Who was the most important politician of the 20th century?
Britons would probably respond with either Winston Churchill, or, of more recent vintage, Margaret Thatcher. Voters in the eurozone would be likely to choose Jean Monnet, one of the founders of the common market, or perhaps Charles de Gaulle. But if you were to ask Americans, the chances are that they would plump for Franklin Delano Roosevelt.
Roosevelt was elected in the most trying of circumstances, at the height of the Great Depression. A reporter in 1932 asked the great British economist John Maynard Keynes whether the world had experienced anything like the slump that afflicted America after the crash of 1929. “Yes,” replied Keynes. “It was called the Dark Ages and it lasted 400 years.”
Roosevelt’s New Deal
After the crash, US GDP contracted by 10%. The year after that, it fell by another 10%. In 1932, it fell by another 10%. Nobody had ever seen anything like it. When Roosevelt was elected, one in four Americans of working age was unemployed and 5,000 banks had already failed. The banking system was so seriously imperilled that one of Roosevelt’s first actions was to declare an eight-day bank holiday. In the first of his “fireside chats”, a national radio address lasting less than 15 minutes, Roosevelt managed, miraculously, to restore people’s faith in the banks. As with his contemporary Churchill (with whom he would go on to enjoy a close and productive friendship), the effect of his oratory was electrifying. When the banks finally reopened, people took money they had hoarded under the mattress straight back to the bank.
Roosevelt is perhaps best known for his New Deal, a raft of economic stimulus measures that put government (ie, taxpayers’) money to work in hiring the unemployed. It comprised the “3 Rs”: relief for those out of work; recovery for the economy; reform of the financial system. (One of its lasting legacies was the Glass-Steagall Act, which forbade commercial banks from engaging in investment banking. The repeal of Glass-Steagall by means of the Gramm-Leach-Bliley Act of 1999 was arguably a contributing factor tothe global financial crisis of 2008.)
But the jury is still out, after all these years, as to whether the New Deal ended the Great Depression, or extended it. The Austrian school economist Murray Rothbard suggested that, by intervening in the market clearing process, Roosevelt perpetuated the Depression. In this analysis, it was realistically the huge surge in US armament production of World War II that conclusively lifted the North American economy back to health.
The government can’t create wealth
Which brings us to the present day. David Cameron’s Conservatives have just been granted a surprise mandate to continue the work of the coalition. Faced with a disastrous expansion of government spending under New Labour and the catastrophe of the global financial crisis, the Conservatives and Liberal Democrats pledged to introduce austerity and cut spending. That people believe they were successful is in itself extraordinary.
The reality is that the level of government debt grew more under the coalition in five years than it did under New Labour and during the previous 13 years. Government likes to claim credit for job creation too. The reality here is also somewhat different. The government cannot create wealth, or jobs. Rather, it can simply redistributetaxpayers’ capital from one area of the economy to another. Entrepreneurs create jobs. Governments merely shift other people’s money around and expect to be applauded for it.
Painful lessons at the ballot box
That Labour was widely rejected suggests that the British people, by and large, prefer the middle ground, and dislike Ed Miliband’s shift to the left. The British (Scotland, perhaps, apart) appear to be sceptical about socialism, and rightly so; the US economist Thomas Sowell pointed out that “socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it”.
But the widespread historic failure of socialism does not stop the left from winning office whenever the people forget this uncomfortable truth. The historian Edward Gibbon cruelly identified the problem: “In the end more than they wanted freedom, they wanted security. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for was freedom from responsibility, then Athens ceased to be free.”
This is a painful and enduring lesson that every electorate, it would seem, has to learn for itself. There are limits to what any government can achieve. Roosevelt was a political giant who achieved re-election three times. His economic achievements are questionable, but his bravery is not. So where is the Franklin Delano Roosevelt we so badly need today?
Tim Price is director of investment at PFP Wealth Management. He writes The Price Report newsletter with Doug Pritchard.
Category: Market updates