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

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."

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 first two chapters: the Louisiana Purchase and 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 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.

The land where the canal was built is in Panama, which rose in revolt against neighboring Colombia on Nov. 3, 1903. To gain access to a strip of land across the Isthmus of Panama, the U.S. fomented that revolution, a bold endeavor indeed but hardly one of America's finest hours.

The book's major flaw is a lack of analysis, taking readers for granted by offering conclusions without the benefit of argument. Past governments made huge, risky bets on infrastructure, and those bets paid out — so perhaps the Obama administration should do the same. That's the implied argument here.

But not everyone agrees that the New Deal or projects like rural electrification were responsible for economic recovery or the continued financial strength of America. Some even think these expenditures hurt the nation or should have been undertaken by private enterprise.

A few pages of discussion about the strength or weakness of these positions would have provided some analytical heft.

Rohatyn's most compelling material comes in the epilogue and author's note. Here is a concrete discussion of the state of America's infrastructure woes and his role in saving New York City from bankruptcy.

As a survey of 10 of the biggest federal projects in American history, Bold Endeavors is a good overview. But the book is unlikely to sway opinion on the current economic debate — on whether the best course for America is cutting taxes and relying on free markets or financing major projects and bolstering regulations.

Russ Juskalian is a freelance writer based in New York