Living Through History

The great crises of American history, from the American Revolution and the writing of the Constitution through the Civil War and onward to the Depression and Second World War, look very different in retrospect than they did at the time. We experience them over days or weeks of reading or, in the case of historians like myself, intermittent years of study, but even then, they go much more quickly in one's office or study than they did at the time. We now know what would endure and what would not, what achievements would have the greatest long-term impact, and what new problems would be left behind for future generations. Those like myself who expected the crisis may be even more disappointed than others because so many of our fellow countrymen have not yet grasped how deep our problems are--not to speak of an angry minority who, if history can be trusted, never will. Tonight marks another milestone in the Obama Administration. The Senate has voted on strict party lines to allow the health care reform bill to come to the floor, allowing us to hope that some version of it will indeed be passed. Yet during this same week, other evidence has suggested how far we have to go--and the events of the past year have also made clear how much this crisis differs from the last one.

Thus, in 1932 and in 2008, a series of catastrophes led to a change of Administration, in each case from a laissez-faire Republican to an activist Democrat. In both cases this result had been foreshadowed by the Congressional elections of two years previously, which had given the Democrats control of at least one house of Congress. Yet the timing was in many ways profoundly different. The economic crisis had lasted for three horrible years when FDR won election, but less than one when Obama won his. That has had two very different, but serious, impacts upon the Administration, the Republican opposition, and the country.

To begin with, Obama, unlike Roosevelt, did not come to power in the midst of a crisis so serious that no even halfway reasonable person could deny the need for drastic, unprecedented action. Even now unemployement is only about half what it was in March 1933. Our banking system has been threatened with collapse; theirs was collapsing, and without the backing of the FDIC. The initial New Deal measures, including the NRA--which actually gave the government the kind of coordinating power over the private sector that today's "conservatives" claim that Obama wants--sailed through with large majorities, and the country was at least as unified during 1933 as it was on the eve of war in 1941, if not more so. Things had not gone half so far in January 2009, and the Republican Party decided it could rely on a stance of total opposition, one that has gotten worse, not better, as the year has gone on. Two Republican Senators from Maine voted for the stimulus. Neither voted to allow debate on the health care reform measure tonight. In addition, as many observers (led by the excellent website fivethirtyeight.com ) have pointed out, Democrats from districts and states that rejected Obama are terribly frightened of voting for his major initiatives.

Health care reform, while desperately necessary, will do no immediate political good--it will take years to implement even the relatively modest reforms we are now talking about, and a lot longer to control costs. Jobs are even more necessary, both for the health of the nation and the political health of the President and his party. Here the Administration has been too cautious and the voters of New Jersey, in particular, seem to have taken their anger out on the Democrats. There are, however, signs that the Congress, whose rear ends are on the line, is taking note, and talk of another stimulus package. Perhaps this time it should frankly take the form of large grants to state and local governments, who are cutting back education and other services at a truly alarming rate, and therefore increasing unemployment and slowing recovery. The Administration needs to make the voters feel that it is acting on their behalf, and by the time Obama runs for re-election he will have to have presented a coherent long-term plan for the economy.

Another problem was highlighted Friday by Paul Krugman in one of his scariest columns. It explained to me, for the first time, why the big banks--apparently on the verge of collapse only a year ago--have rebounded so dramatically (although there are still big questions about Bank of America in particular.) Prominent among their worthless assets were the collateralized debt obligations and other exotic instruments they had bought from AIG--their supposed protection against an economic downturn (yes, that's right!) on which AIG could not pay off. The AIG rescue, arranged by the Bush Administration last year, it turns out, actually committed the Federal Government to pay off those obligations, rather than force the big banks to take some responsibility for their own folly and take a substantial loss. Timothy Geithner, then head of the New York Federal Reserve Bank, was apparently on board with this, and there is no sign that he wants to see the superbanks take a big hit--much less bring back something like the late, lamented Glass-Steagall Act and put them out of business. In my opinion, this leaves us with at least a 50-50 chance of another major financial crisis during the next three years or so. Meanwhile, as Krugman has pointed out, the federal government has used up an enormous amount of its resources and its political capital without bringing about any real change in a dysfunctional system. The powers that be, led by Geithner and Larry Summers, were not yet ready to acknowledge that it was necessary. Sadly, almost every other available distinguished economic policy maker would have done the same. It takes more than one year of crisis, however frightening, to bring truly new ideas into the policy arena.

And as if that were not enough, the sectional divisions within the country, while not yet quite as bad as in the 1860s when they led to actual war, are actually far worse than they were in the 1930s. The South in the 1930s was sufficiently devastated by the Depression to welcome the New Deal, and indeed, for three decades certain areas of the region--especially those served by the Tennessee Valley Authority, including both Tennessee and large parts of Alabama--sent men to Washington who were economic liberals. But politics in most of the South--including that new electoral giant, Texas--have now been dominated by social issues, race, and anti-government feeling (much of it of racial origin) for decades, and much, though not all, of the region is so far quite immune to President Obama's appeal.

Under the circumstances, we should not perhaps be surprised that things have moved so slowly. As I have already said many times and will undoubtedly have occasion to repeat again, northern abolitionists saw little to praise in the first year of Lincoln's Administration, and during 1862, many Republicans saw General McClellan--and not without reason--the same way that many liberal Democrats today see Secretary Geithner, that is, as a man with too much sympathy for the enemy. President Obama's handling of Afghanistan--still in progress as I write--suggests that he wants to base decisions upon real data. That encourages me to believe that he will look both for new measures and new men and women as things continue to get worse. But meanwhile, he also needs to put his own magic to work to change the way the country is thinking about its problems. He is not, in my opinion, making enough speeches or holding enough press conferences, particularly on domestic affairs. He has not put forth a New Deal, New Frontier or Great Society, thus giving his enemies too much power to define him. I believe that this crisis will still be continuing not just three, but eight years from now, but that gives him enough time to put the nation on a new path. Meanwhile, if anything is to be done anytime soon, the Democrats need his political magic to avoid serious losses next fall.