Reform, the FDR Way

Amity Shlaes, Financial Times
Amity Shlaes
Where's the fun? That's the feeling you get watching the Democrats in Washington this summer. Gone is the happy plan for a frenzy of lawmaking, the "Hundred Hours" of action Speaker Nancy Pelosi promised when the Democrats took the House. The speaker's artful allusion to Franklin D. Roosevelt's "Hundred Days" quickly became an ironic echo. During that first euphoric legislative period, Roosevelt managed to rescue the banking system from disaster, assist bankrupted farmers, rewrite the economics of agriculture and the rules for flailing businesses, bring back beer--you name it. Contemporary leaders can't even act on pressing issues such as agriculture and immigration, not to mention Social Security.

Why can't politicians be Roosevelts today? For an answer, let's look to the middle of 1935, about two years into FDR's New Deal and the equivalent of about now in the election cycle. The federal government was still smaller than the nation's state and local governments combined. Two out of 10 men were unemployed. FDR took the economic emergency as a powerful mandate for further lawmaking. He jumped into the project with all the glee of a boy leaping into a sandbox. The papers reported that he was going to "blast out of committee" yet another round of bills, and blast he did--that year the country's premier labor law, the Wagner Act, was passed, as was Social Security.

At about the same time, Roosevelt slapped together the Rural Electrification Administration, which came on top of the New Deal's large farm subsidies. For construction workers, artists and writers, he created--also in mid-1935--the Works Progress Administration, which hired the unemployed, including artists, craftsmen and journalists. To appreciate the size of that gift, imagine a contemporary politician responding to a market crash by putting ex-employees of Google on the federal payroll. The president also built on to an already large structure, the Public Works Administration, which funded town halls, grammar schools and swimming pools in 3,000 counties. The money? Roosevelt passed a tax increase that opponents called the "soak the rich" act. It contained an estate tax rate hike that would make John Edwards drool. By 1936, the government took up more than 9% of gross domestic product. For the first peacetime year in U.S. history, Washington had edged past the state and local governments in size to become a larger part of the national economy. (Just a few years earlier, state and local governments had been twice as large as Washington.) FDR had reversed the old crucial ratio of federalism, and Washington has dominated the country ever since.

Clearing some blank space for new institutions is possible. But lawmakers won't do it if they honor Rooseveltian edifices more than Roosevelt did himself.

Those early commitments set a trend of promises. Some of them became what we now call entitlements. Lyndon Johnson in the 1960s layered on governmental commitments with the Great Society. President Bush has heaped on more, with a new entitlement: prescription drugs for seniors. Only a narrow part of the federal budget remains for discretionary spending--the part left over for new ideas. And setting aside the question of whether an individual program is good, bad or simply in need of an overhaul, we've found as a country that old commitments are simply too hard to undo.

This is partly because of the way the political game works. When you seek to take away a benefit from one targeted recipient, he will fight like crazy to keep it--think of the ferocious battles the farm lobby wages over even tiny reductions in agricultural subsidies. Those who gain from reducing the size of the handout, however, are members of the lobbyless general public who will receive only an incremental advantage, maybe the equivalent of a penny or two apiece. So the rest of us don't have the incentive or ability to apply countervailing pressure. Yet that's exactly what we need today: the energy and exhilaration of FDR in his first term.

Today's timidity would have disturbed FDR, who had no trouble knocking down the sandcastles he had made. Early in the 1930s, he created 4 million jobs with the Civilian Works Administration, then uncreated them when he decided the CWA was too close to the English dole. When he tired of Harold Ickes' Public Works Administration, he scaled it back, and finally abolished it in 1941. As for Ickes' Department of the Interior, FDR decided that it was time to revise it into "a real Conservation Department"--a change many would welcome today.

A few leaders since FDR have persuaded Congress to help them bring about changes on this scale--Ronald Reagan's bipartisan tax reform of 1986 and Bill Clinton's welfare reform a decade later come to mind. These presidents were truer to FDR's spirit than the hesitating Congress of today. Clearing some blank space for new institutions is possible. But lawmakers won't do it if they honor Rooseveltian edifices more than Roosevelt did himself.

Amity Shlaes is the author of The Forgotten Man: A New History of the Great Depression. She delivered the April Bradley Lecture at AEI.

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