago is not unprecedented. But even if Americans could be persuaded that George W. Bush was another Hoover, getting them to believe that Obama is another FDR is a bridge too far even for the Democrats.

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Obama’s Sign of Madness

During remarks in Portland, Maine, on Friday, President Obama said, “We won’t win the race for new jobs and new businesses and middle-class security if we cling to this same old, worn-out, tired ‘you’re on your own’ economics that the other side is peddling. It was tried in the decades before the Great Depression. It didn’t work then. It was tried in the last decade. It didn’t work. You know, the idea you would keep on doing the same thing over and over again, even though it’s been proven not to work. That’s a sign of madness.”

You might think that a man who is on track to have the worst jobs record of any president in the modern era and is presiding over the weakest economic recovery since the Great Depression — not to mention the first credit rating downgrade in American history, the longest stretch of high unemployment since the Great Depression, chronic unemployment that is worse than the Great Depression, a housing crisis that is worse than the Great Depression, a standard of living for Americans that has fallen further and more steeply than at any time since the government began recording it five decades ago, and a record increase in the number of people who are in poverty — would be a little more careful when it came to lecturing the rest of us when it comes to what works in economics.

You might even say it was a sign of madness.

 

During remarks in Portland, Maine, on Friday, President Obama said, “We won’t win the race for new jobs and new businesses and middle-class security if we cling to this same old, worn-out, tired ‘you’re on your own’ economics that the other side is peddling. It was tried in the decades before the Great Depression. It didn’t work then. It was tried in the last decade. It didn’t work. You know, the idea you would keep on doing the same thing over and over again, even though it’s been proven not to work. That’s a sign of madness.”

You might think that a man who is on track to have the worst jobs record of any president in the modern era and is presiding over the weakest economic recovery since the Great Depression — not to mention the first credit rating downgrade in American history, the longest stretch of high unemployment since the Great Depression, chronic unemployment that is worse than the Great Depression, a housing crisis that is worse than the Great Depression, a standard of living for Americans that has fallen further and more steeply than at any time since the government began recording it five decades ago, and a record increase in the number of people who are in poverty — would be a little more careful when it came to lecturing the rest of us when it comes to what works in economics.

You might even say it was a sign of madness.

 

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The Obama Campaign’s False Premise

In my critique of President Obama’s 17-minute campaign documentary, “The Road We’ve Traveled,” I took issue with the claim, now taken as a truism by Obama supporters, that he inherited the worst economy since the Great Depression.

I argued that the economy Ronald Reagan inherited was sicker, and I want to elaborate on that assertion.

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In my critique of President Obama’s 17-minute campaign documentary, “The Road We’ve Traveled,” I took issue with the claim, now taken as a truism by Obama supporters, that he inherited the worst economy since the Great Depression.

I argued that the economy Ronald Reagan inherited was sicker, and I want to elaborate on that assertion.

In his superb biography of the Reagan presidency The Age of Reagan, Steven Hayward reminds us that the nation’s economic conditions “began slipping toward near panic in the two weeks after the 1980 election.”

Prime interest rates were around 19 percent. Inflation was in double digits, with forecasts that food prices would rise by more than 10 percent in the coming year and energy prices by 20-40 percent. Unemployment stood at 7.4 percent (it would eventually rise to 10.8 percent in the early years of Reagan’s presidency). Housing starts were in free fall. And auto sales were down 10 percent from the previous year.

I remind people of this only because the narrative that no president has faced more daunting challenges than Mr. Obama is false. That doesn’t mean that Obama didn’t face substantial problems when he took the oath of office. He did; but they were not unprecedented by any means.

Moreover, unlike Reagan, the economy Obama inherited was in large part an economy of his (and his party’s) own making. I say that because, in the words of AEI’s Peter Wallison, the “sine qua non of the financial crisis was U.S. government housing policy” — and that “far from being a marginal player, Fannie Mae was the source of the decline in mortgage underwriting standards that eventually brought down the financial system.”

Would it be too indecorous to point out that the Bush administration warned as early as April 2001 that Fannie and Freddie were too large and overleveraged and that their failure “could cause strong repercussions in financial markets, affecting federally insured entities and economic activity” well beyond housing?

In fact, President Bush’s plan for reform would have subjected Fannie and Freddie to the kinds of federal regulation that banks, credit unions, and savings and loans have to comply with. In addition, Republican Richard Shelby, then chairman of the Senate Banking Committee, pushed for comprehensive GSE (government-sponsored enterprises) reform in 2005. And who blocked these efforts at reforming Fannie and Freddie? Democrats such as Senator Christopher Dodd and Representative Barney Frank, along with the then-junior senator from Illinois, Barack Obama, who backed Dodd’s threat of a filibuster (Obama was the third-largest recipient of campaign gifts from Fannie and Freddie employees in 2004).

In other words, Democrats bear the majority of the blame for blocking reforms that could have mitigated the effects of the housing crisis, which in turn led to the broader financial crisis. So Mr. Obama and his party bear a substantial (though not exclusive) responsibility in creating the economic crisis that Obama himself inherited.

Just for the record.

Oh, and one other point: When Ronald Reagan inherited what really was the worst economy since the Great Depression, he actually took steps to revive it; and his efforts led to an extraordinary period of sustained economic growth. That allowed Reagan to run on his “Morning in America” theme and win re-election while carrying 49 states.

Mr. Obama, on the other hand, has helped produce the weakest recovery since the Great Depression, with many economic indicators getting worse, not better, under his watch. Which is why Obama, unlike Reagan, should lose his bid for re-election.

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