The president gave a speech today that was supposed to be reminiscent of a speech Teddy Roosevelt gave in 1910. I’ll probably have something to say about the speech tomorrow. But I want to introduce parts of Franklin Roosevelt’s acceptance speech from 1932. Let’s remember that the stock market had crashed almost three years earlier and that the Republicans had been unable to repair the damage. It’s as if the stock market had crashed in 2008 but we had to live with four more years of Republican rule. In that sense, FDR’s 1932 speech is similar to Obama’s speech today. It’s similar because three years have passed. It’s dissimilar because Obama has been in charge for the last three years and so he has to take a measure of responsibility for the state of the economy. On the other hand, unprecedented Republican obstruction has limited his options. The Republicans created the mess and then resisted all efforts to fix things. And they’ve largely reverted to making the same flawed arguments that led us into a ditch. Let’s see if any of this seems shockingly familiar.
I cannot take up all the problems today. I want to touch on a few that are vital. Let us look a little at the recent history and the simple economics, the kind of economics that you and I and the average man and woman talk.
In the years before 1929 we know that this country had completed a vast cycle of building and inflation; for ten years we expanded on the theory of repairing the wastes of the War, but actually expanding far beyond that, and also beyond our natural and normal growth. Now it is worth remembering, and the cold figures of finance prove it, that during that time there was little or no drop in the prices that the consumer had to pay, although those same figures proved that the cost of production fell very greatly; corporate profit resulting from this period was enormous; at the same time little of that profit was devoted to the reduction of prices. The consumer was forgotten. Very little of it went into increased wages; the worker was forgotten, and by no means an adequate proportion was even paid out in dividends–the stockholder was forgotten.
And, incidentally, very little of it was taken by taxation to the beneficent Government of those years.
What was the result? Enormous corporate surpluses piled up– the most stupendous in history. Where, under the spell of delirious speculation, did those surpluses go? Let us talk economics that the figures prove and that we can understand. Why, they went chiefly in two directions: first, into new and unnecessary plants which now stand stark and idle; and second, into the call-money market of Wall Street, either directly by the corporations, or indirectly through the banks. Those are the facts. Why blink at them?
Then came the crash. You know the story. Surpluses invested in unnecessary plants became idle. Men lost their jobs; purchasing power dried up; banks became frightened and started calling loans. Those who had money were afraid to part with it. Credit contracted. Industry stopped. Commerce declined, and unemployment mounted.
And there we are today.
The stock market crash of 1929 caused the Great Depression, but not because the prices of stocks fell. What happened is that banks had begun to loan people money to invest in stocks while, at the same time, accepting stock portfolios as collateral for the loans. So, when the stock market crashed, people couldn’t pay back their loans and their collateral was worth a small fraction of what had been expected. This caused the banks to fail. Credit seized up. Jobs were destroyed. And life’s savings were wiped out. Similarly, in 2008, when the housing bubble burst, the securities people had invested in as a hedge turned out to be worth a small fraction of what had been expected. And the cycle of destruction repeated itself. Things didn’t get quite as bad as they had in the 1930’s, largely because we had mechanisms in place to stop the bleeding. But I don’t think you can read the above cited portion of FDR’s speech and not hear a remarkable loud echo. They thought the stock market would always go up; we thought the housing market would always go up. They overbuilt; we overbuilt. They engaged in irresponsible lending; we engaged in irresponsible lending. It’s all the same. As they say, history doesn’t repeat, but it rhymes.
Now, let’s go to another part of FDR’s speech and see if it calls to mind the Too Big to Fail problem, and the problem of bailing out the rich while everyone else suffers.
Never in history have the interests of all the people been so united in a single economic problem. Picture to yourself, for instance, the great groups of property owned by millions of our citizens, represented by credits issued in the form of bonds and mortgages–Government bonds of all kinds, Federal, State, county, municipal; bonds of industrial companies, of utility companies; mortgages on real estate in farms and cities, and finally the vast investments of the Nation in the railroads. What is the measure of the security of each of those groups? We know well that in our complicated, interrelated credit structure if any one of these credit groups collapses they may all collapse. Danger to one is danger to all.
How, I ask, has the present Administration in Washington treated the interrelationship of these credit groups? The answer is clear: It has not recognized that interrelationship existed at all. Why, the Nation asks, has Washington failed to understand that all of these groups, each and every one, the top of the pyramid and the bottom of the pyramid, must be considered together, that each and every one of them is dependent on every other; each and every one of them affecting the whole financial fabric?
Statesmanship and vision, my friends, require relief to all at the same time.
FDR was elected. We won the argument. But thirty-one years ago we lost the argument and now we are back where we started. We’ve made some good progress over the last three years, but we have’t broken the back of the idiots who led us here.
Today, the president evoked the legacy and example of Teddy Roosevelt. It was an excellent speech. But I want to evoke the legacy and example of Franklin Roosevelt. We need to remember both Roosevelts if we’re going to break out of this impasse and build the kind of country our parents enjoyed.
