The Great Depression so discredited capitalism that it created space for the New Deal reforms implemented by President Franklin D. Roosevelt. Many of these policies, influenced by economist John Maynard Keynes, involved massive government intervention in the economic affairs of the nation.
New Deal reforms were vehemently opposed by Republicans and conservative Democrats who were supported by big-business. To understand this visceral hated of government intervention it’s useful to turn to an obscure essay by Polish economist Michael Kalecki, entitled Political Aspects of Full Employment.
“Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ — unless you happen to have private means.
We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome — as it may well be under the pressure of the masses — the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.”
As Kalecki makes clear, ideological and political opposition to New Deal policies is timeless and essentially comes down to control. Big-business despises government intervention because it interferes with their control over American workers and the political system.
The New Deal really was an aberration in the arc of American history. For the first time, the US government sided (to some degree) with the people rather than the powerful. It’s no wonder that the wealthy owners of our country have been so ferocious in their opposition to the reforms enacted by FDR.
Since then, big-business and their representatives in Congress and the White House have worked tirelessly to return the country to its former state of affairs.
The Democratic coalition, made up of labor unions and working class Americans, that made New Deal reforms possible, was always tenuous. White Southerners were onboard with government programs that helped them. However, when Civil Rights legislation extended government benefits to black Americans they began to revolt against government beneficence.
In the wake of the passage of the Civil Rights Act of 1964 and the Voting Rights Act of 1965, Barry Goldwater, and George Wallace demonstrated how these resentments could be mined politically. In 1968, Richard Nixon took full advantage of racial resentments as part of his Southern Strategy.
Examining this history, it’s clear that race was the shoals that the New Deal foundered upon.
Opportunistic Democrats, like Bill Clinton, recognized this new political reality and triangulated accordingly.
Political scientist Corey Robin relates this history. “Many of the liberal journalists who are supporting Hillary Clinton’s candidacy are too young to remember what the Clintons did to American politics and the Democratic Party in the 1990s. But even journalists who are old enough seem to have forgotten just how much the Clintons’ national ascendancy was premised on the repudiation of black voters and black interests. This was a move that was both inspired and applauded by a small but influential group of Beltway journalists and party strategists, who believed making the Democrats a white middle-class party was the only path back to the White House after wandering for 12 years in the Republican wilderness.”
These days, neoliberal Democrats, like Barak Obama and Hillary Clinton, have modified their economic policies in line with the ideological and political realities laid out in Kalecki’s essay. Neoliberal Democrats, like Obama, eschew direct government intervention into the economy. Instead, public/private partnerships are offered as a way to advance public policy.
The way in which the Democratic party raises money has influenced this trend. As their New Deal coalition, made up of labor unions and working-class Americans unraveled, Democrats looked to corporations and Wall Street for funding. In 2008, Barak Obama raised millions of dollars from Wall Street. The bank friendly economic policies since demonstrate just what it was that the banks bought with their contributions.
The term–he who pays the piper calls the tune–seems apt.
Both Republicans and Democrats are complicit in the destruction of New Deal reforms that resulted in a strong and vibrant middle-class. The American people may not know the specifics but they sense the general outline of this betrayal.
Hence the campaigns of Donald Trump and Bernie Sanders.
Update: “Simply put, there’s massive discontent in both parties, and the Iowa results are another shot across the bow of the establishment.”