The Ghost of FDR

November 23, 2008

Few past presidents have been invoked as many times in the last month as Franklin Delano Roosevelt. His ghost hovers over every conversation about how to extract ourselves from the current economic abyss. While I did not experience the world of FDR, my mom did. She was very young at the time, but his legacy graces the edge of her memory. Her father, a Democratic organizer, smiles confidently at me from a sepia picture that hangs in my home; his over-sized FDR button worn like a badge. While my mom is conservative by both disposition and political leanings, that conservatism comes to an abrupt end when she tells me of FDR. For her, he was hope in a time of darkness, a fireside companion in a time of cold, and a champion of public policies that put the working man and woman back at the front of the line. He was, and will always remain, a hero.

And that hero enacted policies that are widely regarded as pulling us out of the Great Depression. Did they? Most economists believe that they did not.  World War II started the process of bringing us out of the Depression and the pent-up demand that was created from government-mandated rationing and what amounts to forced savings during the war pulled us the rest of the way through the end of the depression. FDR was, by almost any measure, a great president, but the size of his austerity program, though large by the historical standards of the time, was nowhere near potent enough to pull the country out of the Great Depression.

The Great Depression was the hangover from the Roaring 20’s. In order to bring the country back to economic stability households had to go through a period of rebalancing their financial lives, of reducing debts and building assets. Only when that occurred, largely by coercion because of the urgent need to provide funding and material to the armed forces, did consumers reemerge to take the economy onto their backs, to begin spending and to bring finality to more than a decade of material scarcity. 

Economic stimulus packages that speak of short-term fixes have little hope of success. American households are in a far more serious debt position than households of the 20’s. If you hand Americans money right now, they will save it. They will ignore politicians who exhort them to spend it. The American consumer cannot pull us out of this downturn, at least not yet. Over the next months or even years, we will experience a rapid decline in household debt and an increase in savings. It will take time, and savings, to resurrect the economy. If we do spend government money to help our economic prospects it should be focused on long-term programs that have the capacity to lift everyone’s quality of life in the years to come; energy, education, and our nation’s transportation infrastructure. It is a time for investment, not for handing out money.


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