Barack’s Too-Long Wish List: How the President Should Focus His Agenda

William A. Galston
Bill Galston
William A. Galston Ezra K. Zilkha Chair and Senior Fellow - Governance Studies

March 10, 2009

A surprised Rudolph Penner, assistant director of President Ford’s OMB and later a CBO director, offered a blunt assessment of the new president: “[He] has proposed a huge restructuring of government, and people are actually taking him seriously. The man … turns out to be downright radical.” This president was Ronald Reagan, who pushed through changes in spending and taxes that redefined economic policy for a generation.

After a week in office, another newly minted president mused in his private diary, “Everybody has warned me not to take on too many projects so early in the administration, but it’s almost impossible for me to delay something that I see needs to be done.” That president was Jimmy Carter, who–true to his word–sent a flood of proposals down Pennsylvania Avenue, so many that Congress soon bogged down in near-gridlock. By the end of his first year, American were beginning to wonder whether Carter could get things done and–worse–whether he was up to the job.

Will Obama turn out to be as successful in pushing his agenda as Reagan, or as unsuccessful as Carter? The key question is not early economic performance. The GDP, which the Reagan administration predicted would rise by 4.2 percent in 1982, instead shrank by 1.8 percent, and unemployment peaked around the day of the midterms, at 10.8 percent. Still, the Republicans held their ground in the Senate and suffered smaller than expected losses in the House, and the Reagan administration evaded a knockout blow.

Nor is radicalism the crux of the matter. Reagan represented more of a change from the status quo than did Carter. If the times demand radical responses, moderation is a mistake, politically as well as substantively.

The core issue is the clarity and self-discipline needed to maintain control of the agenda. Consider the judgment that Erwin C. Hargrove, a respected scholar of the presidency, rendered after Reagan’s first hundred days: “Reagan has demonstrated in a way that Jimmy Carter never did, that he understands how to be President. He knows that a President can deal with only a relatively small number of issues at a time.” Hargrove might have added that the same is true of Congress, a fact every president must keep firmly in mind.

I suspect that supporters of the current administration’s approach will respond by saying that this is a false choice: We’re back in 1933, not 1981, and the relevant model is FDR, not Reagan. The world economy is the worse since the Great Depression, the U.S. is heading toward its grimmest year in generations, and so we need bold action on a broad front.

The “2009 = 1933” thesis raises two questions, however. First, how do our circumstances stack up against the situation FDR faced when he took office? Let’s consider some key indicators. In the fourth quarter of 2008, GDP fell at an annualized rate of about six percent; by 1933, GDP had fallen more than 40 percent from four years earlier. Unemployment is now 8.1 percent, up from 4.9 percent a year ago; by early 1933, unemployment was 25 percent, including 37 percent outside the agricultural sector. Today our banking system is in deep trouble, but at the start of the New Deal, it was much worse. As FDR took office on March 4, 1933, all twelve Federal Reserve Banks were closed, and banks in 37 states had either limited withdrawals or shut their doors.

Second, how did FDR respond? Although he commanded nearly unchecked power–in 1933, Democrats held majorities of 313 in the House and 60 in the Senate–he was careful to focus his early domestic policy almost exclusively on the economic emergency. Believing that the banking crisis was at the heart of the crisis of confidence, he declared a banking holiday within two days of taking office. Four days later, on March 9, he introduced the Emergency Banking Act, which passed the House in 38 minutes. The Senate, always the more deliberative body, waited until later in the day to give the bill its stamp of approval.

The bill was simplicity itself. It divided the banks into three categories: Class A, deemed solvent and fit to reopen immediately; Class B, endangered and in need of recapitalization, reorganization, or both; and Class C, declared insolvent and closed forthwith. When FDR reassured the American people that the banks permitted to reopen were sound, they believed him, and confidence began to rise.

By contrast, Roosevelt delayed most of the structural reforms that did not bear directly on the economic emergency. For example, he did not even propose a commission to consider social insurance until June of 1934. Social Security legislation was introduced six months later, in January 1935, and was not signed into law until August of that year, after the provisions relating to health care had been stripped out.

Roosevelt organized his first term around two principles that the Obama administration would do well to ponder. First, he kept his (and the country’s) attention firmly fixed on a single task: ending the crisis of confidence and restarting economic activity. While he was more sensitive than previous presidents to the links among seemingly disparate issues, these interconnections in his view did not warrant trying to move on all fronts at once. The people and the Congress had to be brought along with an agenda and a narrative that they could understand.

Second, although FDR moved quickly starting on inauguration day, he never believed that his capacity to legislate would wane after his first year in office. On the contrary, he used early momentum to build popular support, yielding further congressional gains in 1934 and a massive landslide in 1936. The creative period of the New Deal continued until Roosevelt overreached in 1937 with his ill-considered proposal to reorganize (or as his detractors put it, “pack”) the Supreme Court.

In sum, our circumstances are not (yet) as dire as they were in 1933. In part for that reason, the people are not prepared to give the president and his party the degree of deference that Roosevelt and the Democratic congress enjoyed at the start of the New Deal–all the more reason for Obama to distinguish between short- and long-term measures at least as carefully as FDR did.

None of this is to deny the seriousness of our current situation. Indeed, if we do not act wisely, we could end up with another depression. The key analogy between today and 1933 is the centrality of the financial crisis, which makes it hard to understand why the administration has not yet moved as decisively to fix it as FDR did on the first day of his presidency. This issue could not have come as a surprise to Obama and his chief financial advisors. Their failure thus far to restore financial confidence raises two equally depressing possibilities: Either they do not know what to do, or they do not believe they can muster the political support to do what they know needs to be done.

It is time for President Obama to focus his considerable leadership and communication skills on the financial crisis–to speak candidly with the people about the magnitude of the problem, to embrace a solution commensurate with the problem, and to do whatever it takes to persuade Congress and the people to accept it. If he does not, he could end up where another highly intelligent, self-disciplined, and upright president did three decades ago.