Roosevelt and Obama on Economic Situation and Response - Report Example

Roosevelt and Obama on Economic Situation and Response I. Introduction In this work, we compare the Roosevelt Administration in the 1930s with the Obama Admistration under current times. We attempt to describe the economic crisis their administration confronted during their times and the solutions they have attempted to apply. Although, it is not a part of our primary objective, we will also attempt to find out the cooperation they have been received from their respective congresses. II. Economy Under the Roosevelt Administration and Response During the 1930s, output declined and severe unemployment was experienced in the United States (Romer 1). The US crisis reverberated throughout the globe (Romer 1). United States industrial output decreased by 47 percent and real gross domestic product collapsed by 30 percent (Romer 1). Deflation materialized and prices fell by 33 percent (Romer 1). There has been a debate on the exact unemployment figures but it is widely agreed that unemployment in the 1930s great depression was more than 20 percent at its peak (Romer 1). According to Romer, the fundamental cause of the great depression was a decline in demand that led to a decline in production (1). In particular, the decline in output that began in the summer of 1929 has been widely attributed to a restrictive U.S. monetary policy aimed at limiting stock market speculation (Romer 2). According to Romer, in 1928 and 1929, the Federal Reserves raised interest rates to dampen the rapid rise in stock prices (Romer 2). As a result, investors lost confidence in the economy and U.S. stock prices was justified by returns (Romer 3). The situation led to a bleak perception of the economic future and stock prices continued to weigh down and triggered a stock market bubble burst (Romer 3). Panic selling of stocks began on “Black Thursday,” 24 October 1929 (Romer 3). The stock market crash or crashes substantially reduced American demand (Romer 3). Deep depression on demand further took place in the fall of 1930 when the first of four waves of banking panic occurred that led depositor to withdraw their money en masse (Romer 3). Banking panics also took place in the spring of 1931, fall of 1931, fall of 1932, and winter of 1933 (Romer 1). In response, President Theodore Roosevelt declared a bank holiday for insolvent banks beginning on 6 March 1933 and permitted them to reopen after being assessed as “solvent” (Romer 3). Romer clarified that the great stock market crash and the great depression are separate events but are related (and the same probably applies to the bank runs). During those times, the Federal Reserve has been contracting money supply and interest rates were raised by the Federal Reserve in September 1931 (Romer 4). According to Romer, “the recovery from the Great Depression was spurred largely by the abandonment of the gold standard and the ensuing monetary expansion” (Romer 1). Romer also pointed out that “while there is debate about the role the gold standard played in limiting U.S. monetary policy, there is no question that it was a key factor in the transmission of the American decline to the rest of the world” (Romer 4). In the 11th edition of their book on Macroeconomics in 2011, Dornbusch and colleagues identified that there are Keynesian as well as monetarist explanations for the crisis and they supposedly fit the facts but we do not narrate their discussion anymore as Romer’s account of the crisis seems satisfactory and they seem to fit the facts as well. It must be mentioned, however, that based on President Theodore Roosevelt’s account of the situation, a complementary initiative that was implemented by the Roosevelt administration was the push to advance a program for social security. The Roosevelt administration created social security precisely to use retirement pensions not only for securing the means for subsistence of people close to retirement age but also to encourage older citizens to give up their jobs for the younger ones. In the words of President Roosevelt, the social security program that the administration proposed to Congress sought “by means of old age pensions, to help those who have reached the age of retirement to give up their jobs and to give to all a feeling of security as they look toward old age” (Roosevelt paragraph 7). In addition, the President Theodore Roosevelt administration made provisions “intended to relieve, to minimize, and to prevent future unemployment” In addition, the Roosevelt administration established “practical mean” to help those who were unemployed through a “work relief program.” Based on Roosevelt’s account, it appears clear that the Roosevelt administration had worked closely with Congress and Congress had supported his policies. In summing up the New Deal Program of the 1930s that has been associated