People Must Live By Work Book Club: Week 5 (Chapter 4)

Last week (although it was more than a week ago), the online book club of my new book (available to the reading public here and here) discussed the most controversial chapter of the book, which argues that the New Deal ended the Great Depression.

This week, I’ll be discussing how direct job creation was suddenly abandoned during the debate over the Full Employment Bill of 1945 (which turned into the (Maximum) Employment Act of 1946), and why it was liberals and not conservatives who were responsible.

Summary:

In 1945, the U.S and most of the industrialized world were figuring out their plans for full employment after the war. For most of these countries, local political culture and past practice had a big influence:

In the 1940s, most countries incorporated longstanding policy frameworks already familiar to their national audiences in their plans for full employment. The U.K’s program drew heavily on the Labour Party’s faith in economic planning, nationalization, and state direction of industry and the New Liberal thought of Keynes and Beveridge. Canada, Australia, and New Zealand moved in directions that revealed the strong influence of the British model. The French would emphasize dirigisme and the Germans tripartite negotiations; the Scandinavian model famously emphasized labor market policies.133 The United States, which had been a pioneer of direct job creation, putting millions of people to work in the depths of the Great Depression, turned away from its own recent history.

Why?

It was not for lack of full employment plans that saw a major role for DJC. The U.S was as mad for full employment planning as any western European country: books on full employment were New York Times best-sellers, magazines devoted special issues to the topic all the way from the “still-liberal” New Republic to Reader’s Digest. And contrary to how the debate has been described in the literature, if one looks at the broad spectrum of plans that were available to the reading public, many of them went beyond the boundaries of Keynesian economics in ways that left a significant role for direct job creation:

• The National Resources Planning Board (NRPB): tasked by FDR for drawing up blueprints for postwar America, the NRPB was the first mover on full employment, releasing its 1943 plan “Security, Work, and Relief”, which built on research by ex-WPA experts like Eveline Burns and Corrington Gill as well as relative newcomers like John Kenneth Galbraith, to propose a permanent system that combined Keynesian demand management, long-range economic development spending, and a comprehensive, “cradle-to-grave” system of social insurance and public assistance where a WPA-like system of direct job creation of three to four million workers annually would take center stage.
• Gardiner Means: a founding member of FDR’s “brains trust,” Gardiner Means was one of the leading institutional economsits in the United States. Building from his focus on how the structural consolidation of corporate power distorted the structure of prices and wages, Means sharply dissented from the emerging Keynesian orthodoxy. Rather, he argued that mandatory tripartite negotiations (resembling both the National Recovery Administration and European co-determination models) on wages, prices, and production levels, combined with monetary policy, could achieve full employment without the need for Keynesian deficit spending. While Means didn’t touch on direct job creation, his prominent place in debates over full employment in the mid-40s is a clear sign that the conversation went beyond Keynesianism.
• John H. G Pierson: an economist with the Bureau of Labor Statistics, John H.G Pierson is lesser known than most of the other figures today, but his writings were important enough that multiple planners engaged with them (if only to attempt to refute).  Like many Keynesians, Pierson argued that the Federal government should “give and stand back of a guarantee of aggregate consumer spending;” unlike many Keynesians, Pierson argued that that rather than just manipulating spending levels or interest rates, the Federal government should achieve this goal by sending “national income security payments” to all Americans, and shift towards a system of Federal “reversible sales tax[es]/bonus[es]”  to make doubly sure. At the same time, Pierson suggested that the Federal Works Agency (the successor to the Works Progress Administration and precursor to the General Services Administration) should establish a shelf of WPA-like projects to fill any remaining unemployment, should full consumption not result in full employment.
• Mordechai Ezekiel: the impressively-named Mordechai Ezekiel was one of the younger New Dealers, an agricultural economist by trade who went to work for the Agricultural Adjustment Administration and ended up as one of Henry Wallace’s chief advisors during his tenure as Commerce Secretary and Vice-President.  What makes Ezekiel’s full employment plan interesting is the way he combined Keynesian and non-Keynesian approaches: in addition to the usual approaches of counter-cyclical spending and taxation schemes, Ezekiel built his proposal around a public capital bank which would allow the government to direct investment into new industries, publicly-operated factories that had formerly been used to produce military goods converted into “yardstick” factories to combat monopolies in manufacturing, and (most importantly for my purposes) a direct job creation program of 5-6 million workers based on the evidence that the ““WPA, CCC, NYA…provide an exceedingly effective technique for expanding national production and income.” At least here, we see some space for DIC within Keynesian economic policy.
• Alvin Hansen: probably the most influential Keynesian of his time – called the “American Keynes” for his efforts to popularize Keynesian economists and his role in creating the IS/LM model that had synthesized Keynesian and neoclassical economics – Hansen was unique in his belief that the “utter undepability of private outlays” couldn’t be cured through ameliorative efforts aimed at aggregate demand. Instead, he argued that only public investments in public goods could achieve the necessary levels of aggregate demand while creating a “healthy, trained, educat[ed], and socially minded citizenry.” However, Hansen believed that “full employment must be achieved, not by the simple process of setting people directly to work, but by the far more complex process of ensuring an adequate volume of aggregate demand.”
• Leon Keyserling: the legislative amenuensis of the legendary Senator Robert Wagner of New York, Keyserling had helped to draft the National Industrial Recvoery Act, the Social Security Act, and the National Labor Relations Act. Given that it was Senator Wagner’s Committee which would draft the Full Employment Bill, Keyserling’s proposal, which proposed an “American Economic Committee” from the House, Senate, and the Executive, who would set an “American Economic Goal” and an “American Economic Policy” to reach it. This flag-draped policy machinery would, however, focus on getting labor and management to cooperate in maximizing production, with the government largely relegated to “marginal public expenditure” aimed at “stimulating private enterprise.”

