Was that an FDR-Sized Stimulus?

Obama’s $800 Billion Bill Was Big, But It May Not Have Been a New Deal

Few people know that the federal stimulus legislation of 2009, officially known as the American Recovery and Reinvestment Act, was twice as big as the Louisiana Purchase and Marshall Plan combined. Time magazine correspondent Michael Grunwald, in his new book The New, New Deal seeks to rectify that misperception, arguing that the stimulus is transforming American life. In advance of Grunwald’s appearance at a Zócalo in Grand Park, we asked scholars and writers: will the ARRA eventually be remembered as a new “New Deal”? Why or why not?

Lee E. Ohanian

Yes, for being similarly oversold

The ARRA may ultimately be remembered as the “New New Deal,” but for very different reasons than those based on common perceptions about FDR’s New Deal or the ARRA. Common perceptions are that the New Deal ended the Depression and that the ARRA ended the Great Recession. But neither program produced anything close to the results that were marketed to the public. The economic recovery programs of the original New Deal, including the National Industrial Recovery Act, did not restore jobs. In sharp contrast, these policies likely prolonged the Depression considerably by artificially raising industrial prices and wages, and thus preventing the normal forces of supply and demand to operate. The result is that very little work was restored between 1933 and 1939. It was not until after FDR began to reverse these wage and price fixing policies that work was restored. This means that most of the economic growth that occurred during the heyday of the New Deal was the result of productivity growth, which is unrelated to the industrial and spending policies under the New Deal. Ironically, FDR’s most important recovery programs did the most to retard economic growth. Like the New Deal, the ARRA is also associated with prolonged joblessness. The employment rate—the number of employees as a share of the adult population—is lower now than when the ARRA was passed. Both recovery programs also shared very similar economic rationales: policymakers in the 1930s and today viewed the American economy as being incapable of restoring jobs on its own. President Obama’s advisors predicted the ARRA would reduce the unemployment rate to around 5.5 percent. But unemployment has been at or above 8 percent since early 2009. The programs are dissimilar in that the ARRA and other associated stimulus programs—such as cash for clunkers, the home buyers tax credits, the payroll holiday, and President Bush’s temporary tax rebates—increased government debt much more than the New Deal did. Publicly held federal government debt is now about 70 percent of gross domestic product, doubling since 2007. From this perspective, the debt legacy of the ARRA and other recent stimulus programs will long-outlive those of the New Deal.

Lee E. Ohanian is professor of economics at UCLA and senior fellow at the Hoover Institution at Stanford University.

Michael Hiltzik

Yes, though it may not be remembered as such

The American Recovery and Reinvestment Act—aka the Obama stimulus—may not be remembered as a modern-day New Deal, but it should be. Of course there are glaring differences between the recovery program of the 1930s and the program that addressed the recession of 2008. The biggest one may be that Franklin Roosevelt and his Brain Trust had no model for how to address the deepest economic slump of their time. Obama and his team did have a model—the New Deal. Accordingly, the Obama program’s provisions to deliver near-term relief to the unemployed, the underemployed, and their families bore numerous similarities to New Deal programs. Both incorporated federal unemployment insurance; both aimed to provide short-term employment on government-funded construction projects; and both treated this employment as a necessity to tide the jobless over until sustainable recovery spread through the industrial and agricultural economies. The Roosevelt and Obama teams both understood that to be effective in macroeconomic terms government spending should be deficit-financed so that it would represent new stimulus to the economy. That said, FDR and many of his advisors were reluctant to spend and borrow as much as would have been necessary for genuine, long-lasting recovery between 1933 and 1938. The theoretical underpinning of deficit-funded government stimulus simply had not penetrated deeply into U.S. economic thinking—the New Dealers were not “Keynesians” as such, for the work of John Maynard Keynes was not well-known in this country until the late ’30s. They were, however, proto-Keynesians, in that their experience and instincts told them that relief to labor was an economic necessity, and that the way to provide it was to borrow. Obama’s team, of course, had eight decades of Keynesian experience to draw on; all that held them back was political resistance, with the result that their program was not as big as it should have been, though probably as big as it could be. The best way to compare the two programs is by examining their legacy (though we may only be able to guess at the legacy of American Recovery and Reinvestment Act). The New Deal left us monumental examples of infrastructure, many of which still serve the nation—airports, dams, post offices, schools, and highways, among hundreds of thousands of projects. ARRA has spent billions refurbishing many of these structures, building more, and building in ways that were unimaginable to the original New Dealers—helping to create an industrial infrastructure of alternative energy, for example. But the most lasting legacy of the New Deal is a new political, not physical, infrastructure: a profound change in the relationship between the federal government and its citizens, symbolized by Social Security. FDR instilled for the first time the conviction that the government recognized “an accepted responsibility for relief,” as he put it in 1938. That legacy has been under attack ever since, and the Obama Administration has struggled to preserve it.

