Obama: Campaigning Like It's 1936

Don't take just the author's word: Read "Liberal Fascism" by Jonah Goldberg" and/or "New Deal Or Raw Deal? How FDR's Economic Legacy Has Damaged America" By Burton Folsom Jr. Both of which document in devastating fashion that it was FDR who prolonged and deepened the great depression, and is was his death, not the end of WWII, that finally ended it...T

While Republican presidential candidates are looking forward by proposing
variations of a flat income tax, President Barack
Obama’s tax-the-rich campaign strategy is looking backward—to
Franklin Roosevelt’s 1936 reelection campaign. FDR won his reelection, but the
American people lost: Roosevelt’s new taxes on business and the “economic
royalists” gave us the “Roosevelt recession” of 1937-38.

By August of 1935, Roosevelt had achieved some of his signature pieces of
legislation: a new entitlement program known as Social Security, banking reform,
pro-union reform, infrastructure expansion and massive transfers of wealth to
the poor and middle classes. Sound familiar?

FDR also ran up federal spending significantly: from 6 percent to 9 percent
of the economy.

However, FDR needed more revenue to support his big-government schemes. More
importantly, he needed a villain to explain why, given the passage of his New
Deal legislation, government spending and regulations, the economy was still
struggling.

So he proposed raising taxes on the rich, which he dubbed a “Wealth Tax.” As
he explained to Congress in June 1935, “Our revenue laws have operated in many
ways to the unfair advantage of the few, and they have done little to prevent
the unjust concentration of wealth and economic power. … Social unrest and a
deepening sense of unfairness are dangers to our national life which we must
minimize by rigorous methods.” President Obama couldn’t have said it better
himself.

There were several components to FDR’s plan. First he wanted very high taxes
on the rich—up to 79 percent—and to lower the thresholds so that more
high-income earners paid more taxes. He also wanted to increase the estate
tax. As for business, he wanted to close the “loopholes,” a graduated corporate
income tax and a tax on intercorporate dividends.

But the bill that actually passed the Democratically controlled Congress in
1935 would not raise much money—estimated at about $250 million, which initially
seemed like enough to cover budgetary shortfalls. FDR’s associates acknowledged
at the time that the Wealth Tax was more about politics than policy, or as
Treasury Secretary Henry Morgenthau put it, “it was more or less a campaign
document.”

However, by 1936 Roosevelt needed yet more revenue and had apparently grown
to relish his new class warfare and railing against “organized money.” So he
proposed another business tax: an undistributed profits tax.

Like Obama, FDR faced what he saw as a big problem: Businesses had a lot of
cash on hand but weren’t spending it. “Regime uncertainty,” the reluctance of
business to hire and invest when faced with a growing onslaught of new taxes and
regulations, suppressed capital spending. No one knew what the future held so
businesses held on to their cash hoping to survive. Again, sound familiar?
Roosevelt believed that forcing businesses to spend that money would create
jobs. So he proposed, and got, his undistributed profits tax. If the
government were going to tax idle money anyway, maybe businesses would put it to
work.

The irony, of course, is that the more FDR dreamed up new taxes and
regulations to get the economy moving, the more regime uncertainty he created.
And those efforts had a predictable effect: the economy began to turn south in
1937, resulting in the Roosevelt recession. Unemployment had fallen from a high
of 24.9 percent in 1933 to 16.9 percent in 1936, the year of FDR’s first
reelection—still significantly higher than the post-war high of 7.5 percent
during Reagan’s 1984 reelection and the current, and likely to remain, 9.1
percent unemployment rate under Obama.

However, unemployment under Reagan and Roosevelt were dropping quickly in
their reelection years, which boosted voter confidence. Not so with Obama. And
Obama’s embracing of FDR’s “soak the rich” tax policies—as FDR’s critics called
it—will do just as much economic harm now as they did then. While the
unemployment rate fell to 14.3 percent in 1937, it rose to 19 percent in 1938
and only declined to 17.2 percent in 1939.*

If President Obama is trying to draw lessons from FDR’s 1936 reelection, he
is learning the wrong ones. FDR had a huge majority in both houses of Congress,
so he was able to get his class-warfare agenda passed—though his efforts
expanded the growing divide between conservative and liberal Democrats. Obama
may complain about the need to tax the rich; Republicans won’t let him do
it.

In addition, the country leaned more to the left then, with several national
demagogues—including Louisiana Senator Huey Long, Francis Townsend and Father
Charles Coughlin—constantly pulling FDR leftward (whether FDR really resisted
that leftward tug is a matter of opinion). There really is no strong national
voice to the left of Obama, except for MSNBC and perhaps Occupy Wall Street.
The lesson Obama should be learning from the 1936 election is that FDR’s
Wealth Tax and class warfare set the economic recovery back years. Obama’s
effort to channel FDR’s policies and reelection success would have exactly the
same impact.

