B005HFI0X2 EBOK (35 page)

“NO DAMN POLITICIAN CAN EVER SCRAP MY SOCIAL SECURITY PROGRAM”

The Social Security Act of 1935 created a comprehensive system of shared federal-state responsibility for unemployment insurance, means-tested welfare for the poor, and—in a radical break with tradition—a purely federal public pension for the elderly. Corporate opposition was muted because Social Security, a contributory program in which higher earners enjoyed higher benefits, was far more conservative than populist alternatives like the Townsend Plan, which would have given every retiree two hundred dollars on the condition that he or she spend it within the month. The first Social Security check, check number 00–000–001, was issued in the amount of $22.54 on January 31, 1940, to Ida May Fuller, a retired schoolteacher and legal secretary in Brattleboro, Vermont, who had gone to high school in Rutland, Vermont, with Calvin Coolidge.

Roosevelt insisted on paying for old-age pensions with a payroll tax, rather than general revenues or another dedicated tax, because that would destroy the “relief attitude.” He explained to his adviser Luther Gulick, who doubted that payroll taxes alone could sustain Social Security in the long run, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
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PRESIDENT ROOSEVELT WANTS YOU TO JOIN THE UNION

By the time of his second presidential race in 1936, Roosevelt, who believed he was saving American capitalism, was baffled and embittered by the hostility of most of the American business community to the New Deal. The rift between Roosevelt and business grew deeper as American labor grew more militant.

In 2006, a retired coal miner named Jack McReynolds told a reporter: “I have three pictures side by side in my house: John L. Lewis, Franklin Delano Roosevelt and Jesus. . . . I draw Social Security on account of FDR. I draw a pension on account of John L. Lewis, and I’m going to Heaven because of Jesus.”
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The members of this Trinity did not necessarily get along. Roosevelt, like other patrician progressives, was not a wholehearted champion of unions.
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Many of his allies shared the view of his secretary of labor, Frances Perkins, who said she would rather pass a law than organize a union.
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For his part, Lewis, the flamboyant president of the United Mine Workers, turned against Roosevelt because of the US entry into World War II and wartime labor policy.

But in the mid-1930s Lewis distributed signs that read: “President Roosevelt Wants You to Join the Union!” Across the country, prounion workers clashed with employers and their security forces. In 1935, there was the largest wave of strikes since the early 1920s, involving more than a million workers and more than two thousand work stoppages.
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At the American Federation of Labor (AFL) convention in Atlantic City in 1935, Lewis, frustrated with the organization’s commitment to craft unionism instead of industrial unionism, punched one of his opponents, William Hutcheson of the Carpenters Union. At a meeting in November in Washington, DC, Lewis, Sidney Hillman of the Amalgamated Clothing Workers, and David Dubinsky of the International Ladies’ Garment Workers Union formed a new organization, the Committee for Industrial Organization, which broke away from the AFL in 1938 to become the Congress of Industrial Organizations (CIO). The competition of the two federations, which would be reconciled and merge in 1955, accelerated the campaign for unionization.

Union organizers employed a new and powerful technique, the sit-down strike. Without giving any warning, employees who wanted to join a union stayed inside the factory or store and simply stopped working, to paralyze the business.

When they tie the can to a union man,

Sit down! Sit down!

When they give him the sack, they’ll take him back,

Sit down! Sit down!

When the speed-up comes, just twiddle your thumbs,

Sit down! Sit down!

When the boss won’t talk, don’t take a walk,

Sit down! Sit down!
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The climax of the struggle came in January 1937, when sit-down strikers took control of the General Motors plant at Flint, Michigan, as well as others in Cleveland, Atlanta, and elsewhere. Although GM chairman Alfred Sloan bitterly opposed negotiating with the union, behind-the-scenes pressure by President Roosevelt led GM president William Knudsen to recognize the United Auto Workers (UAW) on the forty-fourth day of the strike, February 11, 1937. US Steel signed a union contract with the Steel Workers Organizing Committee (SWOC) later that year, but several of the smaller firms called “Little Steel” held out until 1942. Only the urging of his wife Clara led Henry Ford, a bitter foe of organized labor, to allow Ford to be unionized in 1941.