Michael Hiltzik is author of The New Deal: A Modern History (Simon & Schuster, 2011) and business columnist at the Los Angeles Times.

Eric Rauchway

No, because the Obama administration doesn’t see the New Deal as a model

Historians are in the past-telling business, not the foretelling business. That said, I think it’s unlikely that ARRA will be remembered as a new New Deal—not through any fault of Mike Grunwald, who’s written a terrific book which everyone should read to understand the so-called stimulus—but because the Obama administration has no evident interest in producing anything like a New Deal. The very existence of Grunwald’s book undermines any comparison to the New Deal. By this time in FDR’s first term, everybody knew what the New Deal was, and they didn’t need an intrepid Grunwald to tell them about it. They knew the New Deal included public works that put millions of Americans in jobs and brought modernization to the South and the West. They knew the New Deal also—and maybe more importantly—included strong regulation of Wall Street, the creation of Social Security, and the federal government’s firmest commitment to support and expand unionization. They knew it was bringing recovery. At about this time in his first term, in October 1936, FDR said as he ran for re-election:

“Tonight I call … the roll of honor of those who stood with us in 1932 and still stand with us today…. millions who never had a chance—men at starvation wages, women in sweatshops, children at looms … farmers whose acres yielded only bitterness, business men whose books were portents of disaster, home owners who were faced with eviction, frugal citizens whose savings were insecure…. countless other Americans of all parties and all faiths, Americans who had eyes to see and hearts to understand, whose consciences were burdened because too many of their fellows were burdened, who looked on these things four years ago and said, ‘This can be changed. We will change it.’ … They stood with us then because in 1932 they believed. They stand with us today because in 1936 they know. And with them stand millions of new recruits who have come to know.

“Their hopes have become our record.” Roosevelt achieved a record landslide in his reelection because of what the New Deal meant. Much as one might like President Obama to give a speech like that, and perhaps win an election like that, it’s difficult to imagine it happening. The administration clearly does not take the New Deal for a model.

Eric Rauchway is professor of history at UC Davis.

Dean Baker

No, it’s a missed opportunity

As has often been said of Barack Obama’s supporters, Michael Grunwald has drunk the Kool-Aid. While the stimulus certainly helped boost the economy in a situation where it was facing its worst downturn since the Great Depression, it will be remembered more as a lost opportunity than as a transforming set of changes like the New Deal. President Obama took office with the economy in a free-fall. The opposition had been completely discredited by pursuing the policies that had brought on this disaster. His own popularity ratings were in the stratosphere. President Obama could have seized this opportunity to try to turn the economy in a fundamentally different direction. This would have meant first and foremost building on the anger the country felt toward the large Wall Street banks. If he had taken an aggressive stance of prosecuting criminal activity and breaking up large insolvent banks, he almost certainly would have the support of the vast majority of the country. It is unlikely that the Republicans in Congress could have sustained resistance that was centered on protecting the large banks responsible for the disaster. He also should have clearly laid out the need for large, sustained stimulus to replace the $1.2 loss in annual demand as a result of the collapse of the housing bubble. While it is impossible to know how successful he would have been in getting more stimulus, the failure to go this route almost certainly condemned the country to a decade of high unemployment and weak growth. Furthermore, President Obama has done nothing to get the dollar down to a level consistent with more balanced trade. This leaves the economy’s fundamental imbalance to be dealt with further down the road. Nor did he take any steps to provide workers with more leisure time by bringing the work year in the United States more in line with the work year in other wealthy countries. There were major political obstacles to a real New Deal, but that it not an excuse for trying to invent one out of whole cloth.

Dean Baker is co-director at the Center for Economic and Policy Research.

Michael Grabell

It depends on whether the president can build on the stimulus

President Obama billed the stimulus as a down payment on his grander vision. So the answer to this question depends a lot on who wins the upcoming elections and by how much. As I also reported in my book, the stimulus built the world’s largest wind farm, created an electric car industry in the United States, jumpstarted high-speed rail, ignited education reforms, fast-forwarded the transition to electronic health records, and contributed to many substantial infrastructure projects. But the success of each of these programs was contingent on Obama’s ability to get follow-up bills through Congress. The stimulus wasn’t enough to transform American infrastructure, the education system, or the energy sector. But it was just enough for Republicans and moderates to say, “We tried that already.” Republicans were much more in favor of clean energy before the stimulus. But Solyndra and other bad investments have made anything green seem radical and foolhardy. A high-speed rail line is under way in California. But auditors have warned that the state doesn’t have the money to finish it. The Obama administration appears to have overbuilt the electric-car market. We won’t know for years if the education reforms in the stimulus will work. The administration’s early obsession with the term “shovel ready” has proved a liability to initiatives to rebuild our infrastructure. So the answer is simple: If Obama wins and both houses of Congress go Democrat—or he finds a way to break the gridlock—we may very well look back at the stimulus as a new New Deal that brought us solar power, electric cars, high-speed rail, and a greatly changed education system. If he doesn’t, the stimulus will largely be viewed as a grab bag that built high-speed rail lines to nowhere and gambled taxpayer dollars on dreamy ventures that couldn’t compete in the market.

