To many observers, the presidency of FDR was a disaster. He had double-digit unemployment throughout the 1930s, and he doubled the size of the national debt in his first two terms. The League of Nations rated the U.S. recovery as one of the worst in the world. Economic stagnation was a cloud over the entire FDR presidency during the 1930s.
Why imitate him? But two presidents in the last forty years have done that–Jimmy Carter and Barack Obama. When unemployment soared in the 1970s, President Carter looked to FDR for inspiration. He promoted the Humphrey-Hawkins bill–a modified WPA–to put government in the job-creating business. When OPEC jacked up the price of oil, Carter followed FDR’s approach during World War II: put price controls on oil and slap an excess-profits tax on U.S. oil companies. As a result, oil output in the U.S. dropped, imports increased, and the price of oil tended to remain high. What a disaster! Inflation hit 14%, unemployment 7%, and mortgage interest rates 21.5%.
Ronald Reagan defeated President Carter in 1980 in large part because Reagan argued that freedom, not more government, was the way out of our economic mess. Reagan’s first executive order was to lift the price controls on oil. Next came serious tax cuts on income, corporations, and capital gains. Sometimes the politics of freedom seemed to be two steps forward and one step back. But the direction was clear. In two years, inflation plummeted from 14.5% to 4%; economic growth, which had been dormant for much of the 1970s, expanded by 3.5% in 1983, and a rollicking 6.8% in 1984. Recovery at last.
But alas, President Obama agrees with FDR and Carter, not Reagan. In part, President Obama, like FDR, has used government to achieve partisan political goals. In the bailout of General Motors, for example, President Obama maneuvered to make sure the United Auto Workers received cash before the bondholders. His Cash for Clunkers program also helped his union buddies in the auto industry. Furthermore, the Obama stimulus package was loaded with aid to construction unions to build highways and infrastructure. His political largesse spread to corporate subsidies, and Solyndra, which made contributions to the Democratic party, received a $500 million federal subsidy before going bankrupt. Solyndra was, in a sense, like the old WPA of the 1930s where the WPA director of New Jersey answered his telephone, “Democratic Headquarters.”
When will the U.S. economy recover? When we stop imitating FDR.