FROM BRAINS TRUSTERS TO TRUST BUSTERS

In his first few years in office, Roosevelt had been influenced by his brains trust advisers Adolf Berle and Rexford Tugwell, whose vision of centralized government-business cooperation was closer to Theodore Roosevelt’s New Nationalism than to the decentralist New Freedom of Wilson and Brandeis. Following the collapse of his plan for a national unity program based on harmony among business, labor, and government, Franklin D. Roosevelt fell under the influence of the Brandeisian wing of the New Deal Democrats such as Thurman Arnold, Thomas Corcoran, Robert Jackson, and Benjamin Cardozo. Many of them were protégés not only of Brandeis but also of the influential Harvard law professor Felix Frankfurter, whom Roosevelt appointed to the Supreme Court in 1938. Their critics called the disciples of Frankfurter “the Happy Hot Dogs.”

Dismissing the Keynesian analysis that held that a lack of demand was the problem, they claimed that business was prolonging the crisis by hoarding cash. Their proposed cures for the Depression were a tax on retained earnings to force business to disgorge its savings and a vigorous application of antitrust policy.

Angry at the opposition of business leaders to the New Deal, the president lashed out at “economic royalists” in his 1936 speech to the Democratic National Convention. “The real truth of the matter is, as you and I know,” Roosevelt wrote Wilson’s former adviser Colonel Edward Mandell House, “that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson—and I am not wholly excepting the Administration of W.W. [Woodrow Wilson]. The country is going through a repetition of Jackson’s fight with the Bank of the United States—only on a far bigger and broader basis.”
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Repudiating his earlier support for business-government collaboration, he sided with liberal critics of monopoly. He welcomed exposés of industrial concentration by the Temporary National Economic Committee (TNEC), established by Congress in 1938.

The Brandeisian faction influenced FDR’s claim in a speech to Congress in 1938 that the cause of the recession that started in 1937 was not contractionary federal policy but monopoly: “Among us today a concentration of private power without equal in history is growing. This concentration is seriously impairing the economic effectiveness of private enterprise as a way of providing employment for labor and capital and as a way of assuring a more equitable distribution of income and earnings among the people of the Nation itself.”
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Roosevelt appointed Arnold to the Justice Department, where he began a vigorous series of antitrust prosecutions. In his five years at the Justice Department’s Antitrust Division, Arnold was responsible for half of the antitrust lawsuits filed since the Sherman Act was passed in 1890.
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Arnold was from Laramie, Wyoming, and his antitrust team at the Justice Department was dominated by other westerners—Tom Clark from Texas, later attorney general and a Supreme Court justice, Wendell Berge of Nebraska, and Corwin Edwards of Nevada.
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Arnold blamed eastern monopolies for the underdevelopment of his native West. In 1941, he wrote: “For the past twenty years the economy of the South and West has been developing along colonial lines. The industrial East has been the Mother Country. . . . The colonies have furnished the Mother Country with raw material. The Mother Country has been exploiting the colonies by selling them manufactured necessities at artificially controlled prices.”
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THE MISTAKE OF 1937 AND THE ROOSEVELT RECESSION

In 1937, repeating the mistake made by Hoover when he sought to balance the budget in 1932, President Roosevelt joined his treasury secretary, Henry Morgenthau, in supporting legislation in Congress to balance the budget by cutting spending and raising taxes. Roosevelt told Congress in his annual address on January 6, 1937: “Your task and mine is not ending with the end of the depression.” On April 2, Roosevelt said at a press conference: “I am concerned—we are all concerned—over the price rise in certain markets.” The next day the
Wall Street Journal
reported “a change in the trend of the government’s recovery measures away from the emphasis which has been placed upon stimulation of industrial activity and the recovery of prices.”
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Marriner Eccles, the chairman of the Federal Reserve, decided to double bank reserve requirements between August 1936 and May 1937. The contractionary effect of tighter fiscal and monetary policies was worsened by the Treasury’s program of sterilizing gold inflows (that is, preventing them from becoming part of the monetary base and expanding it).
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Finally, in 1936, Congress passed a large bonus for veterans, overriding the veto of President Roosevelt, as it had earlier, in 1930, overridden the veto of President Hoover. The first part of the veterans’ bonus was distributed in June 1936; then half that amount was distributed in June 1937, after which this form of stimulus ceased. The result of these measures was a second sharp recession, the Roosevelt Recession, that erased many of the gains of the previous Roosevelt Recovery.

