Barack Obama’s historic victory in November 2008 arrived amid
widespread fears that the nation was sliding into a new Great
Depression. Drawing on the parallel, an iconic New Yorker cover
image depicted the first black president as Franklin Roosevelt,
cigarette holder in his teeth, waving to the crowds from his
Inauguration Day touring car. Like Roosevelt, Obama offered a
message of hope and a promise to break with the policies of his
conservative predecessor. Many wondered whether another New
Deal was at hand.
Will Obama be a new Roosevelt? It’s a tempting analogy, but misleading for
several reasons. Most obvious is the profound difference in timing. When
Roosevelt was inaugurated as president in March 1933, the economic situation
seemed completely desperate: production had fallen by more than 20 percent
since 1929 and the unemployment rate had reached 25 percent, to say nothing of
the alarming international situation. After the calamitous Hoover presidency,
mired for three years in a “liquidationist” strategy aimed at letting “bad” banks
fail one after the other, ensnared in antigovernment dogmatism (budget surpluses
until 1931, no expansion of public spending), Americans wanted big change and
awaited Roosevelt like the messiah. That desperate situation was what allowed a
radically new policy to be put in place.
To punish the financial elites who had enriched themselves while bringing the
country to the edge of the abyss, and to help finance a gigantic expansion of the
federal government, FDR thus decided to raise tax rates on the biggest incomes
and estates to 80–90 percent, a level maintained for almost half a century.
Obama, arriving in office just a few months after the onset of the current
crisis, faces a totally different situation and much less favorable political timing.
The recession is still far from reaching the apocalyptic depths of the 1930s—
which limits Obama’s maneuvering room to impose revolutionary measures.
And if the recession worsens, he could be held responsible, which couldn’t
happen to Roosevelt. Indeed, less sure of his legitimacy than Roosevelt, Obama
has cautiously put on hold his plans to raise taxes on high incomes, while
choosing to let the Bush-era cuts gradually lapse: the tax rate on the highest
incomes will be modestly lifted, from 35 to 39.6 percent by late 2010; the capital
gains rate will rise from 15 to 20 percent.
His supporters are already criticizing the inadequacy of his public investment
and stimulus plans, too oriented toward tax relief for the middle class, popular
among Republicans, not ambitious enough in terms of public spending. A
“bipartisan depression” is beckoning, the economist Paul Krugman wrote a few
days ago in the New York Times. In Obama’s defense, though, we should
remember another essential difference from the situation Roosevelt faced. In a
certain sense, it was much easier to broaden the field of government intervention
after the 1929 crisis, simply because at the time the federal government was
practically nonexistent. Before the early 1930s, total federal spending had never
exceeded 4 percent of GDP; Roosevelt raised that to 10 percent by 1934–35; it
peaked during World War II before stabilizing at 18–20 percent in the postwar
period, which is where it remains today.
The historic growth in the federal government reflected major public
investment and infrastructure projects launched in the 1930s and, especially, the
creation of public pension and unemployment systems. The task facing Obama
today is more complicated. As in Europe, the modern state’s great leap forward
has already happened; now is more the time for a rationalization of the welfare
state than for its development and indefinite expansion. Obama will have to
convince his fellow citizens that resolving the crisis and preparing for the future
will require a new wave of public investment, especially in energy and the
environment, as well as social spending, particularly in the area of health
insurance, the poor relation of America’s weak welfare state. Let’s hope for his
sake, and for the world’s, that he manages to do it without our having to go
through a depression on the scale of the 1930s.
Comments