Back in January 2009, even before President Obama was sworn in, Bonddad and I wrote a four part series on The Great Depression. As the situation continued to deteriorate, in May 2009 we jointly called for a new WPA, a call that just this week was joined by no less an authority than Yale Economics Professor Robert J. Schiller (more on that below).
Sadly, a new WPA is not and has never been a prospect. As I will argue below, while FDR and the New Deal democrats in Congress focused on Relief, Recovery and Reform, the failure to even consider a new WPA is emblematic of the neglect by Obama and the current Congressional democrats of the critical first link -- Relief -- and this is why their prospects this November look so different than those of 1934.
In 1934, in a rare midterm event, Democrats actually increased their majorities in both Houses of Congress. Let me begin by repeating the summary by Bonddad and myself of the New Deal programs that were behind that extraordinary result:
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The blizzard of New Deal programs and agencies focused on 3 separate goals: immediate Relief of the afflicted, Recovery of the economy, and Reform to attempt to ensure that the Great Depression could not happen again. To try to fully appreciate the broad scope of that effort, here is a partial list and explanation of important New Deal programs.
RELIEF
The Federal Emergency Relief Act (1933) established the Federal Emergency Relief Administration (FERA) and gave it half a billion dollars to distribute to the states for any relief they felt necessary. Half was for matching grants, with the states contributing three dollars for every dollar of federal funds. The remainder could be given in direct grants. At one point, as many as 6 million families were on direct relief.
The Emergency Banking Relief Act (1933) established a system to close down insolvent banks and reorganize and reopen those banks strong enough to survive, after a mandatory four-day bank holiday that took place immediately after Roosevelt took office. Within 300 days of the act's passage, 5,000 banks had passed inspection and were reopened. Roughly two-thirds of U.S. banks quickly reopened under this act, and faith in banking institutions was restored, with money flowing out from under mattresses and back into financial institutionas as deposits. The act also allowed the confiscation of the gold of private citizens. The US dollar was then devalued by approximately 40%, ending the deflationary spiral of the Depression.
The Unemployment Relief Act (1933) established the Civilian Conservation Corps, a work relief program for young men ages 18-25 from unemployed families. The CCC became one of the most popular New Deal programs among the general public and operated in every U.S. state and several territories in 2600 work camps. The young men were paid wages, but were expected to share their wages with their families. They built such things as fire trails, camp sites in parks, and also cleared swamps and planted trees. Here are some CCC recruits about to leave for Montana:
The Public Works Administration (1933) allowed $3.3 billion to be spent on the construction of public works to provide employment in the construction and building industries, and to stabilize purchasing power,
The Home Owners Refinancing Act (1933) helpeds those in danger of losing their homes, by providing mortgage assistance to homeowners or would-be homeowners by providing them money or refinancing mortages. It also created the Home Owners' Loan Corporation (HOLC), which lent low-interest money to families in danger of losing their homes to foreclosure. By the mid 1930s, the HOLC had refinanced nearly 20% of urban homes in the country.
The Civil Works Emergency Relief Act (1934) allotted new funds for Federal Emergency Relief Administration to run new programs of civil works and direct relief. In 1935 it became the Works Progress Administration (1935) and was the largest New Deal agency, employing millions of people and affecting most every locality in the United States, especially rural and western mountain populations. Between 1935 and 1943 the WPA provided almost 8 million jobs and income to the unemployed. The program built many public buildings, projects and roads and operated large arts, drama, media and literacy projects, employing actors, artists, musicians, and writer (nearly 4 million in 1936 alone). It fed children and redistributed food, clothing and housing. Almost every community in America has a park, bridge or school constructed by the agency, and most public buildings of a certain age will feature architecture or a mural created by one of its artisans:
RECOVERY
The National Industrial Recovery Act (1933) legalized cartels and funded massive government spending on public works through the PWA. The NIRA operated under codes for each industry, all of which were written by committees of businessmen from the specific industry involved. Including all sorts of subcodes, rules, and regulations, the Act's proscriptions were enormously complex. The entire purpose was to eliminate unemployment and raise wages. In general - NRA codes limited production, had common control of prices and sales practices, outlawed child labor, and established a 40 hour work week and minimum wage.