In this troubled period of his presidency, Roosevelt came to believe that a group of powerful capitalists was deliberately sabotaging the economy—a belief that the role of the Du Ponts and other rich families in funding the anti–New Deal Liberty League made plausible. As labor organizers battled company police forces and local police at plants throughout the country, Alfred Sloan of General Motors and other leading executives resigned from the NRA’s Business Advisory Council (BAC) and joined the American Liberty League. Founded by major corporations, the Liberty League brought Republicans and conservative Democrats like Roosevelt’s former New York ally Al Smith together in a campaign to discredit the New Deal as “socialistic” and “fascistic.” Smith, in a 1936 address to the Liberty League, said, “It’s all right with me if they want to disguise themselves as . . . Karl Marx, or Lenin, or any of the rest of that bunch, but what I won’t stand for is allowing them to march under the banner of Jefferson, Jackson, or Cleveland!”

Roosevelt blamed the recession on a conspiracy by American capitalists, rather than on premature budget balancing. Then-chairman of the SEC William O. Douglas recounted his conversation with FDR during the “Roosevelt recession”:

“What about this market?” he asked.

“Markets are two-way streets,” I replied.

“But this one is going down as a result of a conspiracy.”

“Whose conspiracy?”

“Business and Wall Street against yours truly.”

“Mr. President,” I replied, “You are dead wrong. The market is going down because you cut spending.”
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In an attempt to win Roosevelt back from the Brandeisian trustbusters, Adolf Berle teamed up with Morgan partner Thomas Lamont to form a committee that included Owen Young, Rexford Tugwell, and Charles Taussig of the Roosevelt administration, John L. Lewis of the CIO, and Philip Murray of the steelworkers’ union. After the group met at the Century Association in New York, Lamont had an encouraging meeting with Roosevelt, but the Brandeisians killed the initiative by arranging for bad press about the meeting.
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Finally Roosevelt was persuaded by his allies to overcome his initial suspicion of the novel theories of the British economist John Maynard Keynes, who argued that large-scale spending by government was necessary to overcome deficiencies in aggregate demand. Keynesianism influenced the Works Financing Bill or “Spend-Lend” Bill. Introduced in 1939 by Senator Alben Barkley of Kentucky, the bill was backed by Federal Reserve chairman Eccles and shaped by his deputy Lauchlin Currie, who drew on a report by John Kenneth Galbraith and Griff Johnson.
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In his memoirs Currie wrote: “The real importance of the bill, however, was in giving the Government a permanent means,
outside the budget
[emphasis in original], of varying highly desirable expenditures to compensate for excessive variations in private expenditures—another built-in stabilizer. It is almost impossible to conduct proper compensatory policy in timing and volume through the regular routine of new legislation and appropriations.”
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But the conservative backlash against the New Deal was well under way and the Works Financing Bill was the first major spending bill backed by Roosevelt that went down to defeat.

THE SUCCESS AND FAILURE OF THE NEW DEAL

In the United States, the Depression consisted of two recessions—the first from 1929 to 1933, followed by a recovery and then a second recession in 1937–1938. The period from FDR’s inauguration in 1933 until 1937 was one of rapid recovery, in which the economy grew at 8 percent a year. Between 1938 and 1941, the economy grew at more than 10 percent a year.
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The four-year period between 1934 and 1937 saw economic growth at a rapid pace with no parallel in US history, outside of wartime. The 25 percent deflation from 1929 to 1933 was followed by 11 percent inflation from 1933 to 1937.
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When Americans employed in work-relief programs are included among the employed, unemployment plunged under the New Deal from 21 percent when FDR took office in 1933 to 9 percent in 1937. If work-relief program employees are counted as unemployed, the numbers are slightly higher but the dramatic improvement remains the same. The ill-advised attempt to balance the budget created the Roosevelt Recession, boosting unemployment to 13 percent.
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Even with the setback of the 1937–1938 recession, unemployment was down to 11.3 percent in 1939.