DPI 132: American Presidents, Politics, and Economic Growth:
From the New Deal to Barack Obama
Professor: Richard Parker
O: (617) 495-8692
Cell: (617) 216-2752
Course Assistant: George Kynaston
Course Assistant: Carleigh Beriont
Faculty Assistant: Kristina Mastropasqua
O: (617) 496-3557
Class: Monday and Wednesday, 10:15 – 11:30AM, Land Hall
Note: First class meets on FRIDAY, September 4
Shopping Day: Monday, August 31, 10:15 – 11:30 AM, Land Hall
Mandatory Review Sessions: Every Wednesday, 4:15 – 5:15AM in Land Hall (beginning 9/16)
President Obama took office in January 2009 amidst the greatest economic crisis since the Great Depression. Wall Street and global finance were unraveling. In the fall of 2008, the Bush administration – having supplied billions to large banks and brokerage firms – had launched the TARP program to pump an unprecedented $700 billion into the financial system, and the Federal Reserve was starting to pump in hundreds of billions, eventually trillions, more. (The IMF and central banks around the world were by then doing the same across developed and developing countries alike.) Simultaneously, Washington began taking over the nation’s largest mortgage lenders, the largest insurance company, two of the country’s largest banks, and forcing closure of scores of smaller firms.
Yet the economy kept deteriorating, and so in spring 2009, the Obama administration quickly pushed through its own $780 billion stimulus program (using tax cuts and spending), and – along with the Fed – stepped in to guarantee trillions more of bank and mutual fund deposits.
By late that spring, the federal government (and thus American taxpayers) had assumed potential liability for nearly thirteen trillion dollars – $13,000,000,000,000 – or roughly equal to the nation’s entire Gross Domestic Product. There was no certainty of success (or of repayment), nor clear exit from its role.
How had such a monumental commitment happened? How had The American government – and in particular, America’s president – become so powerful and so directly responsible for the nation’s economy? And how ought we now to judge what he did?
The Constitution makes clear that America’s Founders never imagined presidents having chief responsibility for rescuing the nation from economic collapse, let alone the ongoing challenge of orchestrating economic growth and prosperity. Indeed, for the first 150 years of America’s history, US presidents exercised almost no direct oversight of the economy, and the federal government’s spending as a share of GDP was quite small – roughly 1 - 2% of GDP in 1800, barely 3 - 4% as late as 1900.
Last year, total government spending – federal, state, and local – was 40% of GDP. Much, in other words, has changed. But how and why?
Consider this: by 1900, the US had become the world’s largest economy. Yet, in terms of the White House’s responsibilities for that enormous economy, little had changed in the century since George Washington was president and America’s capital was New York City. By Constitutional design, there was no presidential mandate for economic management, nor the tools to play such a role.
There was, moreover, no concept of GDP, no coherent theory of growth, no unified federal budget, no Federal Reserve to shape monetary policy, no Internal Revenue Service (nor income tax), no Social Security, no Medicare, no unemployment insurance, no anti-poverty programs (in 1900 the Roman Catholic church delivered more social services than any local, state, or federal agency), and no Pentagon – the US military was insignificant and vastly underfunded compared to Britain’s, France’s, Germany’s, Russia’s, even Japan’s.
A half century later – by the end of the Great Depression and World War II – all that had changed. After Franklin Roosevelt, all presidents – liberal and conservative, Democrat and Republican – have been required by law to present Congress with annual budgets underpinned by macroeconomic projections and policies meant to use coordinated fiscal, monetary, credit, trade, and regulatory powers to foster economic growth, maximize employment, prevent inflation and recession, strengthen America’s position in the world economy, and improve the income and security of the American people.
Today, the president’s role as our “Economist-in-Chief” is so well established that polls for the last half-century have consistently shown that voters now simply assume economic leadership – along with guaranteeing national security – is the most important duty of the White House.
But how did such an extraordinary change, without a single constitutional amendment, come about – and how have complex ideas, ideology, interests, and alliances shaped that search for growth?
That’s the subject of this course.
We’ll examine how the concept of economic “growth” and presidents’ (hence government’s) role in it have evolved since Roosevelt. We’ll see how “growth” has come to be defined and quantified, how it serves as the principal metric of how well the country is doing, and how it acts as both the engine that provides our well-being and as the yardstick by which we judge presidents, their parties, and their economic policies.