The Agricultural Adjustment Act (1933) restricted production by paying farmers to reduce crop area. Its purpose was to reduce crop surplus so as to effectively raise the value of crops, thereby giving farmers relative stability again (in the past, wild swings in prices, particularly precipitous drops due to overproduction, could bankrupt a family farm during a single year). The farmers were paid subsidies by the federal government for leaving some of their fields unused.
The Tennessee Valley Authority (TVA) (1933) provided and still provides navigation, flood control, electricity generation, fertilizer manufacturing, and economic development in the Tennessee Valley, a region particularly impacted by the Great Depression, with a goal of rapidly modernizing the region's economy and society.
The Rural Electrification Act (1936) provided federal funding for installation of electrical distribution systems to serve rural areas of the United States. In the 1930s, the provision of power to remote areas was not thought to be economically feasible and so was largely unavailable in rural areas of farms and ranches. A 2300 volt distribution system was then used in cities. This relatively low voltage could only be carried about 4 miles before the voltage drop became unacceptable. REA cooperatives used a 6900 volt distribution network, distributed over their own network of transmission and distribution lines. which could support much longer runs (up to about 40 miles). Despite requiring more expensive transformers at each home, the overall system cost was manageable.
REFORM
The Glass-Stegall Banking Act (1933) introduced the separation of bank types according to their business (commercial and investment banking), and it founded the Federal Deposit Insurance Company for insuring bank deposits. It also increased the power of the Federal Reserve Board to regulate interest rates.
The National Housing Act (1934) made housing and home mortgages more affordable. It created the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation. It was designed to stop the tide of bank foreclosures on family homes. Both the FHA and the Federal Savings and Loan Insurance Corporation worked to create the backbone of the mortgage and home-building industries.
The Securities Acts (1933 and 1934) governs the offer or sale of securities using the means and instrumentalities of interstate commerce, and requires that they be registered; and also governs the secondary trading of securities (stocks, bonds, and debentures). Contrasted with the Securities Act of 1933, which regulates these original issues, the Securities Exchange Act of 1934 regulates the secondary trading of those securities between persons often unrelated to the issuer.
The National Labor Relations Act (1935) protects the rights of most workers in the private sector to organize labor unions, to engage in collective bargaining, and to take part in strikes and other forms of concerted activity in support of their demands.
The Social Security Act (1935) established a system whereby payroll taxes, first collected in 1937, that paid for lump-sum death benefits and also, beginning on January 31, 1940, monthly retirement benefits.
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Now let's compare those with acts done by Obama and the democrats in Congress in the last two years. The below very extensive lists all come from the site Obama Achievements. The list looks impressive. But look at it carefully and ask, does this qualify as immediate Relief? How many are either organizational ("establish a Comission), piecemal, or designed to forestall a negative event rather than show a positive result? Can the typical American see a difference in their daily life at all as a result?
First, let's take a look at the economy as a whole:
- The American Recovery and Reinvestment Act of 2009 (ARRA): a $789 billion economic stimulus plan.
- US auto industry rescue plan.
- Start-Up activity now higher than it was during the dotcom boom.
- Created task force to fight deficit.
- Worker, Homeownership, and Business Assistance Act of 2009.
- Temporary extension of programs under the Small Business Act and the Small Business Investment Act of 1958.
- Increased minority access to capital.
- $26 billion aid to states package (Aug 2010).
- Raised the small business investment limit to $250,000 through the end of 2009.
- Created an Advanced Manufacturing Fund to invest in peer-reviewed manufacturing processes.
- Improper Payments Elimination and Recovery Act – establishes a Federal "Do Not Pay" list.
