A Little Song; Getting Regulated, the Early Years
The song begins with how business came to be regulated in the first place. The industrial revolution of the late 1800’s brought with it a gold-rush business mentality, where disparities in who carved up the spoils became so apparent as to require some kind of referee.
Railroads walked off with government giving them 200 million acres of American West as an incentive to build and loans to do the building, mile by mile. Once built, they monopolized transport, even to the extent of ownership of what would become important links in the way West, on railroad-owned land. St. Louis, Wichita, Kansas City and Denver were not accidents of westward expansion, but profit-centers of the vast surrounding agricultural and mining development. They were, in effect, precursors to the Wal-Marts of another era and their expansionist founders profited enormously.
Stimulating and protecting investment while opening the great untapped resources of the West was the political excuse for these giveaways, even though the investment was private and the need—transport, water, electricity and telegraph, was public. The first Roosevelt, Teddy, based his political campaign on trust-busting, naming the monopolists as robber barons.
Those times would not be unrecognizable to today’s man-on-the-street. $90 billion to AIG? $50 billion to Citigroup and another $40 billion to Bank of America? These are privately held companies, public only in the sense that their stock is publicly issued and available.
During what came to be known as the Progressive Era, Teddy Roosevelt, Taft and Wilson regulated the pants off what they called big business, including.
Creation of a graduated income tax
Numerous consumer-protection laws
Establishment of a Federal Reserve banking system
Wage and hour laws
The first gleaming of a welfare state (modest worker safety-nets)
And then the heat was off. The Harding and Coolidge administrations believed in what they liked to describe as laissez-faire policies, which were certainly lazy, but not very fair either. French for leave things alone which, by definition, “favors capitalist self-interest, competition, and natural consumer preferences as forces leading to optimal prosperity and freedom.”
Deregulation, then as now, was an outgrowth of lobbying by the regulated industries (controlling in many cases) the very government agencies under which they were regulated. If that sounds familiar, it’s no surprise, as the times were euphorically floating in yet another bubble. No one ever seems to question a bubble-economy, for fear of getting soap in his eyes.
Capitalist self-interest always sounds so grand and fine that all it needs is a band playing and flags aflutter . . . until the wheels come off, and they usually do. Was there ever so unlucky a man as Herbert Hoover? Elected by landslide over Democrat Al Smith in the 1928 elections, Hoover took office in March of 1929 and had a grand, cigar-smoking time of it for a whole seven months and nineteen days. Hoover was clearly out of his depth regarding the ’29 crash and its aftermath, but take just a moment with me to understand (in fairness) who he was in those few months before the elevator dropped.
1After his successful election in November 1928, Hoover entered office with a plan for reform of the nation’s regulatory system. A dedicated Progressive and Reformer, Hoover saw the presidency as a vehicle for improving the conditions of all Americans by regulation and by encouraging volunteerism. Long before he entered politics he denounced laissez-faire thinking. As Commerce Secretary he had taken an active pro-regulation stance. As President, he helped push tariff and farm subsidy bills through Congress.
It’s hard to argue with any of that. Hoover sounded like exactly the right man for the times.
Hoover expanded civil service coverage of Federal positions, canceled private oil leases on government lands, and by instructing the Justice Department and the Internal Revenue Service to go after gangsters for tax evasion, he enabled the prosecution of gangster Al Capone. He appointed a commission which set aside 3 million acres (12,000 km²) of national parks and 2.3 million acres (9,000 km²) of national forests; advocated tax reduction for low-income Americans (not enacted); closed certain tax loopholes for the wealthy; doubled the number of veteran’s hospital facilities; negotiated a treaty on St. Lawrence Seaway (which failed in the U.S. Senate); wrote a Children’s Charter that advocated protection of every child regardless of race or gender; built the San Francisco – Oakland Bay Bridge; created an antitrust division in the Justice Department; required air mail carriers to adopt stricter safety measures and improve service; proposed federal loans for urban slum clearances (not enacted); organized the Federal Bureau of Prisons; reorganized the Bureau of Indian Affairs; instituted prison reform; proposed a federal Department of Education (not enacted); advocated fifty-dollar-per-month pensions for Americans over 65 (not enacted); chaired White House conferences on child health, protection, homebuilding and homeownership; began construction of the Boulder Dam (later renamed Hoover Dam); and signed the Norris-La Guardia Act that limited judicial intervention in labor disputes.