More important, we’ll probe the political decisions, alliances, and goals behind those policies. How were they made? Who helped presidents make them? If there have been periods when particular sorts of policies were favored, why and what factors determined them – and why were they challenged or replaced by later presidents?
Readings, lectures, and class discussions will focus you on a relatively short list of important presidential decisions during key periods since 1945, to show both the continuities and the shifts in this endless presidential search for growth. We’ll identify how each of those periods produced distinctive policies, based on political alignments, national economic strategies and challenges, global economic and political realities (and perceived realities), as well as the reigning economic theories of the times. The goal is to give you a deeply-grounded understanding of the subtle but powerful interplay among ideas, key actors, policy, and the public that has shaped presidents’– and hence the nation’s (and indirectly the world’s) – quest for growth.
A familiarity with basic macroeconomic concepts as well as modern American political history is helpful, but not required. The course will be especially useful to those who plan to work in White House or Congressional economic policy, as policy analysts in a Washington think-tank, or as political or economic journalists.
Class Basics: Readings, Grading, Office Hours, etc.
What You’ll Read:
Herb Stein, Presidential Economies (Book)
Robert Collins’s MORE (Oxford) (Book)
Readings on the Course Page
Charts and graphs also on the Course Page
The Course Work you’ll do:
1) a short take-home midterm (distributed in class, Wed., Oct. 14; due back in hard copy in class, Wed., Oct. 21);
2) two short (4-5pp) policy briefing papers The first short paper is due in class in hard copy, Wed., Oct. 7, on a topic and President of your choice from Truman to Nixon; the second is due in class in hard copy, Mon., Nov. 9, selecting a President from Ford to Obama. Plan to write the two briefs as a White House staffer would write an executive decision memo, briefing the President.
3) a 15pp final paper (due in hard copy, in box outside my office, by 5PM, Wednesday., Dec. 16).
Course Grading System: among the various assignments, I’ll allocate 25% of the overall grade to the midterm, 25% combined to the two briefings, 15% to class participation, and 35% to the final paper. The grading curve will reflect HKS’s advised standard distribution:
A / A- / B+ / B / B- or lower10-15% / 20-25% / 30-40% / 20-25% / 5-10%
Where and When to Find Me:
My office: 256 Taubman (second floor, in the Shorenstein Center)
My office hours: Tuesdays 4-5:30PM. (I’ll arrange other times at your request; email or speak to me after class.)
Academic Honesty: I take academic honesty very seriously. If you have any questions about your responsibilities as students regarding ethics, plagiarism, etc., please review the Student Handbook.
The Class Schedule
Week One (Weds. Sept 2 and Fri. Sept 4): The Challenge(s) Confronting Barack Obama: Can He Be – Has He Been – a Transformative President?
In 2008, Barack Obama seemed poised to become one of those rare White House occupants – a president who would help reset fundamental national goals and values, much as Roosevelt, Nixon, and Reagan did in the twentieth century, or Jefferson, Jackson, and Lincoln did in the nineteenth.
But he faced multiple economic challenges: at the beginning of his term it was to stanch the bleeding on Wall Street. Today, the bleeding has stopped, but still remaining are the creation of jobs, turnaround of the housing market, and restarting healthy growth. Ahead are issues we’ll take up later in the course: the “right” size and roles for government; the balance of real goods and financial sectors; income and wealth distribution’s impact on growth, and vice-versa; the germination of a post-carbon “green economy”; and negotiation of a new role for the United States in a swiftly-changing political and economic world.
Yet today, well into Barack Obama’s second term, America’s and the world’s interlocked financial systems are still at best unsteady, their future shape and roles still hotly debated, and the unemployment rate still among the highest since the 1930s. Reordering Wall Street and creating jobs, moreover, still presents a tangled web of difficulties – difficulties that bear striking resemblance to those Roosevelt faced throughout the Great Depression. By looking at these current challenges, we’ll begin to see their roots in the relation of government to the economy nearly 70 years ago.