Merrill Matthews is a resident scholar with the Institute for Policy
Innovation in Dallas, Texas. Follow at http://twitter.com/MerrillMatthews

* For a discussion of the best figures for pre-war unemployment rates see
Robert A. Margo, “Employment and Unemployment in the 1930s,” Journal of Economic
Perspectives, Spring 1993.
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Authors of Social Security Believed It Was Unconstitutional

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It was, is, and always will be unconstitutional. As the old saying originated: "The switch in time that saved nine" that destroyed most of our constitution. That may all be about to change with this court. We can hope...T

Mitt Romney may believe Social Security is constitutional, but he would have a hard time convincing some of the people who pushed the Social Security Act into law.

As I wrote in my book, "Control Freaks," some of the main players involved in creating Social Security believed it was unconstitutional -- and for good reason.

Yet, for them, not unlike many in today's Washington, the ultimate questions were not: Is this good for the long-term future of the country, and does Congress have authority to do it? They were: Will this serve our immediate political interests, and can we get away with it?

At Monday's Republican presidential debate, Romney attacked Texas Gov. Rick Perry for, as Romney put it, holding the view that "Social Security is unconstitutional."

It is important to note that neither Perry nor any other contemporary Republican leader is calling for the abolition of a program that has been in place for more than seven decades.

But was it founded on a sound constitutional basis? Is there anything to be learned from how it was forced through?

Thomas H. Eliot, a future Harvard Law professor, served as counsel for the Committee on Economic Security, the body that President Franklin Roosevelt created to draft the Social Security Act.

In 1961, 26 years after the bill was enacted, Eliot gave a speech at the Social Security Administration in which he said he was relieved he had never been called to testify about the constitutionality of the "old-age insurance" provision in the bill.

"The opponents rallied as soon as the bill was introduced," said Eliot. "Those opponents were spearheaded by the U.S. Chamber of Commerce and the National Association of Manufacturers. Counsel for the latter, John Gall, made effective and strong arguments against that phase of the bill (old-age insurance). He questioned the constitutionality of the bill.

"These arguments I found rather difficult to refute," said Eliot, "and I'm glad I wasn't really called upon to do so as a witness before the committees of Congress because I had very grave doubts at that time about the likelihood of the Court's upholding the old-age insurance section of the bill."

Edwin E. Witte was executive director of Roosevelt's Committee on Economic Security. In 1955, he gave a speech to commemorate the 20th anniversary of the Social Security. "And at all stages there hung over the Social Security bill uncertainty as to its constitutionality," Witte said. "These doubts were increased during the pendency of this bill in Congress by the decision of the Supreme Court holding the Railroad Retirement Act to be unconstitutional."

"A majority of the members of the Senate Committee on Finance believed old-age insurance to be unconstitutional," said Witte, "and it is my belief that several voted for it in the expectation that it would be invalidated by the Supreme Court."

Why did the Railroad Retirement Act decision make people believe the Supreme Court would toss Social Security? Because it was a small-scale version of Social Security. It ordered all railroad workers into a compulsory government pension program funded by a payroll tax apportioned between them and their employers.

The Roosevelt administration argued that the Commerce Clause -- which gives Congress the power to "regulate commerce ... among the several states" -- gave the federal government the power to force railroad companies and workers to fund and participate in a federal retirement program.

The court slapped this down 6-3. Justice Owen J. Roberts -- the Anthony Kennedy of that era -- wrote the opinion. He was joined by Chief Justice Charles Evans Hughes, the other swing vote of that time.

Roberts clearly envisioned how the Railroad Retirement Act could open the door to a massive federal welfare state.

"If that question be answered in the affirmative, obviously there is no limit to the field of so-called regulation," wrote Roberts. "The catalogue of means and actions which might be imposed upon an employer in any business, tending to the satisfaction and comfort of his employees, seems endless. Provision for free medical attendance and nursing, for clothing, for food, for housing, for the education of children, and a hundred other matters, might with equal propriety be proposed as tending to relieve the employee of mental strain and worry."

Two years later, in 1937, the Social Security Act came before the same court. The Democrats and FDR had just won a massive election victory in November 1936. In his 1961 speech at the Social Security Administration, Thomas Eliot was asked: "Just what do you think caused the Supreme Court to reverse itself in its decision to declare the Act constitutional?"

"What happened in 1937 was that in February the president came out with a scheme to 'pack' the Court," said Eliot. "No one knows, and there is some dispute about it, but I think that probably it's fair to say that the Court was not unmindful of this attack."