So as we can see, the policy debate in 1945 was quite diverse. However, when the Full Employment Bill was being drafted in the Wagner Committee, the full range of opinions was not represented at the table. Instead, a fairly narrow range of experts from the Committee staff, guided by a White Paper Committee that brought together major figures like Alvin Hansen, Leon Keyserling, Gerhard Colm, and Fed chair Marriner Eccles, would design the bill. While the Wagner Committee left very little in the way of internal records, the White Paper Committee’s deliberations survived, and give us a much better perspective on what happened:

Two motives surface from the White Paper group for excising direct job creation from Full Employment. The first was political: they were afraid of arousing the then-nascent alliance between ideologically anti-statist Republicans and tactically anti-statist Dixiecrats. This was no idle possibility as it had transpired following the release of “Security, Work, and Relief” by the NRPB just a few years prior. At an August 11th, 1944 meeting of the White Paper Committee where Colm, Walter Salant, two other representatives of the OPA (Office of Price Administration), and two representatives of the Federal Reserve were present, a consensus emerged that “it would be unwise to put much emphasis on Government spending as such,” arguing that “in the public mind [it] also means spending on projects which are not absolutely urgent (boondoggling).”144 Opinion polls of the time tell us that this was not actually the case, but it was certainly a critique bandied about by the opposition and printed in the press. In contrast to the NRPB approach, Colm argued that “the emphasis for the first postwar period should be on business expansion…the second phase on the expansion of consumption.”145 While social Keynesian projects in “public health, housing, education, etc.” would be considered “on their own merits,” they would not be the center of “deficit spending.”146

In such a fashion, both direct job creation and social Keynesianism were stripped from the initial drafts of the bill, with the blessing of social Keynesians like Alvin Hansen. So consident were these experts in the ability of Executive Branch planners, once the Full Employment Bill gave them the necessary policymaking structures to do the necessary planning, that they considered the removal to not even be a real sacrifice, since they could always design the perfect plan later.

The result was that, even before the Full Employment Bill was introduced in the Wagner Committee in the Senate, it had already been sheered of the kind of immediate and tangible connection between individual workers and their “right to a job” that were the most popular in 1945. Republicans were able to hit Democrats on both sides, attacking them for being overly statist on the one hand and then arguing that the Employment Bill wasn’t actually giving anyone a job on the other. The appeal to Keynesian economic planning was too abstract and too vague to engage a public that was broadly, but vaguely, in support of full employment, let alone save the Employment Bill from being turned into a paper tiger in the House.