Michael Grabell is a ProPublica investigative reporter and author of Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History.

Daniel J. Mitchell

No, because Obama wasn’t as ambitious, or as wrong, as FDR

President Obama probably wants to be another FDR, and his policies share an ideological kinship with those that were imposed during the New Deal. But there’s really no comparing the 1930s and today. And that’s a good thing. As explained by Walter Williams and Thomas Sowell, President Roosevelt’s policies are increasingly understood to have had a negative impact on the American economy. This video outlines all the ways that FDR (and Hoover) expanded the burden of government spending, raised tax rates, and increased intervention. As a result, what should have been a routine or even serious recession became the Great Depression. To be sure, Obama wants higher tax rates, and he has expanded government control over the economy. And the main achievement of his first year was the so-called stimulus, which was based on the same Keynesian theory that a nation can become richer by switching money from one pocket to another. But Obama’s stimulus was just as much of a flop as all the spending of Hoover and Roosevelt. The President promised the unemployment rate today would be about 5.5 percent if we spent about $1 trillion. Instead, the jobless rate is 7.8 percent—the worst employment performance since the Great Depression. Obama did get his health plan through Congress, but its costs, fortunately, pale in comparison to Social Security and its $30 trillion long-run deficit. And the Dodd-Frank bailout bill is peanuts compared to all the intervention of Roosevelt’s New Deal. In other words, Obama’s policies have nudged the nation in the wrong direction and slowed economic growth. FDR, by contrast, dramatically expanded the burden of government and managed to keep us in a depression for a decade. So thank goodness Barack Obama is no Franklin Roosevelt. Moreover, FDR actually had plans to double down on the New Deal as World War II was coming to a close. His “Economic Bill of Rights” would have created a massive entitlement state—putting America on a path to becoming a failed European welfare state a couple of decades before European governments made the same mistake. Roosevelt’s death derailed this terrible idea, and the economy was able to recover after World War II—notwithstanding the frantic predictions of a return to depression by the Keynesians—largely because government spending plummeted and politicians were unable to coalesce around a plan for continued government activism. For those who want more information, Amity Shlaes and Art Laffer also have written about the harmful impact of FDR’s policies. And there are many others who have written pro and con about Roosevelt because he was such a major figure. Obama, by contrast, took relatively small steps and now has been neutered by a Republican Congress. In all likelihood, he won’t get much attention from the history books other than for being the first African-American president.

Daniel J. Mitchell is a senior fellow at the Cato Institute, a libertarian think tank in Washington, D.C.

David B. Woolner

No, because it did not touch as many lives

There is no question that President Obama’s American Recovery and Reinvestment Act represents a huge investment in the U.S. economy. But comparing the total cost of the act to the New Deal is tricky—first and foremost because, given all of the agencies and programs involved, it is very difficult to quantify the total cost of the New Deal.

A far more productive exercise is to examine how the two pieces of legislation compare in terms of their overall impact on the daily lives of ordinary Americans. Here the New Deal wins hands down.

Consider such New Deal programs as the Works Progress Administration, which, over its eight-year history, provided direct employment to approximately 8.5 million people, the vast majority of whom worked on projects aimed at rebuilding America’s wholly inadequate 19th century infrastructure. Thanks to this massive effort, millions of Americans (including engineers, architects and other skilled workers) gained meaningful employment. By the time it was finished, the WPA had constructed nearly 600,000 miles of rural roads; 67,000 miles of urban streets; 122,000 bridges; 1,000 tunnels; 1,050 airfields; 500 water treatment plants; 1,500 sewage treatment plants; 36,900 schools; 2,552 hospitals; 2,700 firehouses; and nearly 20,000 other state, county, and local government buildings.

But the New Deal did much more than this. It also transformed rural America by bringing electricity to the nine out of 10 farms that lacked access to power in 1933. It helped stop the Dust Bowl by planting 220 million trees in over 18,000 miles of shelter belts across the Midwestern landscape. It revolutionized the home mortgage industry through the Home Owners Loan Corporation and the establishment of the FHA. And it brought jobs, soil conservation, and cheap power to an entire region through the establishment of the Tennessee Valley Authority.

All this is to say nothing about the impact of the establishment of the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, or the passage of such landmark pieces of legislation as the Social Security Act and the National Labor Relations Act.

President Obama deserves much praise and credit for the passage of the American Recovery and Reinvestment Act. Authors such as Michael Grunwald are right to point out its underappreciated impact on our economy, as well as its potential to help transform certain key sectors as the energy sector in the future. But the ARRA has not touched the lives or inspired the imagination of ordinary Americans in quite the same way as FDR’s New Deal.

David B. Woolner is Senior Fellow and Hyde Park Resident Historian of the Roosevelt Institute.