"There were nine justices on the Supreme Court; one or two of them had to change their positions pretty fundamentally to thwart the threat of that number of nine being added to by six new justices appointed by the president," said Eliot. "The old saying about that particular change of front is that, 'A switch in time saved nine.'"

And significantly expanded the control the federal government has over the lives of individual Americans.
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Our Reactionary President

"Hope and change" turned out not to be a liberal call to consider new ways of solving problems. It was not even a conservative slogan to keep all that has worked well in the past.

Instead, Barack Obama proved to be an old-fashioned reactionary. He hoped to change things back to the politically correct 1960s and 1970s way of doing things -- whether it ever worked or not.

Strange as it sounds for a Liberal Fascist/Socialist to be a reactionary, it is nonetheless absolutely true. Remember, that the term "Liberal" was historically used to describe those on the right; the "Classical Liberals". Only after the term "progressive" was discredited by Woodrow Wilson and his disastrous administration, and FDR and Stalin appropriating the label for themselves has the terminology been corrupted.

Notice how they are now back to calling themselves "progressives" now that the word "liberal" has a negative connotation?!

The most dangerous president since Wilson, the most unethical since Clinton, and the most incompetent since Jimmy Carter...T

Barack Obama is the most reactionary president in the recent history of the United States. Obama seems intent on turning back the clock to the good old days of the 1960s and 1970s, when rigid political orthodoxy, not an open mind, once guided government.

Take the economy. The 1980s implosion of communism in Eastern Europe and the former Soviet Union proved that state control of the means of production guaranteed poverty and worse. The current insolvent and fragmenting European Union, and the stagnant economics of the exploding Middle East, remind us that state socialism does not work.

Why, then, would Obama, in horse-and-buggy fashion, go back to such fossilized concepts as absorbing the nation's health care system, increasing the federal government's role in the economy by taking over automobile corporations, borrowing $5 trillion to spend on new entitlements, or proposing an array of much higher taxes -- all in a vain effort to ensure an equality of result?

Almost every key indicator of the current economy -- unemployment, deficits, housing, energy -- argues that Obama's reactionary all-powerful statist approach has only made things far worse.

In a bygone era without full workers' compensation, unemployment insurance and overtime pay, big unions ran the United States. Today less than 7 percent of Americans belong to them.

Yet President Obama wants to block the Boeing aircraft company from opening an assembly plant in South Carolina, on the grounds that it is a right-to-work state and new assembly workers might be free to reject union representation. The administration is now allowing union-backed Democrats in Congress to block free-trade agreements with Colombia, Panama and South Korea in order to limit competition with domestic unionized industries.

Apparently the decades-old idea that globalized free trade encourages competition, enhances productivity, lowers prices for strapped consumers and helps developing nations never existed.

Obama is still bragging about massive federal subsidies to the wind and solar power industries, while making it nearly impossible to obtain new leases for fossil fuel exploration. Yet for all the billions spent, the percentage of new energy produced by subsidized high-cost "green" projects has not changed much.

Meanwhile, revolutionary breakthroughs in the exploration for and recovery of natural gas, oil, tar sands, shale oil and coal deposits in just a year or two have vastly expanded the nation's fossil fuel reserves and the ability to produce clean energy from them.

It turns out that the U.S. may be the world's new Saudi Arabia when it comes to known reserves of all forms of gas, oil and coal. As our president still harps on solar panels and windmills, private enterprise on its own is exploring new ways of powering industries, homes and cars with cheap and plentiful natural gas -- hoping to free us from dependence on OPEC.

On illegal immigration, the president sounds like he's a calcified relic from the 1960s, as he evokes the southern border in terms of civil rights and racial prejudice. Those blinders explain why he recently suggested that Latinos "punish" their supposed conservative "enemies," and quite falsely claimed that the border fence was completed, despite the wish of his Republican opponents supposedly to add moats and alligators. All that rhetoric sounds like it came from a beads and bell-bottoms '60s campus activist, not the 21st century White House.

In the coming decades, the United States will need new legal immigrants -- those of all races and from all places of origin who are skilled and highly educated, or who have capital. The new critical benchmark to keep America competitive will be an immigrant's merit -- not just his race, family ties, proximity to the border, or his use as a pawn in partisan politics.

The United States is now a multiracial society, one never more intermarried and assimilated. Yet this administration still acts as if particular racial groups are forever ossified in amber, and so deserve particular racial set-aside spoils. The attorney general weirdly talks of "my people." The president himself offered a campaign video in 2010 targeted in part to those defined by their race, as part of a larger strategy to appeal to racial block voting. Promises of more federal entitlement money are still couched in thinly veiled racial terms -- as if there is no awareness that five decades of such Great Society programs have done much to ensure dependency and destroy the traditional inner-city family.