Inspiration:

As I’ve discussed before, one of the great things about archival research is that you never know quite what you’re going to find, or how it might change your perspective on events. For my part, I hadn’t known before I got into the Keyserling Papers at the Truman Library in Independence, Missouri that in 1944, the Pabst Blue Ribbon Beer Company had decided to honor its one hundredth anniversary by sponsoring an essay competition on full employment. The company put up the equivalent of $700,000 in today’s money for the best essays on how to plan for full employment after the war.

Leon Keyserling came in second to Herbert Stein, who would chair the Council of Economic Advisors under Richard Nixon, and knowing Mr. Keyserling the way I came to throughout writing this and later chapter, I’m certain that he resented not placing first. Mordechai Ezekiel also won a prize of $1,000. I’m less certain about his level of disappointment. But here in one document you can see how incredibly popular – and nebulous – full employment was in the mid-40s, that Pabst and the AFL and CIO could endorse the same goal for economic policy, or that future CEA chairmen of both Democrats and Republicans could propose competing visions of how to achieve it.

Research:

From a verty early stage of the project, I knew that I would have to write about the Employment Act of 1946, because it occupies such an important part of the literature. Stephen K. Bailey’s Congress Makes a Law (1950), rightfully considered a classic in policy studies, literally wrote the book on the Employment Act. In Bailey’s telling, the key story of Congressional policymaking is the decisions taken to which route laws take through the legislative chambers – the Employment Act passes through the Senate because it bore the imprimatur of the Wagner Committee, but fails in the House because leadership inattention assigns it to the House Committee on Expenditure in the Executive Department, chaired by an arch-Dixiecrat and dominated by conservatives, instead of to the House Committee on Banking and Currency chaired hy a New Deal Democrat and equally dominated by liberals.

Because I focused more on the text of the Employment Bill as it passed through the drafting stages within the Wagner Committee, and compared that text to the various proposals that were available at the time, I came away with an entirely different picture: the Full Employment Bill had already been stripped of its most substantive elements even before it got to the House, by the very liberals who claimed to be the bill’s most ardent champions. This in turn made other archival findings make more sense – why conservative Senator Robert Taft proposed amendments adding “a comprehensive program of public works and other expenditures” to the bill, why the Republican Minority Report simultaneously attacked the bill as big-spending statist liberalism and complained that it wasn’t actually providing the right to a job to anyone. The Republicans had succeeded in getting Democrats to gut their own bill in the hopes of achieving bipartisan support, and then attacked them for gutting it!

Relevance:

In some ways I think this chapter has more relevance for contemporary politics than any we’ve discussed before. For the past several decades, we have seen attempts by well-meaning people on the center-left to find a technocratic solution to partisan politics; that if we just found the right formula, the right combination fo subsidies and incentives, we could find a way to defuse Republican opposition to Keynesian stimulus or regulating the economy or expanding the welfare state. The reality is that there is no alternative to politics, that every attempt to co-opt the preferred solutions of our opponents merely produces new opposition and further rightward drift in policy.

Moreover, such policies are less politically secure. The more we hide social or economic policies behind subsidies and incentives, the harder we make it for voters to draw connections between voting behavior and policy outcomes (and vice versa). As Suzanne Mettler explores in her new book, The Government-Citizen Disconnect, the more direct and visible a program is, the more it motivates people to vote in its defense. FDR intuited this lesson when he insisted that Social Security be financed by payroll taxes; more recently, the George W. Bush administration made sure that voters would draw a line between their tax bill and the President by having the Treasury Department send out mail informing them about the tax cuts with the President’s face on it. By contrast, the provisions of the American Recovery and Reinvestment Act that were supposed to add money to people’s paychecks without them noticing (in the hopes that they would be more likely to spend rather than save it) may have served this purpose, but it did so at the expense of building a political coalition in support of further stimulus.

I think we’re already starting to see a shift along these lines. One part of the reason why we’re seeing a shift among Democrats towards Medicare-for-All is that Democrats have noticed that the subsidies and exchanges of the ACA are far less popular than the Medicaid expansion.

Nevertheless, the next time that Democrats take power, progressives will need to be ready for this debate with many of our own experts. The temptation will be there to put our trust in our own Administration, that with the right people framing the right regulations, we can make complicated programs work. But this time, we can’t put our trust in the “adults in the room,” because come the next election they might not be there. This time our policies have to be made as idiot-proof as possible.