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  • Undoing the New Deal

    PT2 On the occasion of the 80th anniversary of Roosevelt's election and the introduction of the New Deal, Jennifer Taub and John Weeks discuss the post-war period and how successive administrations dismantled it -   April 10, 13
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    Jennifer S. Taub is an Associate Professor of Law at the Vermont Law School where she teaches contracts, corporations and securities regulation. Before joining VLS, she taught at the Isenberg School of Management, University of Massachusetts, Amherst. She researches and writes in the area of corporate governance, shareholders’ rights, bankruptcy, and financial market regulation. Previously, Professor Taub was an Associate General Counsel for Fidelity Investments.


    John Weeks is Professor Emeritus and Senior Researcher at the Centre for Development Policy and Research, and Research on Money and Finance Group at the School of Oriental & African Studies at the University of London.


    Undoing the New DealPAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Baltimore.

    We're continuing our discussion about the 80th anniversary of presidency of Franklin Roosevelt.

    Joining us again from Vermont is Jennifer Taub. She's an associate law professor at the Vermont Law School.

    And joining us from London, England is John Weeks. He's a professor emeritus at the University of London School of Oriental and African Studies.

    Thank you both for joining us again.

    So at the end of World War II, at the end of Franklin Roosevelt's life, he has to pick—he doesn't have to pick a new vice president. He has a vice president called Henry Wallace, who's about as progressive in his positions as any mainstream American politician ever has been, and comparable to any even left-wing politicians in mainstream now. But Roosevelt doesn't hand power to him. In a Democratic Party convention, there's kind of a coup. Wallace is way ahead, everybody expects Wallace to be renominated as vice president. But the right wing of the part organizes a coup and Roosevelt doesn't stop them. In other words, Roosevelt does make a choice to hand power to Truman, who represents—he's a kind of a nobody, but he represents center-right interests in the Democratic Party. So instead of handing his presidency to Wallace, who in theory would have been the man to carry on his New Deal legacy, he hands it to those people in the party who probably didn't love the New Deal.

    But put aside the personalities in all of this. The United States is in a completely different position at the end of World War II, and Roosevelt saw it coming. The United States emerges as the superpower in the world. The rest of the European industrialized world is destroyed. And there's going to be room for enormous expansion of the American economy, so—in a sense that the conditions that gave birth to the New Deal are now gone. And do we not then see the beginning of the unraveling of the New Deal to some extent starting immediately under Truman? Nineteen forty-six was the year of the most strikes in the United States in the history of the country, followed by the Taft–Hartley Act, which starts to restrict union rights. And so, John, pick up the story there, because I guess what I'm getting at is is it's not so much about the individual Roosevelt, even though he was a man of, you know, personal great qualities, but he dealt with the situation he was in and what was best for the American elite, and what was best for the American elite after World War II was quite a different thing.

    JOHN WEEKS, PROF. EMERITUS, SCHOOL OF ORIENTAL AND AFRICAN STUDIES: Well, I think, first [incompr.] I was very fortunate, when I lived in Vermont, to meet someone who had gone with Pete Seeger to campaign for him, Henry Wallace, in 1948 election in the South. A campaign for Henry Wallace in the South as a third-party candidate was not a very easy thing to do. I think people forgot how reactionary that period was when the election of 1948 came up. You had—Joe McCarthy had been elected. The Republicans, as I recall, controlled the Senate of the United States (whether they controlled the House I don't know). So that's the context. You have a tremendous reaction, a anti-progressive reaction, attempt to roll back the New Deal by the right.

    Now, you said Roosevelt's choosing Truman over Wallace. Yes, it's a mystery to me. It is. I don't know. Why did Roosevelt do it? He was a very canny politician. He must have known what was going on. I have no explanation of it. There is—I would suggest people have a look at Arthur Schlesinger Jr.'s three-volume Age of Roosevelt, where he talks about something like that, but it is—well, he talks about it a bit, but it's a mystery to me.

    What I think about Truman is that his great sin was the Cold War, I think, not rolling back the New Deal. I think that that's a more complex thing. The militancy of U.S. labor—you mentioned the strikes, but [incompr.] many of the strikes were by left-wing unions—the electrical workers, the UE, headed by communists. And the right-wing, supported by Truman, but not really led by him, set about purging the U.S. labor movement of its most progressive elements, primarily the communists, but also the Trotskyists. And I regret to say that a great American labor leader, Walter Reuther, played a very important role in purging the labor movement of its progressive elements. And I think once there was that purge, then you had a bureaucratic labor movement which was not interested in pushing the New Deal further.

    JAY: And I think it's important that this took place, to a large extent, with a Democratic President, and as the decades go further we have Democratic administrations who are very much involved in this. And I think—I didn't think—I need to say that Truman used the Taft–Hartley Act, which was the legislation brought in in '48, something like that, which starts to undo the pro-labor legislation, you could say, was passed under Roosevelt, and while Truman vetoed it originally, he used it 12 times against unions. So what I'm getting at is that this isn't so much about the individuals, that American capitalism, if you will, it didn't need this anymore. In the '30s it needed these kinds of compromises and concessions to hold things together, but after World War II, it didn't need this.

    So, Jennifer, let's jump ahead, because one of the things that starts to happen over the next decades after World War II is the unraveling of some of the financial regulation that controlled the ability of finance to speculate and operate within the economy, and give us a bit of the history of that, because it seems to me it's not just the legislation changed 'cause somebody came in that said, oh, let's change the legislation; it's because finance itself regained its power in the economy—it was able to assert that power over the politics.

