Yesterday, at the Springfield, Illinois banquet in honor of Abraham Lincoln’s 200th birthday, President Obama gave, what I think, was his most impressive speech since the famous Philadelphia “race” speech. Obama directly cast his neo-Progressive agenda as a modern version of Abraham Lincoln’s vision of a more robust Federal Union. Lincoln’s Union, Obama reminded us, included a Homestead Act, a transcontinental railroad, a Land Grand Act, and the re-emergence of a national currency (in addition to keeping the states together, of course). All of which made me think of how the moment we are in today fits within the larger currents of American history.
I’m an American historian by trade, and I regularly compare events in the past to those of today – mostly to help illuminate for students why people in the past were so energized by issues that we think today are irrelevant.
But there are rhythms to American history too, and taking the long view helps to illuminate both where we’ve gone and, perhaps, where we are going.
I’m not a strict adherent to historian Arthur Schlesinger’s Cycles of American History thesis, in which 30 or 40 year cycles determine the course of American history. There are too many cases where the cycle took FAR longer than 30-40 years to loop back around; on race relations, for example, it took about 90 years between the demise of Reconstruction and the Civil Rights movement for African Americans to regain the rights promised them after the Civil War.
But on matters of economic policy, the cycle – pendulum – thesis is more persuasive. The major qualifier, however, is that the periods between pendulum shifts is sometimes only about 10 years and other times as long as 50. The depth of the pendulum swing is often connected to the level of calamity necessary to swing the pendulum back.
Let’s start with the 1790s and the centralist tendencies of Treasury Secretary Alexander Hamilton.
What many people fail to realize is that the framers of the Constitution were more concerned about excessive decentralization than they were about monarchy. The Articles of Confederation period was characterized by political chaos and the inability of states to pay off their Revolutionary War debts. That a strong supporter of a central bank would emerge out of the first Administration is hardly surprising then. Hamilton believed that America should model its economy after England – a new industrial power financed by a central bank and dominated by an urban bourgeoisie. Though Thomas Jefferson would come to power in 1800 in opposition to this Hamiltonian ideal, he would do little to alter the capitalist framework. President Madison chartered a Second Bank of the United States in 1816, thus confirming the government’s support for industrial capitalism.
But then America learned about the perils of the business cycle. In 1819 the expanding post-War of 1812 economy came to a standstill and people were thrown out of work. What happened? How could all of this wealth disappear? As a result, a new economic vision emerged that fundamentally rejected the government’s role in financing and subsidizing industrial capitalism. Under President Andrew Jackson, this new rural-driven movement would instead encourage physical expansion in the West and not industrial expansion as favored by the opposing Whig Party. This Jacksonian vision dominated until the Civil War, when proponents of the old Whig view of government support for capitalism emerged within the new Republican Party.
Here is where Obama’s Lincoln emerged, ready to harness the Federal government’s power to encourage railroad growth, new universities, industry (including in the post-war South), and a national currency (though not a central banking system). Despite some significant hiccups, including the Depression of 1873, revulsion against railroad corruption, rural unrest and indebtedness, labor upheaval and Depression in 1893, the “big business” Republican wing dominated America’s economy from the end of the Civil War until 1900.
Then a new vision emerged to challenge the laissez-faire approach: Progressivism. Theodore Roosevelt and Woodrow Wilson responded to the excesses of the Gilded Age with a radically expanded Federal government that controlled food and drugs, regulated child labor, created a progressive income tax and estate tax, and busted monopolies. It eventually created a new central bank – the Federal Reserve – to take control of the currency away from the bankers. The Progressive Era made mobilization for World War One possible and resulted in a host of social and political reforms.
But the 1920s would witness a backlash against this governmental interference. Calvin Coolidge believed that the business of America was business, and when Depression broke out in 1929, Herbert Hoover encouraged the same spirit of voluntarism that delivered foodstuffs to the starving people of France in World War One.
By 1933, however, the new laissez-faire approach had been repudiated in the minds of most Americans and FDR reignited the power the Federal government. He created Social Security, regulated the banks, employed millions with government jobs, set up TVA, and legalized unions. Again, all of this made mobilization for World War Two possible.
Interestingly, the New Deal, though diminished after WWII, continued to define American economic life for decades. We had become a nation of welfare capitalism. This would continue, again with marginal hiccups, until the late 1970s.
And then it, too, came crashing down. The regulatory apparatus had become ossified, the tax structure stifling for investment, inflation spiraled out of control, and the financial system proved unable to compete in a new global market. Into the breach entered Ronald Reagan, who declared that government is the problem, not the solution. And so the pendulum shifted to the right: deregulation of many industries (including finance), reduced taxes on the investor class, free trade, and reduced domestic spending on urban affairs. After Fed Chairman Paul Volcker successfully defeated inflation, the new Chairman Alan Greenspan drove interest rates as low as possible and encouraged all new manners of leveraged growth. For nearly 20 years, between 1982 and 2001, the economy grew. New technologies and markets after the fall of Communism fueled gains in productivity. A consensus had formed around “small government” as even Bill Clinton declared the “ear of big government is over.”
The pendulum began to swing back in 2001 with the collapse of the dot com bubble. A spate of financial scandals in 2002 further soured the public on the Reaganite vision. But the low interest rates of Chairman Greenspan and the tax cuts of President Bush reinflated the bubble – this time in real estate and construction – and the voices of opposition were put on hold…for a while.
Finally we get to 2007 and the collapse of the subprime market. What so many Americans failed to realize was that the subprime mortgage market was tied to the global financial system so intricately that the collapse of one segment would lead to the collapse of the whole system. The crash came in September 2008 with the Fall of the House of Lehman. Suddenly, the whole financial system that we knew of no longer worked. Banks that we thought were safe turned out to be little more than Ponzi schemes built on toxic assets. The entire bond market was fraudulently inflated, thanks to corrupt rating companies and shady derivative instruments offered by insurers like AIG.
Most importantly, the public lost faith in the virtues of the free and unfettered market. Neo-progressives, like their turn-of-the-century predecessors, viewed the Federal government as the only institution capable of righting the ship. Despite the pleas of old-school Reaganites, the new Obama school of Progressivism convinced the American center that it was time to reignite the power of the Federal government to address the problems long neglected by the free market.
When looked at over the long view, it seems clear that the pendulum has shifted back to the left. After nearly 30 years of deregulation and small government conservatism, the American political and economic system has moved markedly toward a new Progressive Era. As in the days of Reagan’s tax cut of 1981, defenders of the old order will not go silently into the night. In 1984 the Democratic Party still extolled the virtues of the Great Society and Walter Mondale proudly called for tax increases. It would not be until 1992 that the Democratic Party even figured out to appropriate the conservative language. The conservative age, which began in 1980, ended in 2008. President Obama now openly refers to Reaganite conservatism as the “failed theories of the past,” as if it is already conventional wisdom. Instead of co-opting conservatism, as Clinton did, Obama repudiates it.
Moreover, Obama, like Reagan, has the charismatic appeal to sell the new Progressivism to those formerly in the center.
The lesson here is this: don’t expect adherents of Reaganite conservatism to go quietly into the night. But don’t mistake that recalcitrant opposition in the GOP for real public rejection of Obama’s Progressivism. The polls are a useful rejoinder to the media circus always betting on a controversy. Just as the press jumped on Reagan for all his mistakes in the early 1980s – and there were plenty – the media will evaluate each minor error as if it were indicative of something far more serious. But in the early 1980s, especially after the 1982 recession passed, the public had come to embrace the core vision of Ronald Reagan. I suspect the same will be true for Barack Obama.