Most of what he proposed, including ‘not enacted,’ would occur in a much-sobered congress after FDR took over. It’s a hell of a record for so short a period and refutes his reputation as a do-nothing president.
The do-nothing reputation came, as events swamped efforts to deal with the crisis, mostly by not realizing early enough that it was a crisis. Even so, Hoover has a permanently blackened record, largely because of the Harding-Coolidge administrations before him.
But that’s politics. We don’t always get the reputation we deserve.
A Little More Song, the Second Time Around
Regulation, as we commonly think about it in today’s business environment, pretty much came down the congressional pike as a result of the disastrous crash of 1929. President Franklin Roosevelt was swept into office (not entirely unlike Barack Obama), on a wave of business and stock market failures that shook the foundations of the Republican party. According to Roosevelt, the country needed and deserved a New Deal.
We are not today where we were when FDR took office, but we’re not three years into a crash as he was, either. We’re five years in and have not yet crashed, due to a unprecedented printing of money by the Fed, who believes failed monetary policy was the error of 1929. They may be right. They may not, but current Fed policy will only be measurable by history.
There’s a tendency to believe FDR was there to grab the reins of a collapsing economy, but that breakdown was well underway when he was elected, three years and a month after Black Tuesday. Banks in 37 out of 48 states were closed. Men stood dispirited, in lines for soup as the unemployment rate touched a quarter of all able workers (we’re at half that figure today). A still largely agricultural economy was devastated as farm income dropped 25% and overall prices in other industries dropped by nearly as much. Ordinary debt, such as business loans and mortgages were more and more impossible to pay, as income disappeared and the real cost of debt climbed dramatically.
Many (including myself) think credit-card, mortgage and college debt are the next shoes to drop in our present economy. It’s hard from here to understand the degree of fear in the air as Roosevelt proclaimed that the country had ‘nothing to fear but fear itself.’
“Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth… I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.”
–Franklin Delano Roosevelt
It’s not the purpose of this book to study the New Deal. Suffice it to say, FDR had a lot of irons in the fire and he put his brand on the congress quickly, including,
The National Industrial Recovery Act (which was later struck down by the Supreme Court)
Regulation of trucking, airlines and the communications industry
The institution of the Securities and Exchange Act, regulating various secondary markets such as stock exchanges
The Glass-Steagall Act, which was passed in 1933, preventing banking and brokerage in the same institution. A second act of the same name established the Federal Deposit Insurance Corporation, which insures private bank deposits
The National Labor Relations Act
The Federal Crop Insurance Corporation
The Works Progress Administration (WPA) which put millions back to work on government funded programs, from artwork in public buildings to building roads
The Civilian Conservation Corps (CCC)
The Social Security Act
The Public Works Administration (PWA)
The Civil Works Administration (CWA)
The Fair Labor Standards Act, which for the first time set minimum hours and wages
The Federal Crop Insurance Program
The Federal Housing Administration
The repeal of Prohibition
The Tennessee Valley Authority
A Little Dance
The death of FDR was expected by many to signal a quick reversal of all he had achieved in the area of social engineering and there were many out there (including my old daddy) who considered him a traitor to the business class and wished it all over and done with. But nobody had figured on the possibility of Harry Truman (who finished out the remaining three years of Roosevelt’s fourth term) winning election on his own.
He did, to the amazement of everyone (including The Chicago Tribune) and along with dropping the first (and only) atomic weapons, firing the poplar General Douglas MacArthur in the midst of the Korean War, establishing the Marshall Plan, the United Nations and the Truman Doctrine, Harry waded in to what he termed a Fair Deal extension of the New Deal.
He was the first of many succeeding presidents (Republican and Democratic) to fail at inaugurating national health insurance. He failed as well to win repeal of the anti-union Taft-Hartley Act, and was an aggressive spokesman for a long-overdue civil-rights program. It was slim pickings for the man who said, “never kick a fresh turd on a hot day.”
But ‘give ‘em hell Harry’ was a man among men and his reputation grows by every decade since his presidency. World-shattering and world-building decisions were made on his watch and yet his only lasting addition to domestic American well-being was the Housing Act of 1949. No small deal in and of itself, it introduced an enormous expansion of the federal role in domestic mortgage insurance and public housing construction. Thus were some 800,000 public housing units built, as slum-clearance and public housing began and FHA insured mortgages expanded into a post-war housing boom.