- Extended and indexed the 2007 Alternative Minimum Tax patch.
- Adopted Economic Substance tax doctrine.
- Extended unemployment insurance benefits and temporarily suspend taxes on these benefits.
- $26 billion state aid bill triggered a surge of private municipal investment.
Next, let's look at the list of accomplishments regarding Jobs:
- Jobs for Main Street Act (2010).
- American Jobs and Closing Tax Loopholes Act of 2010.
- National Export Initiative
- (DOL) Dedicated $100 million in Energy Training Partnership green jobs training grants.
- (DOL) Dedicated $150 million for Pathways Out of Poverty green jobs training grants.
- $33 billion-dollar jobs package (March 2010).
- $26 billion aid to states package (Aug 2010).
- $5,000 tax credit for every new worker.
- New Health IT Workforce Grants (ARRA).
- Job training programs in clean technologies for displaced workers.
- Green Vet Initiative to promote environmental jobs for veterans.
- Financial agencies must establish Offices of Women and Minorities to promote more diverse hiring .
- Recruited math and science degree graduates to the teaching profession.
- Initiated a new policy to promote federal hiring of military spouses.
- Required new hires to sign a form affirming their hiring was not due to political affiliations or contributions
Now, let's focus on "Banking and Financial Reform":
- Established the National Commission on Fiscal Responsibility and Reform.
- Established President’s Advisory Council on Financial Capability to assist in financial education for all Americans.
- Restoring American Financial Stability Act of 2010.
- Dodd-Frank (DF) Wall Street Reform and Consumer Protection Act, the biggest financial reform law since the Great Depression.
- Managed the Troubled Asset Relief Program (TARP)
- Assigned a Special Inspector General for the Troubled Asset Relief Program Act of 2009.
- Pension relief Act of 2010.
- Fraud Enforcement and Recovery Act.
- Played a lead role in G-20 Summit re: financial crisis.
- Reformed deferral rules to curb tax advantages for investing overseas.
- Established new offshore investment policy that promotes in-sourcing.
- Cut salaries for 65 bailout executives (Pay Czar).
- Banks have repaid 75% of TARP funds, bringing the cost down to $89B as of June 2010.
- Closed offshore tax safe havens, tax credit loopholes.
- Created the Financial Stability Oversight Council to monitor stability of the financial system and individual firms
- New requirements for reporting financial data .
- Created self-funded Office of Financial Research (OFR) to collect information from financial firms
- OFR employees must wait a year before working for certain financial firms.
- Provided for orderly liquidation of financial companies (DF).
- Limited trading activities of banks (Volcker Rule) beginning 2 yrs after passage (DF).
- Swaps Pushout Rule prevented federal assistance to swaps (including derivatives) traders
- Derivatives must be traded transparently through a clearing house
- Defined the amount and nature of assets required to meet capital requirements
- Originators of asset-backed securities must retain 5% ownership/risk
- Bureau of Consumer Financial Protection
- Stronger client fiduciary duty for broker-dealers
- Higher standards for securities advertising and disclosures
- Expanded "insider loans"
- Higher standards for sytemically important ($50 billion assets+) institutions, including annual stress tests and restrictions on bank acquisitions .
- Executive compensation must be determined by an independent committee
- Issued compensation guidelines for bank executive salary and bonuses.
- Financial agencies must establish Offices of Women and Minorities to promote more diverse hiring
- Credit Card Accountability, Responsibility and Disclosure Act.
- Credit CARD Technical Corrections Act of 2009.
- Established a credit card bill of rights.
- Reformed credit card swipe fees.
- Created new criminal penalties for mortgage fraud.
- Congress pursued Goldman Sachs for securities violations.
- Permanently extended Research and Experimentation Tax Credit for domestic investments.
Finally, let's look at Healthcare:
- Patient Protection and Affordable Care Act // Health Care and Education Reconciliation Act of 2010 (March 2010).
- Required large employers to contribute to a national health plan.
