Lessons From the Great Depression

We have been here before, and we should learn from the past.

On March 4, 1933, Franklin D. Roosevelt took the oath of office and told Americans, "(T)he only thing we have to fear is fear itself...nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance...

"Values have shrunken to fantastic levels, taxes have risen, our ability to pay has fallen, government of all kinds is faced by serious curtailment of income, the means of exchange are frozen in the currents of trade, the withered leaves of industrial enterprise lie on every side...the savings of many years in thousands of families are gone."

But FDR came to the White House ready to take action, and he did. When the next president moves into the White House in January, it may be too late to start.

What made the Great Depression a catastrophe, a leading economist points out, was "that some of the worst shocks occurred right before the 1932 presidential election. There then followed an extended interregnum between the election and inauguration of the new president when no one was in charge."

As Barack Obama and John McCain spend these next weeks trolling for votes, it would be comforting to see each of them set up a council of economic advisors to work on a set of specific measures that the winner would announce on November 5th to start putting a 21st century New Deal into motion.

As Hillary Clinton used to say in another context, the new President has to be ready to move on Day One.

A President for a Time of Panic

Barack Obama and John McCain will be debating tonight as the inertia that has always given American society stability, albeit at the price of slow social change, is endangered by a sudden plunge into economic turmoil and uncertainty. Ironically, neither of the voters' possible choices is designed to calm them.

Not since 1932 has the electorate been so roiled by fear of the future and so hungry for change. Yet, in Obama, they face someone relatively new and unfamiliar and, in McCain, an all-too-familiar connection to policies that have failed and, to compound their worries, a volatile temperament.

In the Depression, Republicans tried to tar Franklin D. Roosevelt as a radical who would raise taxes, as they are picturing Obama now but with the added edge of distorting his positions on issues such as health care and questioning his patriotism.

The rougher attacks are coming from the gee-whiz he-pals-around-with-terrorists lies of Sarah Palin, but McCain is hitting similar notes with such innuendo as today's "What does he plan for America? In short: Who is the real Barack Obama?"

Obama himself is pointing out the desperation of these personal attacks yet sadly but understandably responding with an on-line reprise of McCain's Keating Five lapses.

But public panic requires something more and better than that. Obama should be visibly and vocally rallying the best minds--the most respected economists and the real-world experts such as Warren Buffet, Mike Bloomberg et al--to start working on a long-range plan with measures to implement in January that would start lifting America out of its fiscal abyss.

He doesn't have to give it a name like the New Deal, but he should be telling voters in as clear and strong a voice as FDR did that he is ready to use nation's best brains to ease their pain and get the country working again. That's what they want to hear.

Signed, Sealed But Far From Delivered

Barack Obama, who started out as a JFK lookalike, will have to be another FDR. With George W. Bush signing the bailout bill today and preparing to leave office as Herbert Hoover II, the economy is in a shambles that will shape the next presidency.

As Wall Street got its $700 billion lifeline, the stock market plunged.

Another 159,000 jobs disappeared last month for a total of 760,000 for the year.

California warns the US Treasury that it may be unable to meet its payroll and will need a $7 billion loan, as other states search for cash to meet theirs.

Taking office in January, an Obama Administration, which promised the voters change, will be scrambling to find both immediate fixes and long-term solutions for an economy that an adamant free-market government has turned into a quasi-Socialist state overnight.

In the momentary panic, few are making ideological arguments against the attempts of Congress and a Republican Administration to plug the dike, but when Democrats take full control, President Obama will have not only the economic realities to confront but an outcry against the government interventions that will be necessary to save American jobs, homes and businesses.

He should start a close study of FDR and the New Deal without delay.

A 21st Century "New Deal"

George W. Bush is going out as Herbert Hoover with last-minute efforts to save the financial system, but who will voters ask to play FDR and offer them a New Deal?

The Administration is asking Congress to enact what, according to the Wall Street Journal, may look "like the Reconstruction Finance Corporation, a Depression-era relief program formed in 1932 by President Hoover that tried to inject liquidity into the market by giving loans to banks and other businesses."

It didn't work back then until after Democrats won in a landslide and took more drastic government action. In that crisis, politicians stopped worrying about socialization and stepped in to save the economy.

The ideologues now will be howling, but John McCain and Barack Obama have to stop talking about tinkering with the "fundamentals" and start offering reality to the people they are asking to vote them into the White House.

The first worldwide reaction to today's news is encouraging as stock markets in Europe and Asia are posting "huge gains" in response.

But the devil will be in the details, as Paul Krugman observes: "Today’s U.S. political system isn’t going to follow Andrew Mellon’s infamous advice to Herbert Hoover: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.' The big buyout is coming; the only question is whether it will be done right."