Time Out for a Brief Message from Our Sponsor
I am stunned to realize that, having lived through a great deal of this history (and been close enough to the rest to smell it like something fresh from the oven), the men we so casually speak and write of were true giants. Edison and Ford (just names now in history books or Internet search) significantly changed the face of America.
Hoover, Roosevelt, George Marshall and Truman; all are men who make our leaders today seem like lightweights by comparison. I except Obama, because he may yet prove to be a giant, but only on the slimmest of evidence and we’ll have to let his policies and influence play out to know. History has a part in it, they say great difficulties bring forth great men, but that’s unprovable by recent experience.
Something changed along the way from Cary Grant to now and I have a hunch the change-factor is a sort of PR idolatry that began with…who?…Elvis, the Beatles, television? Part of it is in iconography, the mass introduction of image into our living rooms. We’d had that before in movies, but movies were something you went to see and you knew they were entertainment—fantasy along with popcorn.
The entire argument is not there, but the thread of it may be and if I presented it awkwardly, the fact still is that we come home exhausted, to collapse into whatever diversion is handy.
America came in from the backyard, sold the boat in the driveway and began ever so slowly to believe the flickering image. Perhaps worse, the flickering image began to believe itself. At the same time, an instantaneous deluge of information, the very availability of Berlin, Bangkok or Hollywood in our living rooms made it all too deep a lake in which to wade.
Walter Cronkite sorted it out for us. We believed Walter. Then he retired and we believed in belief. Walter, we loved you, but you set us up.
Now, everyone knows who is ahead or behind on American Idol, but no one knows who’s actually in charge of the ongoing trillion-dollar bailout of America’s latest economic foolishness. Nor do we care. Our own credit-cards are maxed out and both parents are working to keep from going under. There are 300 channels driving NBC, CBS and ABC into the ground and Paris Hilton is better known than Paris, France. The living-room in which we watch those channels is losing value by the week.
All of a sudden, as Walter would say, that’s the way it is.
We have arguably become the most informed and least educated society on the face of the planet.
The Band’s Gone Home and Still We Dance
Everybody liked Ike in 1952 and, if Harry Truman was just an embarrassing anomaly, certainly we would now see a return to fiscal conservancy and the natural-born right of the Republican Party to run the country’s business. Adlai Stevenson, Democrat governor of Illinois was handily defeated by the wide grin and easy confidence of the general who won us our war in Europe. If Illinois and only a small percentage of others knew Stevenson, the world knew Dwight David Eisenhower. I liked Ike as well. He was the first president for whom I cast a vote.
It may be that the Republicans were too eager to win with Ike to either hold sway over policy or exert any significant pressure on a man of his stature and character. Both parties had run hard after him in the 1948 run-up to election and he was ideologically of middle temperament. It is also possible that having dealt with WWII, Churchill, FDR, Stalin and the assorted allied generals of the European theater, he honored his own conscience and a well earned belief in how decisions are made.
In any event he continued all major New Deal programs still in existence. He expanded Social Security and created a cabinet-level agency to house it, the Department of Health, Education and Welfare. During his presidency, he extended SS benefits to ten million formerly uninsured. This, in a country of 157 million people.
It was not exactly a return to laissez faire. In 1956, the newly reelected Eisenhower pushed through the Interstate Highway Bill, thereby insuring (in future) a McDonalds, Burger King, Colonel Sanders or Pizza Hut at every conceivable cloverleaf. If it was not yet certain that America was married to the Ford and Chevy, Ike made it so.
Angering, but not surprising the South, Eisenhower supported the 1954 Brown v. Board of Education of Topeka Supreme Court decision that found separate but equal schools unconstitutional and the next day he integrated the Washington, D.C schools. Eisenhower proposed the Civil Rights Acts of 1957 and 1960 to Congress and signed those acts into law, setting the stage the for civil-rights marches President Kennedy was only lukewarm to supporting. He sent the Arkansas National Guard to Little Rock to forcibly integrate an all-white public school.
Interestingly, Eisenhower got away with what Lyndon Johnson would not. Johnson (perhaps because he was a Southerner) permanently lost the South for the Democrats by his support of a ‘Great Society.’
