By Donald Devine
Published: 01-22-09
Congratulations to President Barack Obama. He will need it in the face of the worst economic downturn since the Great Depression seventy years ago. Indeed the two depressions may well mark the beginning and end of the New Deal political system that has lasted to this very day. The question is whether he will end as the last failed New Deal president or the first president with a real new deal for America.
The term New Deal comes from President Franklin Delano Roosevelt’s campaign slogan in 1932 promising a new way of governing and is normally seen as the beginning of the long reign of Progressivism in American government and politics.
Actually the idea goes back even further to President Woodrow Wilson’s slogan; his Fair Deal program of 1912 that created the central institutions of the present crisis: the Federal Reserve banking system the beginnings of the regulatory state with the Federal Trade Commission and the Clayton Anti-Trust Act progressive income taxation massive loans to the largest private sector of the day agriculture and much much more that eventually eroded the old limited federalist Constitution.
Still New Deal is the proper term. Wilson was too hemmed-in as a minority president with a conservative Congress and then by World War I to actually implement much of his early Progressive program. It really began when Roosevelt (actually under progressive Herbert Hoover but that is another story) threw the whole power of the government against the Depression – and lost since recovery did not take place until spurred by a war a decade later.
All of the Fed credit expansion and “pump priming” stimulus spending did not work economically although Roosevelt convinced them otherwise politically. President George W. Bush almost exactly copied the FDR plan – and nothing happened this time either. The difference now is that if it takes a decade to recover under Obama the whole progressive New Deal institutional structure will be totally discredited and will disappear. Americans do not have the patience for such a delayed recovery today.
President Obama’s transition makes it clear he is a right-down-the-middle progressive right out of the Roosevelt mold. His biography “Dreams of My Father” already showed his basic progressivism but also his pragmatic and ambitious personality. His transition has just affirmed both aspects of his political persona. Picking a progressive think tank president as transition head rather than a crony proved his confidence both in his ideology and himself.
His appointments were center-left especially in the Cabinet but his choice of duplicate roles for White House and cabinet officers suggests he will listen to diverse views. However all of this confident pragmatic progressivism will probably be his ruin.
There is one real problem. Pragmatism by itself simply does not work. Pragmatism requires a context without which it is simply a muddle. There must be some set of principles from which pragmatism adjusts. Mr. Obama does have a progressive ideology and wishes to follow its first principle of turning the economy over to government expert planners – which is why his executive appointments appeared sound.
As a progressive he must follow FDR to use the Fed and spending to get the economy moving again. But he has also been around long enough – a community organizer cannot miss this - not to trust the big progressive experts very far. That is why he has a double set of them at the White House and the agencies for one to check and catch what the other misses. Yet two sets of know-it-alls just confuse matters more.
At its best two layers of experts will delay everything. The whole idea is to double check and that takes time. But this will occur on top of an already progressive bureaucracy redundant with a half dozen agencies fighting for turf in every major program field including Obama’s high priority health area which has even more.
On Iraq as Douglas Feith has demonstrated the departments of Defense State and the CIA (among others) all blocked each other during the Bush Administration so that policy was muddled for years. Tellingly the Obama Transition pointed to the White House National Security Advisor as its model for creating the double-check system for domestic policy. What they missed was that Advisor Condoleezza Rice merely added one other element into the policy mix to further confound the process. Now the same replication will be spread throughout the government.
Eventually the White House officials will win in this struggle for policy dominance. Proximity to the president will almost always prevail as it did with Ms. Rice confirmed by her promotion to head State. But the resentments in the losing agencies will be profound. Only the agencies know the real details of the policies and what has failed before.
They will not volunteer assistance even if it would be listened to. And the agency bureaucrats know the Congressmen and journalists who can be used for political payback much longer and better than those in the bubble that the White House inevitably becomes. One can be quite confident in predicting this double-teaming will come to ruin with the president caught in the middle between conflicting and/or filtered expert advice.
How can the president know which option to choose? Progressivism offers no guide other than relying on the experts. But what happens when they differ? President Obama starts with his New Deal prejudices to expand credit and stimulus spending. But what can he do that President Bush has not?
Federal Reserve liquidity is at an all time high an incredible 32 percent higher than three months ago as the nearby chart demonstrates. As far as spending is concerned President Obama has said that deficits will total in the trillions “for years.” Yet the recent CBO figures demonstrate that the final Bush deficit will already be a trillion dollars at 8.5 percent of national wealth which except for World War II will be the highest ever exceeding the previous high by 40 percent!. In 2009 total spending will be perhaps $4 trillion double what it was just seven years ago. It has only been a decade since the total budget even reached one trillion. How much more can poor Mr. Obama spend?
How will he nationalize the health sector during a depression? It would be enormously rash to totally reconstitute 16 percent of the economy which health represents when the economy is already tottering. The center of his environmental program is an “economy-wide” cap-and-trade carbon energy policy to dramatically limit greenhouse gasses. If energy resources are reduced substantially this must limit production – in the middle of a depression? Obviously Present Obama will find plenty of progressive things to do. But he will not make the big economic changes he promised – or he will fail miserably and soon.
There is one solution to his predicament as unlikely as it seems for a Progressive. It would require rejecting the whole New Deal. A president would have to follow President Ronald Reagan the only non-progressive president in modern times and let the market freely hit bottom so that it can then turn up again and recover. If people think the market can go still lower they will never make discretionary purchases. There are only three times in its history that the stock market lost 20 percent or more in value in a two day period – now 1929 and 1987.
The presidents at the time of the first two threw the whole New Deal playbook at the economy – and they failed to fix it. The third time in 1987 – as Michael Reagan quips – “My Dad did nothing; and it worked!” No one even remembers 1987 today. Freeing markets worked then and is the only solution now or for any succeeding president who really wants to get the economy moving again.
Donald Devine the editor of Conservative Battleline Online was the director of the U.S. Office of Personnel Management from 1981 to 1985 and is the director of the Federalist Leadership Center at Bellevue University.
