The Great Recession, Liberalism, and the Meaning of the New Deal

Abstract

During the Great Recession, debates concerning Franklin D. Roosevelt's New Deal have focused on stimulus packages: were the New Deal packages effective and by corollary, given the current economic crisis, what can we learn from the past? While the stimulus programs of the New Deal Era were an important element, more significant were the set of political commitments that forged the basis for a new and more democratic political economy as well as a transformation in the meaning of liberalism. The New Deal regime of political economic commitments, lasting from roughly 1932 until the late 1970s was a democratic interlude compared with the laissez-faire and managerial liberal regimes that prevailed for most of the fifty years before the New Deal and the neoliberal regime of the past thirty years since. Under the New Deal regime there were more labor rights, less Supreme Court intervention in the economy, more public accountability in the structure of financial institutions driving the political economy, and a more equitable distribution of wealth. The nature of the institutional response offered by the New Deal and the vision proposed by FDR's Economic Bill of Rights is important. The greatest crisis of political economy since the 1930s cannot be remedied by mere changes in policy. Institutional change must be addressed.

Notes

¹ Quoted by Cass Sunstein, The Second Bill of Rights: FDR's Unfinished Revolution and Why We Need It More Than Ever (New York: Basic Books, 2004), p. 18. Thanks to Zoe Fryer for her work as a research assistant on this project as well as to Christine Jespersen, John Medearis, and Kathleen Arnold for criticizing earlier drafts.

² Anthony Giddens, Central Problems in Social Theory: Action, Structure and Contradiction in Social Analysis (Berkeley: University of California Press, 1979), p. 49.

³ Stephen Skowronek, The Politics Presidents Make: Leadership from John Adams to George Bush (Cambridge, MA: Harvard Belknap Press, 1993), p. 38.

⁵ Ibid., 2.

⁴ Sunstein, The Second Bill of Rights, p. 1. Sunstein calls it the greatest political speech of the twentieth century.

⁶ John B. Taylor, The Financial Crisis and Policy Responses: An Empirical Analysis of What Went Wrong (Ottawa, ON, Canada: Bank of Canada, November, 2008); and Amity Shlaes, The Forgotten Man: A New History of the Great Depression (New York: Harper Perennial, 2008).

⁷ Martin Feldstein, “America's Economic Challenge,” Project Syndicate (September 2008).

⁸ Robert Lucas, quoted in Justin Fox, “The Comeback Keynes,” Time Magazine, October 23, 2008.

⁹ Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton, NJ: Princeton University Press, 2010), p. 9.

¹⁰ Thomas I. Palley, “Financialization: What It Is and Why It Matters,” Working Paper No. 153 (Amherst, MA: Political Economy Research Institute, University of Massachusetts, November 2007).

¹¹ Taylor, p. 15.

¹² Kim Phillips-Fein, Invisible Hands: The Business Crusade Against the New Deal (New York: W.W. Norton, 2009), pp. 16–17.

¹³ Alexander Field, “The Great Depression, the New Deal, and the Current Crisis,” Challenge 52:4 (2009), p. 99.

¹⁴ Amity Shlaes, “The Real Deal,” The Wall Street Journal, June 25, 2007.

¹⁵ Shlaes, The Forgotten Man, p. 3.

¹⁶ Amity Schlaes, The Forgotten Man: A New History of the Great Depression (New York: Harper Perennial, 2008; 2007), 6.

¹⁷ Charles P. Kindleberger, The World in Depression, 1929–1939 (Berkeley, CA: University of California Press, 1973), pp. 262–277.

¹⁸ Charles P. Kindleberger, The World in Depression, 1929–1939 (Berkeley, CA: University of California Press, 1973), 275.

¹⁹ Hyman P. Minsky, “The Financial Instability Hypothesis,” Working Paper No. 74 (Annandale on the Hudson, NY: The Jerome Levy Economics Institute, 1992).

²² F.A. Hayek, The Road to Serfdom. Text and Documents, Bruce Caldwell (ed.) (Chicago, IL: University of Chicago Press, 2007; Routledge, 1944), p. 110.

²⁰ John Dewey, Liberalism and Social Action (Amherst, NY: Prometheus Book, 1999), p. 35.

²¹ John Medearis, Joseph Schumpeter's Two Theories of Democracy (Cambridge, MA: Harvard University Press, 2001), pp. 81–83, 89–98.

²³ F.A. Hayek, The Road to Serfdom. Text and Documents, Bruce Caldwell (ed.) (Chicago, IL: The University of Chicago Press, 2007; Routledge, 1944), 110–111.

²⁴ F.A. Hayek, The Road to Serfdom. Text and Documents, Bruce Caldwell (ed.) (Chicago, IL: The University of Chicago Press, 2007; Routledge, 1944), 211–212.

²⁵ Dewey, Liberalism and Social Action, p. 58.

²⁶ Yeva Nersisyan and Randall Wray, “The Global Financial Crisis and the Shift to Shadow Banking,” Working Paper No. 587 (Annandale on the Hudson, NY: The Levy Economics Institute of Bard College, February 2010), p. 4.

²⁷ Milton Friedman and Anna Schwartz, The Great Contraction, 1929–1933 (Princeton, NJ: Princeton University Press, 2008; 1963).

²⁸ Minsky, “The Financial Instability Hypothesis,” p. 1.