Republicans itching for control over the economic levers in America would not find it in either Eisenhower term. Their thirst to turn back New Deal legislation would suffer through Kennedy and Johnson, failing even to get more than lukewarm support in the Nixon years. Finally elected in 1960, Nixon wasn’t a man to turn back the clock. Entering a fourth decade since the beginning of the New Deal, government benefits under his administration rose from 6% of the Gross National Product (GNP) to 9%, a full 50% gain. Food Stamps and public assistance followed suit, from $6.6 billion to $9 billion, while military-industrial investment dropped by almost exactly the same percentage.
Revenue-sharing kicked $80 billion back to individual states and if the country was moving, it seemed in a more Democrat than Republican direction. Shades of 1930 in 1970, as Congress passed the Economic Stabilization Act, providing Nixon a wedge to set wages and prices in a desperate bid to slow inflation. The Democrats in Congress dared him to use it and use it he did.
Stunned, the old Republican war-horses began to feel that possibly the New Deal, if it could not be beat, was best joined. Herb Stein, a Nixon economic advisor wrote:
„Probably more new regulation was imposed on the economy during the Nixon administration than in any other presidency since the New Deal.“
Yeah Herb, but we are not New Deal Democrats. Soon to come and blindside a successful presidency; Watergate, resignation, humiliation, defeat and a bounce back into the arms of Democrats with Jimmy Carter.
Finally, when all seemed forever lost, a California (once Democrat) Republican governor ran for president. Just when you have given up on God, He sends a gift.
A Little Seltzer Down Your Pants
They had wandered in the desert for so long, these Republicans, that the most criminally indicted presidency ever, would inspire tears in the eyes of generations yet to come. Ronald Wilson Reagan, a B-Movie actor, became a Republican icon for what he brought them; deregulation and a theory of tax relief that trickled and dribbled enough down to float a few, but not all boats.
He was John Wayne without the attitude, Clint Eastwood with the steady ‘make my day’ eye of a gunslinger, all of it wrapped and tied with the ribbon of respectability. Suddenly, just as Walter Cronkite was retiring, we seemed to have belief back and, after assassinations and war, duplicity and resignation, we were ready to believe. Reagan knew a good audience when he saw one. Essentially, Ronald Reagan was hot on the trail of reducing government spending (“government is not the solution to our problem; government is the problem”). Spending ran wild anyway, assuring Ronald a second term.
Failing to reduce the growth of government spending on his watch, he took a $700 billion deficit and quadrupled it. By reducing income and capital gains marginal tax rates, he created a form of trickle-down economic theory that trickled up instead. We were off and running to the demise of the middle-class by reducing government regulation of the economy, which went on to conveniently unleash the likes of Jack Welch and his obsession with shareholder value.
Reagan policy brought Eisenhower’s dreaded military-industrial complex into the dawn of a new weaponry age, busted our steel industry, airlines, railroads and (within twenty-five years) the banks and the entire nation. His en masse firing of the nation’s air controllers set the stage for a thirty year decline in union membership.
Attempting to control the money supply to reduce inflation, he brought in Ayn Rand’s philosophical soulmate, Alan Greenspan, to head the Federal Reserve. Bubble-economy Alan, the man with the inscrutable supply-side theories hidden within a paradox and wrapped in an enigma behind thick glasses. After mesmerizing four consecutive presidents, Alan disappeared like Houdini in a flash and a puff of smoke, leaving mirrors and chaos to his successor.
Hailed by Republicans ever since as the Second Coming, Ronald Reagan pretty much single-handedly tore the heart out of the American middle-class and off-shored it to India, Indonesia and China. It’s tempting to throw the book at Ronnie for every loose nut and bolt on the economic vehicle, but that’s giving a bad rap to a guy who can no longer defend himself. But a quick look at the record supports the case that we turned a corner during his administration.
And it wasn’t a turn down a quieter street.
In yet another case of reducing what has always been abhorrent to Republicans, while increasing their corporate pocketbooks, Reagan cut the budgets of Medicaid, food stamps, federal education participation and the Environmental Protection Agency. What he did not cut, was military spending, which rose by 41% during his administration.
But he had a great smile, a wonderful way with the camera and still maintains a place in the hearts of Americans as one of our most loved presidents. And why not? We have certainly seen worse in the history of presidents.
In the grand scheme of things in this grandest of republics, presidents have become less and less relevant as the Congress (and, most importantly, the impossible deadlock and partisanship of those Congresses) has taken the bit in their teeth and run off with an increasingly narrow and socially uneven agenda.
published: 31. 8. 2014