with the administration of Roosevelt, Engelbourg in adopting the Gary Walton’s perspective said that the New Deal has been a “quest for security.” It is clear, therefore, that far from avoiding social security, the Roosevelt administration had been kin on creating and expanding, not avoiding, welfare programs for the American people. Further, Roger Biles pointed out that “in addition to the numerous temporary agencies created in the 1930s to battle the effects of the Great Depression, the Roosevelt administration left as a lasting legacy a federal-state system of unemployment insurance, a compulsory, federally administered retirement system, aid to families with dependent children, maternal and child care programs, and numerous public health programs” (139). It follows that these measures were what Roosevelt to be the appropriate response to the great depression. III. Economy Under the Obama Administration and Response In contrast with the tight monetary policy that Romer said was the origin of the great depression in the 1930s, it is generally believe the current crisis under the Obama administration originated or was associated with the sub-prime housing crisis that started in 2007. The housing crisis was transmitted to the other economic sectors because many financial institutions have substantial investments in the U.S. housing sector. Several large financial institutions became bankrupt based on their investments in the U.S. housing sector. In turn, other banks and various financial institutions became bankrupt or met financial difficulties based on their exposure on banks and industries that substantially invested on the firms that went bankrupt based on their exposures in the U.S. housing sectors. Thus, there is a good reason to argue that while the great depression originated from a tight monetary policy, the current crisis in the U.S. probably occurred as a result of easy monetary policies. Similar to what have taken place during the great depression of the 1930s, the stock market was also affected as firms exposed to the sub-prime housing sectors got burned as well as the firms that invested on firms that were exposed to the U.S. firms that invested on the sub-prime housing market. Mauro Guillen of the University of Pennsylvania has a good documentation on the chronology or timeline of the crisis. While there seem to be no data that indicate that the Roosevelt administration implemented a bailout of firms that were affected by the crisis, the opposite is true under the administration of President Barack Obama. An unofficial list of the Obama bailouts is available in http://factreal.files.wordpress.com/2009/04/bailoutsummarylist4-13-2009.pdf. The firms bailed out include the American International Group, auto suppliers, banks, commercial papers funding groups, financial institutions, and the like. Based on the informal document, the bailouts have reached $2.5 trillion as of 13 April 2009. The bailouts have been packaged by the Obama administration as stimulus programs. There is no bailout of a similar type under President Roosevelt. Although there have been criticisms from Congress, Obama seems to be winning his stalemates with Congress. Bradley and Rector pointed out that Obama’s budget will ultimately demolish the welfare program (1). Instead of expanding welfare programs, Obama’s budget policies practically limits, constricts, and demolishes welfare programs created during the 1930s under Roosevelt. IV. Conclusion In summary, Roosevelt differs from Obama in at least two respects in handling the U.S. economic crisis. First, while Obama had been bailing out firms (and failing), Roosevelt had chose to bail-out families rather than firms. Second, while Obama is curtailing welfare programs, Roosevelt chose to create and strengthen welfare programs. Work Cited Biles, Roger. “Robert F. Wagner, Franklin Roosevelt, and Social Welfare Legislation in the New Deal.” Presidential Studies Quarterly 28.1 (Winter 1998): 139-152. Bradley, Katherine and Robert Rector. “How President Obama’s Budget will demolish Welfare Reform.” Web Memo No. 2819. Heritage Foundation: Web Memo, 25 February 2010. Dornbush, Rudiger, Stanley Fischer, and Richard Startz. Macroeconomics. 11th ed. New York: McGraw Hill, 2011. Engelbourg, Saul. Review of “Creating the Welfare State.” The Business History Review 54.4 (Winter 1980): 543-545. Guillen, Mauro. “The Global Economic & Financial Crisis: A Timeline.” University of Pennsylvania: The Lauder Institute, 2009. Web. 18 November 2011.< http://lauder.wharton.upenn.edu/pdf/Chronology%20Economic%20%20Financial%20Crisis.pdf>. Romer, Christina. “Great Depression.” 20 December 2003. Web. 18 November 2011. < http://elsa.berkeley.edu/~cromer/great_depression.pdf>. Roosevelt, Franklin Delano. “On the Works Relief Program and Social Security Act.” Fireside Chat 7, a radio program. Transcript.Web. 28 April 1935. Read More