What does Obama have to fear?

By Professor AJ Badger
Cambridge University

When Roosevelt came into office, 13 million US citizens were unemployed

When Franklin D Roosevelt told the American people in his inaugural speech on Saturday 4th March 1933 that "the only thing we have to fear is fear itself", he was simply wrong - the American people had a lot to be afraid of.

That morning, the governors of New York and Illinois closed their banks in order to halt further catastrophic withdrawals by panicking depositors.

This was the culmination of a six-month financial crisis that had effectively shut down the nation's banking system.

The Depression had already lasted four years. Over one-quarter of the industrial workforce was unemployed. Agriculture, which accounted for one-third of the workforce, was destitute.

The credit crunch meant that thousands of homeowners and farmers were losing their property.

There were none of the stabilisers in the economy that protect ordinary Americans today - no insurance of bank deposits, no social security, no federal welfare programme.

But Roosevelt was right in one important sense. Confidence was the key to economic recovery.

His predecessor, Herbert Hoover, had recognised that fact and had exhorted Americans to keep up lending, keep up investment and maintain wage levels. He had failed.

A tremendous gamble

In contrast, Americans believed Roosevelt. Newspaper editorials and thousands of painfully scrawled letters to the White House testified to that faith in the new president.

The acid test came when the banks reopened. On Sunday March 12th, in his first fireside chat on the radio, FDR explained the banking crisis in language that ordinary Americans could understand.

He promised that it was safer to put money in the banks than to keep it under the bed when the banks re-opened the next day.

It was a tremendous gamble. The government did not really know which banks were safe. There was no plan B.

If people had continued to withdraw their money, disaster would have followed. But Roosevelt's appeal worked and the next day Americans put money back into the banks and the system was saved.

FDR took advantage of the public response to keep Congress in session and pass an unprecedented 16 pieces of major recovery and reform legislation in 100 days.

Memo to Obama

What lessons should Barack Obama take from FDR's 100 days?

So what would be in a memo to President-elect Obama from the experience of the first 100 days back in 1933?

Firstly, however much it rankles to help out bankers and corporate executives who were in large measure responsible for the mess they found themselves in, there is no alternative in a capitalist system to bailing out the banks and the auto industry.

Second, there is no need to delay reform because of the economic emergency. Roosevelt established the TVA - an agency that brought recovery to business and agriculture and provided relief to the unemployed in the Tennesse Valley - in 1933, regulated the stock exchange and reformed banking, although he delayed the introduction of social security.

Finally, you have to be bold to create jobs in the private sector. Roosevelt did not spend enough in 1933 to create new jobs and the administration abandoned plans for loans to business to expand and hire more workers.