America’s jobs structure has changed dramatically since the New Deal. International competitors have cut into long-term wage growth and eliminated entire domestic industries, particularly in high-wage manufacturing. Increasingly sophisticated technology (symbolized by the emergence of the Internet) has radically reorganized the retail, wholesale, and manufacturing sectors, altering the demand for types and skill-levels of labor. The shift of the corporate pension system from defined benefits to defined contributions symbolizes the changing role of the corporation in providing non-wage benefits. We’ve seen the decline of unions, the new role of women in the workforce (especially at professional and managerial levels), and the drastically altered shape of the family. The deregulation of industries from transportation to telecommunications (not to mention the financial system) has profoundly restructured the economy, in particular in recent years vastly expanding the financial sector in relationship to the traditional goods sector. The exploding costs of health care have not only made the health care sector larger than the manufacturing sector, but induced a long-term cost crisis in Medicare and Medicaid which threatens the government’s fundamental solvency.
Required Readings: (you must do each reading before the class to which it is assigned.)
By Weds - Robert Kuttner, Obama’s Challenge, Ch 1.
Ron Suskind, Confidence Men, Ch. 19 & 20
By Fri - Review charts and graphs on course page
Secondary Readings: (These are optional, for you to go further as you want.)
Economic Policy Institute, The State of Working America, online at epi.org
Congressional Oversight Panel, Special Report on Regulatory Reform
Justin Fox, The Myth of Rational Markets
Margaret Weir, Politics and Jobs: the Boundaries of Employment Policy in the US
Michael French, The US Economy Since 1945 (esp Ch 2)
Marc Allen Eisner, The State in the American Political Economy
Herbert Stein, The Fiscal Revolution in America
Nicolas Spurbur, Managing the American Economy
Robert Gordon, “Postwar Macroeconomics: The Evolution of Events and Ideas,” (in Martin Feldstein ed., The American Economy in Transition)
______
No Class Monday, Sept 7 – Labor Day
Week Two (Weds. Sept 9): The New Deal, World War II and The Post-War Search for Jobs and Growth: How It Defined the Domestic Impetus for “Growthmanship” – and How It Revolutionized the President’s Role in Economics
The trauma of the Depression and the monumental scale of World War II – when government’s wartime spending consumed a record half of GDP – utterly redefined the relationship between the President and the American economy.
From George Washington onward, presidents had often played inadvertent and indirect roles in growth-promotion – especially by enabling America’s geographic expansion westward, beginning with Jefferson’s Louisiana Purchase, then by establishing land distribution policies, excise taxes and tariffs, Post Office subsidies, immigration policy, and by no means least, free public primary education.
During the Civil War, Lincoln advanced that presidential role dramatically for a brief time: he and Congress imposed an income tax, took control of currency and its reserve backing, promoted transportation, fueled manufacturing, expanded government support for education to the college/university level, and by ending slavery finally effectively transformed America’s paid labor market from a regional to a national one. But compared to most nascent industrializers in Europe (especially Germany), federal growth policies were strikingly limited and haphazard; not until the Progressive Era were the outlines of a new “regulatory state” eventually forged.
The Depression and then World War II changed all that, as Franklin Roosevelt expanded both Washington’s regulatory role and its new and much bigger budget by claiming a rationalist macro-managerial role for the federal government. When Truman became president, supporters sought to justify continuing New Deal-style policies, not least through new Keynesian theories (which came, as we shall see, in a variety of liberal and conservative forms). Advocates for this new idea of government-directed “growthmanship” saw it as an intellectual, political, and economic breakthrough in American history. How? Why? And how, after FDR’s death and the war’s end, was this unprecedented expansion maintained, institutionally and intellectually, under Harry Truman?
Required:
By Weds – Stein, Presidential Economics, Chs 2 and 3 (BOOK)
Robert Collins, MORE, Prologue and Ch 1 (BOOK)
John Kenneth Galbraith, “How Keynes Came to America,” in A Contemporary Guide to
Economics, Peace and Laughter
Secondary:
Donald Winch, Economics and Policy, chs 9, 11, 12
James Caporaso and David Levine, Theories of Political Economy, preface and Ch.1
Peter Hall, The Political Power of Economic Ideas
Alan Brinkley, “The New Deal and the Idea of the State”
Stephen Skowronek, The Politics Presidents Make