- Required insurance companies to cover pre-existing conditions.
- Required health plans to disclose how much of the premium goes to patient care.
- Established an independent health institute to provide accurate and objective information.
- Provided minimum essential health care coverage by Veteran’s Affairs.
- Expanded eligibility for State Children’s Health Insurance Fund (SCHIP).
- Prevented children from being refused health insurance coverage.
- Established Early Retiree Reinsurance Program.
- Increased regulation of drug manufacturers.
- Cut prescription drug costs for Medicare recipients by 50% and began eliminating the plan’s gap ("donut hole") in coverage.
12 TRICARE Affirmation Act.
- Extended COBRA (Consolidated Omnibus Budget Reconciliation Act) to provide for a continuation of health care.
- Medicare Physician Payment Reform Act of 2009.
Here's what I see:
-- As to the economy as a whole, we can tangibly see that automakers have been rescued. But again, that isn't a "change for the better," only the forestalling of a disaster. ARRA has brought us myriad highway projects, but how much else does the average American see in their daily life? Even if there was a tax cut, how much is that tangible now that most paychecks are direct deposited?
-- I am unable to see any specific affirmative change in the everyday picture regarding Jobs. All of the efforts have been on forestalling a negative instead. This of course is exactly where a direct government jobs program would have fit.
-- As to financial reform, the only tangible change in everyday life comes from the credit card bill, which Obama described as follows:
The new rules taking effect today mean that credit card companies can no longer retroactively increase rates or increase rates in the first year you open an account, charge misleading late fees or use over-limit fee traps. They’re now required to send ample notification if they plan to make changes to the terms of your card and they must employ clear, simple standard payment dates and times. There are new protections for underage consumers, restrictions on double billing and caps on high-fee cards.
That's something, but hardly qualifies as bold Relief.
-- As to Healthcare, there are some real benefits here that are already or are about to happen: coverage of pre-existing conditions, expanding SCHIP, and cutting Medicare prescription costs. But their effective date may be too late to help this November.
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In short, when you look at the record of FDR and the New Deal Congress, Relief was copiously provided, and it was provided quickly. Average Americans could see that heaven and earth were being moved to help them out. Everybody was helped immediately, starting with the emergency banking act of the first several weeks of the Administration. If other measures like the WPA didn't help you directly, you almost certainly knew people who it did.
On the contrary, the record of Obama and the 2009-10 Congress is long on long term Reform, and a good record about Recovery, but woefully short on immediate Relief, especially in terms of actual positive changes to jobs and income. Preventing a worse catastrophe is a speculative, unseen event. What is seen is that Wall Street has been made whole, but not any positive changes to Main Street.
Which brings us back to the interview this week with Robert J. Schiller of the Yale Business School. He likens the situation now to that of 1937, when New Deal stimulus was prematurely withdrawn, with the result of the 1938 "Recession within the Depression", an event that he sees more likely than not to occur now (beginning at about the 3:30 mark)[h/t Jimdotz for showing me how to embed the video]:
Schiller calls for "job creation" as the specific focus of stimulus beginning at 5:15, saying "The national morale is sinking, and a lot of people are getting resentful that they are being forgotten," and specifically backs a new WPA at about the 7:00 mark.
Instead, there was a fundamental, strategic error made at the beginning of this Administration. As shown in the below graph, it believed that the economic crisis would play itself out quickly and that unemployment in particular would be well on the mend by now. Thus, they minimized the first part of FDR's strategic triad of Relief, Recovery, and Reform. Here's what actually happened:
By March of 2009, with unemployment already having blown through their target, they should have increased their Relief effort accordingly, so that average Americans could see tangible positive results n their everyday lives, but Washington never did, preferring to wait and see. They did wait, and in November we will all see the difference between now and 1934. The failure to concentrate sufficiently on Relief looks likely to mean that the insane party will have at least two years to focus on rolling back all of those efforts at Reform.