'Bold Endeavors' tells how feds can fix economy by spending

ByABC News
June 7, 2009, 9:36 PM

— -- With the American economy in a recession, Democrats say spend; Republicans say cut taxes and let the market do its thing. What to do? History tells us that Democrats are thinking along the right lines, writes Felix Rohatyn in Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now.

The government spent its way out of the Great Depression, solidified the country with massive spending on interstate highways, and modernized the land by bringing electricity to even the most rural of American homes.

Rohatyn, a celebrated investment banker, may be an amateur historian, but he has direct experience in public finance matters. From 1975 until 1993, he was the chairman of New York's Mutual Assistance Corp. In 1975, he and his team stepped in when New York City was weeks away from declaring bankruptcy, and managed to save the city.

Bold Endeavors is built on a simple premise: There are gravely important projects that are only possible if undertaken by the federal government. The book makes the case in 10 chapters, each devoted to a government project from the last 200 years of American history.

In the most pertinent chapter sadly buried in the middle of the book Rohatyn tells the story of the Reconstruction Finance Corp., a precursor of the New Deal agencies. The agency was created in 1931 in response to the economic collapse that would become the Great Depression.

Only a few years before, during the boom times, a pro-business President Hoover had said that America was "nearer to the final triumph over poverty than ever before in the history of any land."

In 1931, Hoover was confronted with something akin to what we're facing today. Reluctantly, he instructed Congress to create and fund an emergency fund to make loans to private businesses such as farms, railroads and banks.

"As conservative commentators warned that this emergency reconstruction program would be 'the beginning of state socialism,' " writes Rohatyn, "liberal and progressive Democrats attacked with a fury inspired by different concerns."