In part 1 of this series, I talked about the historical parallels between the New Deal’s planning efforts and the Apollo Initiative, a modern-day effort to promote alternative energy and green industry over ten years. In part 2, I expanded upon this theme by talking about how the “initiative model” could be extended into other areas of the economy, from housing to higher education to health care. In this, the third part of this series, I’ll be expanding on a theme I touched on somewhat last time – the idea of building state capacity for democratic planning.
Arthur Schlesinger Jr. famously created one of the first conceptual frameworks for historians trying to understand the New Deal by separating the Roosevelt Administration into a First New Deal and a Second New Deal. The First, according to his framework, constituted a more corporatist and cooperative approach to major economic interests such as big business, finance, and the farm lobby, culminating in the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA). The Second, which began in 1935 with the Supreme Courts declaring the major pillars of the First unconstitutional, was in his eyes a more aggressive, populist effort to provide relief to “one-third of a nation” through Social Security, the Works Progress Administration, and pay for it through the “Soak the Rich” tax increase and higher taxation/regulation of holding companies.
However, a second group of historians who followed Schlesinger disagreed with this analysis, and argued that he had missed a Third New Deal. Otis Graham, John Jeffries, and Barry Karl argued that, after the setbacks of 1937 (when the court-packing effort, the purge of the Dixiecrats, and the attempt to balance the budget had failed), FDR and his advisers either launched or at least intended a third reform effort, based around building up the government’s ability to do economic planning, especially planning for the post-war world. The establishment of the Executive Office of the President, the movement of the Budget Bureau (the future OMB) from the Treasury Department to the West Wing, the failed Executive Reorganization Bill of 1937, the reports of the National Resources Planning Board, and the Wagner-Murray-Dingell Bill and Full Employment Bill were all part of a united effort to expand the president’s control of the executive branch, and the capacity of the executive branch to run a comprehensive welfare state and a “social” Keynesian policy.
Ultimately, this Third New Deal ran aground on the rocks of a united Republican/Dixiecrat Congressional alliance that blocked most of its legislation and de-funded its major government institutions. The signs of its presence, however, can still be seen in the current government – the modern Executive Office of the President stems from the Reorganization Act of 1939, the Council of Economic Advisers stems from the watered-down Maximum Employment Act of 1946, and so on.
At the time, the Third New Deal smacked too much of socialism to pass. But at a time when socialism no longer bears the same sting as it once did, it might be worth revisiting this American tradition of democratic economic planning.
How To Build Capacity:
Ironically, much of the intellectual/informational capacity to do democratic planning already exists in the Council of Economic Advisers, the National Economic Council, and the Office of Management and Budget – especially in their executive staff. We have the capacity to produce timely economic statistics, we can model the various implications of public policy changes, we know how to do regional and local studies, and so on and so forth.
The question is more one of political priorities and political will. While the original Full Employment Bill, which required the President to submit a full employment budget to Congress (detailing a projection of current economic conditions and the necessary Keynesian spending levels required to bring those conditions up to full employment), didn’t pass, there is nothing that would currently prevent President Obama from ordering his advisors to produce one now. Indeed, I would argue that the drafting of the American Recovery and Reinvestment Act (the stimulus), and Obama’s first and expansionary bduget show a strong belief that the government can shape economic events – all that would be needed is to take the next step.
One element of state capacity that we do lack is something equivalent of the National Resources Planning Board, an institution that could create a “shelf” of public works projects, and devise future long-term, large-scale public policy changes (like the 1942 Security, Work, and Relief Policy report that served as the blueprint for the Full Employment Act of 1945).
Other models for democratic planning that potentially suggest themselves are the tripartite (business, government, and labor) planning boards that the NRA aspired to be, that were especially prominent in Germany both before 1933 and after 1945. The advantage of these institutions, although they are predicated upon a high degree of organization both among employers and workers, is that they have a large amount of buy-in from constituent groups, allowing major economic decisions to be made quickly. One specialized example of this that is specifically suited to the present economic crisis is the Swedish National Labor Market Boards (also a tripartite organization of business, government, and labor) that track unemployment, design future work projects, and provide beredskarparbete jobs during recessions.
Notably, these systems bear little similarities to the totalitarian nightmares of Hayek and his followers. Unlike actual Soviet input-output or Five-Year planning, these systems focus not on the micro-level of production quotas, the relative demands of one factory versus another, but rather on the macro-scale of economic growth, employment levels, inflation, productivity, and so forth. And has been shown by thirty years of economic planning of various kinds across Europe after 1945, they are perfectly compatible with a mixed form of capitalism and a robust democratic polity and culture.
What Do You Do With Capacity:
Once you’ve built all of this public machinery and after you’ve put it to work, the central question of democratic question is actually more of a political one – what are the nation’s priorities? Should employment and growth be favored over monetary stability? Which regions of America are most in need of assistance? Which forms of infrastructure are the most efficient, the most useful, the cheapest, the fastest, the longest-lasting? Ironically, this is something that we do all the time as part of the normal democratic process in a thousand different ways – zoning, tax incentives, appropriations, and so forth – but we don’t do it as part of a single effort to achieve a particular economic outcome.
The first principle of democratic planning is that Budgets Are Moral Documents. Any budget contains within it implicit ideological assessments about the proper relationship between government and the market, about whether its better to balance the budget or stimulate spending, and whether we should be more worried about inflation or deflation. More explicitly, any budget contains within it explicit ideological statements about social priorities – whether social services are more important than defense/public safety or vice versa, whether we should distribute aid to the middle class (via tax rebates for mortgages and college expenses) or to the poor (EITC or Section 8), and what categories of our citizens we consider worthy of public protection and what is required to become worthy. Thus, in making any kind of full employment budget, we must ensure that all elements of policy are properly linked. Since you can reach full employment by employing people to do anything or building/buying any thing, the key consideration is what you do and how – whether you build freeways or high-speed rail, whether you spend money on tax breaks or social services, whether we hire workers on public projects that genuinely expand the commonwealth or vanity projects that put politicians’ names on yet another rest-stop.
The second principle of democratic planning is that Economic Targets Are a Social Contract. When in 1945 countries like Sweden, the United Kingdom, and the United States debated the creation of full-employment policies, they defined full employment as 3% or below, believing that unemployment under that level constituted normal “frictional” unemployment (resulting from people moving between jobs or searching for jobs). Especially in countries like Sweden which made the most solid commitment to achieving unemployment of 3% or below, the Swedish people generally took this as a solemn bargain and completely internalized it, such that unemployment rates of 1.5-2% which would be seen as unbelievably low in the United States (which arguably opted for an unspoken social compact of more growth for more unemployment) was considered normal, and 3%, which would still be well below even boom-time levels, was grounds for the fall of a government. Hence, if we were to set targets of unemployment below 3%, inflation at 3% or less, and growth at 3% or more, what we are really doing is making a social commitment to full employment, economic security, and prosperity for all.
“The Constitution guarantees protections to property, and we must make that promise good. But it does not give the right of suffrage to any corporation. The true friend of property, the true conservative, is he who insists that property shall be the servant and not the master of the commonwealth; who insists that the creature of man’s making shall be the servant and not the master of the man who made it. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being.“
Personally, I think the highest economic freedom of all is the right to tell your boss to go to hell, and the truest sense of economic democracy is knowing that we are still the masters of our fates.