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 rural areas.
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 Municipal 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 Herbert 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."
Democrats called the project a "millionaire's dole" for bailing out bankers and railroads. But Hoover did what he thought was needed and pushed the project along. Sound familiar?
The Reconstruction Finance Corp., Rohatyn writes, "was the unprecedented economic tool that guided America through the rocky economic times." Unfortunately, not everything in the book feels relevant to the current crisis. Take the projects dealt with in the first two chapters: the Louisiana Purchase and the Erie Canal. They're more about infrastructure spending as it relates to economic development than about spending as a tool to lift an economy out of a recession.
Battling the Great Depression is more likely to resonate with readers today than a story about doubling the size of the country in 1803-1804 by buying the Louisiana Territory from France.
There's another problem that goes even deeper. It involves the Panama Canal, which Rohatyn deals with in Chapter 6. The canal made it possible for the United States to move ships (for war and commerce) between the Pacific and Atlantic oceans. But the land was on foreign soil, and the way the government acquired it damaged Uncle Sam's reputation in the hemisphere for decades.