    JENNIFER TAUB, ASSOC. PROF., VERMONT LAW SCHOOL: Yeah, that's right. And what's really fascinating in the research I have been doing on a book that I've written: it turns out that a lot of this began to unravel in the late '70s. And I pinpoint this moment right after—toward the end of the Carter administration, right after Paul Volcker became chairman of the Fed. And you might remember this, Paul, but it was in October 1979. It's known as the Saturday Night Massacre. And this is when Volcker decided that to combat inflation, he was going to let interest rates float indefinitely higher by controlling—by basically—through monetary policy. And interest rates skyrocketed and were also quite volatile.

    And what that did, besides cause a lot of pain, hurt—it didn't actually stem inflation immediately, and it resulted in huge amounts of unemployment. But what it did is it basically killed the savings and loans, at least on a true balance sheet basis. So these were—by raising the rates at that moment, it meant big problems for them because they now were having to pay out to depositors interest rates that were far higher than the interest rates they were bringing in on the mortgages they had on their books.

    JAY: Just to remind people, I remember getting—it might be one of my first mortgages. But I think mortgage rates were hitting, like, in the realm of 20 to 23 percent at some point, where they not?

    TAUB: They were, and those were for new mortgages that came in. But on average the loans that these savings—the legacy loans they had on their books were far lower, you know, averaging maybe 8 percent. So what happened is there was competition. So we had this problem where they suddenly are paying out more to depositors—or they lose the deposits—than they were bringing in on mortgage loans. At first they weren't even allowed to pay out high rates to depositors. They were regulated on something known as reg. Q dating back to the New Deal.

    So what happened is first they're losing money from depositors because this new financial instrument had been improved called the money market mutual fund, and this became an alternative to a bank account. Even though this was not insured, folks—it was advertised as if people would never lose their money, that each share would maintain its value in these funds. And so people moved huge amounts of money into money market funds. The savings and loans said, we need help; you know, interest rates have skyrocketed; you've got to let us now raise our rates in terms of what we can pay the depositors—which ended up not really helping them, because they then had to make more and more riskier loans that could pay in at higher rates, which they weren't allowed to do.

    So all this kind of comes together in around 1979, 1980. So one of the last things Carter did was to start liberalizing what the S&Ls could do. And then Reagan came in and did even more of this. And so this series of pieces of legislation loosened up on what they could do. And this is in addition to later loosening up onto what commercial banks could do. And it really did end up—there was huge amounts of fraud and abuse.

    And what happened is waiting in the wings was Wall Street, because some of the folks advocating for these changes weren't just the S&L managers, but were folks on Wall Street who were trying to come up with a different way to finance mortgages through securitization. So all this comes together in the '70s and '80s, which completely set the stage for the financial crisis of 2008.

    JAY: And then, John, if you go to the Reagan presidency and you pick up this whole theme of undoing the New Deal, particularly the strength of unions in the country, Reagan really then doubles up the ante on this.

    WEEKS: It's true. I think that's very true. And I'm impressed by the point that Jennifer made, because I'd known about the interest rates going up and I didn't put two and two together, and she's absolutely right.

    If you can, I want to go back a second, when we were talking about the unraveling of the New Deal, 'cause I think that there's something very, very important that happened that was crucial to that, and that's the Vietnam War. And the reason I say that is Lyndon Johnson was the most progressive president that we had on domestic issues after Roosevelt. I say that as someone who went on many demonstrations against Lyndon Johnson and chanted "LBJ, how many kids did you kill today?" Lyndon Johnson's decision to continue with the Kennedy advisers on Southeast Asia and continue the war in Vietnam is an American tragedy in more ways than one, because it meant he wasn't elected and instead we got Nixon. It meant Hubert Humphrey wasn't elected, who again is someone I demonstrated against. But Hubert Humphrey was a New Deal liberal. There is no doubt about that. And they were the last of them. It's true George McGovern ran in '72, but he was wiped out. We could have had Lyndon Johnson until 1972.

    But instead we begin to get—it's all downhill. It's Nixon, then Carter, who's the first neoliberal, then Reagan, who's the real thing. And everybody after that is—you know, it's just one damn thing after another.

    And once Reagan comes in, very crucial, I think, in breaking up the New Deal is the busting of the unions, you know, the air controllers strike that sent everybody—a lot of people probably don't remember it, but when Ronald Reagan first came in, there was a threatened strike by air traffic controllers, and he decided—and they thought, we can't be replaced, we're so skilled. And Reagan, he didn't care if every plane in the United States crashed—he was going to break that strike. And he did break it, and that was a signal to all the other unions.

    JAY: He essentially fired all the air traffic controllers. And my memory is he brought the military in to run the air traffic control until they replaced people. Is that right?

    WEEKS: That's right. And that really spooked the unions, 'cause they thought that—they realized that the game had changed.

    JAY: And, of course, this comes at the beginnings or more developed period of globalization follows, where productivity starts going up and modern industrial production starts going up in the developing world, and now it's much easier to play workers off against American workers and other North American workers around the world.

    WEEKS: Yeah. Well, that's true. Yeah, that's very true.

    JAY: So in the next segment of the interview, we're going to pick up a little bit more today, which is some people are calling for a new New Deal. And the question is: is that possible in today's America.

    Please join us for the continuation of this discussion on The Real News Network.


    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.r


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