²⁹ Dmitri B. Papadimitriou and Randall Wray, “Introduction,” in Hyman P. Minsky, John Maynard Keynes (New York: McGraw Hill, 2008; 1975), p. xiv.

³⁰ Minsky, “The Financial Instability Hypothesis,” p. 2.

³¹ Ibid., 4.

³² Ibid., 6.

³³ Minsky, “The Financial Instability Hypothesis,”, 7.

³⁴ Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven, CT: Yale University Press, 1986), p. 80.

³⁵ Minsky, “The Financial Instability Hypothesis,” p. 8.

³⁶ Randall Wray, “Financial Markets Meltdown: What Can We Learn from Minsky?,” Public Policy Brief No. 94 (Annandale on the Hudson, NY: The Levy Economics Institute of Bard College, 2008), p. 35.

³⁸ Minsky, Stabilizing an Unstable Economy, p. 48.

³⁷ Randall Wray, “Lessons from the Subprime Meltdown,” Challenge 51:2 (2008), pp. 42–43.

³⁹ Minsky, Stabilizing an Unstable Economy, 197.

⁴⁰ Minsky, Stabilizing an Unstable Economy, 27, 32.

⁴¹ Minsky, Stabilizing an Unstable Economy, 39.

⁴² Minsky, Stabilizing an Unstable Economy, 223.

⁴³ Jan Kregel, “No Going Back: Why We Cannot Restore Glass-Steagell's Segregation of Banking and Finance,” Public Policy Brief No. 107A (Annandale on the Hudson, NY: Levy Economics Institute of Bard College, 2010), p. 5.

⁴⁴ Paul Krugman, The Return of Depression Economics and the Crisis of 2008 (New York: W. W. Norton, 2009), p. 157.

⁴⁵ Minsky, Stabilizing an Unstable Economy, pp. 7–8.

⁴⁶ Louis Hartz, The Liberal Tradition in America (New York: Harcourt, Brace, Jovanovich, 1955), pp. 3–32; Karen Orren, Belated Feudalism: Labor, the Law, and Liberal Development in the United States (New York: Cambridge University Press, 1991), pp. 29–31.

⁴⁷ Orren, Belated Feudalism, pp. 15–16.

⁴⁸ Orren, Belated Feudalism, 32–105.

⁴⁹ Orren, Belated Feudalism, 137.

⁵⁰ William Forbath, Law and the Shaping of the American Labor Movement (Cambridge, MA: Harvard University Press, 1991), p. 118.

⁵¹ Orren, Belated Feudalism, p. 60; Forbath, Law and the Shaping of the American Labor Movement, pp. 37–58; Victoria Hattam, Labor Visions and State Power (Princeton, NJ: Princeton University Press, 1993), p. 162.

⁵² Alpheus Thomas Mason and Donald Grier Stephenson, Jr., American Constitutional Law, 14th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2005), pp. 280, 332, 363.

⁵³ William M. Wiecek, Liberty Under Law: The Supreme Court in American Life (Baltimore, MD: The Johns Hopkins University Press, 1988), pp. 110–115.

⁵⁴ Orren, Belated Feudalism, pp. 112–117.

⁵⁵ Sunstein, The Second Bill of Rights, pp. 20–25.

⁵⁶ Skowronek, The Politics Presidents Make, p. 306.

⁵⁷ Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935); and Humphries Executor v. US (1935), 295 U.S. 602.

⁵⁸ Orren, Belated Feudalism, p. 209; Wiecek, Liberty Under Law, p. 136.

⁵⁹ As quoted by William Leuchtenburg, Franklin D. Roosevelt and the New Deal, 1932–1940 (New York: Harper Torchbooks, 1963), p. 145.

⁶⁰ Wiecek, Liberty Under Law, pp. 136–137. Butler v. US, 297 U.S. 1 (1936); Carter v. Carter Coal Company, 298 U.S. 238 (1936); Morehead v. New York ex rel. Tipaldo, 298 U.S. 587 (1936).

⁶¹ As quoted in Arthur M. Schlesinger, Jr., The Age of Roosevelt: Politics of Upheaval (Boston, MA: Houghton Mifflin, 1960), pp. 489, 491.

⁶² Mason and Stephenson, American Constitutional Law, p. 369.

⁶³ Orren, Belated Feudalism, p. 29.

⁶⁴ Orren, Belated Feudalism, 225–226.

⁶⁵ As noted in Medearis, Joseph Schumpeter's Two Theories of Democracy, p. 82.

⁶⁶ Alan Brinkley, “The New Deal and the Idea of the State,” in Steve Fraser and Gary Gerstle (eds), The Rise and Fall of the New Deal Order, 1930–1980 (Princeton, NJ: Princeton University Press, 1989), p. 85.

⁶⁷ Emmanuel Saez, Striking it Richer: The Evolution of Top Incomes in the United States (Berkeley, CA: University of California, Department of Economics, March 15, 2008).

⁶⁸ Edward N. Wolff, “Recent Trends in Household in the United States: Rising Debt and Middle-Class Squeeze—An Update to 2007,” Working Paper No. 589 (Annandale on the Hudson, NY: Levy Economics Institute of Bard College, March 2010), p. 35.

⁶⁹ Eric Tymoigne, “Another Look at Worsening U.S. Household Finance,” Challenge 50:4 (2007), pp. 92–95.

⁷⁰ Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (New York: W.W. Norton, 2010), p. 275.