"Hope and change" turned out not to be a liberal call to consider new ways of solving problems. It was not even a conservative slogan to keep all that has worked well in the past.

Instead, Barack Obama proved to be an old-fashioned reactionary. He hoped to change things back to the politically correct 1960s and 1970s way of doing things -- whether it ever worked or not.
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Uncertainty Is Not the Problem

Nice to see a REAL businessman speaking out against our socialist/fascist president's policies - at least to this day, he can still be open with his thoughts, as, after all, Obama's intellectual (sic) predecessors FDR and Woodrow Wilson simply had them imprisoned.

The author (who was an enthusiastic Obama supporter in 2008) makes the compelling and unassailable case that it exactly this president's open war against capital that has depressed our economy and will keep it so until he is consigned to the ash-heap of history.

After all, that is also exactly happened in the 30's and 40's under FDR...T

Many commentators blame our continuing economic woes on "uncertainty." They allege that recent and anticipated dramatic policy changes make business planning difficult, and that this is retarding growth and employment. This view is not wrong—but our main problem is not the uncertainty surrounding new policies. It is the policies.

Consider two uncertain situations. In the first, our business is waiting to find out the location decision for a customer's new industrial plant, so we know where to build our new supply facility. Until this is resolved, we will not invest in building nor will we hire staff. In the second situation, we know we are in for some pain, someone is going to make our business less productive and profitable, but we do not yet know how much. Planning is marginally more difficult, but the main reason we will not grow in the second situation is that investment is less attractive regardless of the precise resolution of uncertainty.

In the first case, uncertainty is the obstacle. Once it is resolved, we invest. In the second case, uncertainty is a small part of the problem. The large part is simply that bad things are happening. The day we are told "well, it's exactly a 30% hit to productivity and profits," all uncertainty is resolved—yet we will still not invest or hire.

The Obama administration's economic policies have defenders. For instance, New York Times columnist Paul Krugman will tell you the stimulus helped, and we didn't have enough. I disagree. I will tell you the stimulus was wasteful and politicized, and the American people, not being idiots, know they will have to pay for it eventually. People adjust their plans to account for the additional debt heaped on them, meaning lower investment and consumption.

I will also tell you Dodd-Frank, with its enshrining of too big to fail and its large regulatory costs, is an albatross. I will add that ObamaCare's gigantic new entitlement has hurt. I will throw in that massive additional regulatory costs being foisted upon business is an extra drain on the economy. I would definitely say that the disregard for law during the auto-company "bankruptcies" has long-lasting negative effects. I'd even throw in that the president's demonization of business has been harmful. Finally, I'd say the expected tax increases, even if only on the "super rich"—defined as anyone still gainfully employed—weigh upon us. So what does all this have to do with uncertainty and whether that's our problem? Consider a hypothetical.

Imagine, right now, we passed a giant additional wasteful stimulus. Imagine all the rules of Dodd-Frank were revealed and are even more stifling than we expected. Imagine we doubled the new health-care entitlement and expanded government control of health care more than previously predicted, but set all the details today. Imagine assorted government agencies passed more burdensome regulations than we anticipated, increasing both the cost of doing business and the drag of crony capitalism. But all uncertainty was resolved by passing them today.

Next imagine that the president promised, in no "uncertain" terms, to up his hectoring of business in perpetuity. Further, imagine we passed higher taxes going forward on everyone but, again, we settled it for certain right now. Finally, imagine we committed ourselves to no entitlement reform ever. Is all this good or bad? Well, uncertainty has been eliminated, but it sounds pretty darn bad.

Now let's go the opposite way and consider good policies surrounded by uncertainty. Imagine we will move from here toward free-market health-care reforms appropriate for a free people. We will reduce government spending and our debt, letting people spend their own money as they see fit. We will lower taxes across the board for individuals and businesses, and we'll reduce and simplify deductions.

Imagine even more that we'll make grown-up decisions and reform entitlements to levels we might possibly afford. Now imagine that while we know the direction of each of these policy changes, alas, we are very uncertain about how far these wonderful ideas will go. Imagine this uncertainty is even higher than it is around today's bad policies. Would these changes, uncertainty and all, make things better or worse? Well, it seems pretty clear that should these changes occur in any nontrivial fashion, you would have to duck to get out of the way of the ensuing economic boom, regardless of the uncertainty.

Focusing on "uncertainty" takes our eyes off the ball. We should not seek clarity about the many new drags on our economy. We should seek to have the administration cease and desist, then reverse them.

Mr. Asness is the managing and founding principal of AQR Capital Management
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