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| Author: | Amity Shlaes, Senior Fellow for Economic History |
|---|
May 8, 2009
Forbes Online
Everyone tries to identify that moment in a downturn when recovery starts. It may be that our recovery started in mid-April, when Jamie Dimon of JPMorgan Chase renounced further government aid for his company. Dimon called the $25 billion in aid his firm had accepted early on "a scarlet letter." Or recovery may have started even earlier, when Rick Santelli of CNBC accused the government of picking "losers" and forcing the rest to fund those choices.
What makes such moments significant is that Dimon and Santelli didn't merely think their protests; they spoke them aloud. Once a few people start speaking the truth publicly, the rest who agree soon begin acknowledging it. The government realizes it has pushed too far. The market notices the government's shift.
Back in the 1930s another character on the national stage spoke out--not just once but for years. His alarms did indeed help turn the economy around. That man was Wendell Willkie.
Willkie didn't set out in life to make it as Franklin Delano Roose-velt's gadfly. He set out to make it, period. In the 1920s, when Willkie was a young lawyer in Indiana and Ohio, the up-and-coming industry was utilities. In New York innovators such as Alfred Lee Loomis and Landon Thorne were trying to update and clean up the industry and supply power to rural America. Dow Jones was creating a utilities index. Willkie joined a new company, Commonwealth & Southern, and became its president. C&S' ambitious goal: to light up the South.
When the stock market crashed in 1929, President Herbert Hoover was quick to blame Wall Street. His successor, FDR, ratcheted up the hostility further, referring to Wall Streeters as "economic royalists" and denigrating the utilities industry specifically. Hoover had raised taxes, but FDR raised them yet again, targeting business directly with creepy levies such as the undistributed profits tax. Shortly after his inauguration in 1933, Roosevelt established a direct competitor to C&S: the Tennessee Valley Authority. The TVA's premise was radical--reorganize the U.S. economy around river basins, generating hydropower through the public sector. C&S' assigned interlocutor at the TVA was David Lilienthal, a lawyer, like Willkie, from Indiana.
Willkie and Lilienthal met over a dark wood table at Washington's Cosmos Club. Willkie wanted a deal and thought he could get one out of the younger Hoosier. If Lilienthal and he agreed to trade power, Willkie would buy his company time. The TVA wouldn't last forever, Willkie's thinking went; it was too ambitious and expensive. Lilienthal had to be reasonable--after all, the next Congress could refuse to fund him. In public Willkie would be as conciliatory as possible. Most executives in the U.S. adopted a similarly friendly posture toward the New Deal, the attitude being to give the new Administration time.
But as years passed Willkie realized his cooperative stance was costing C&S' shareholders. Lilienthal used tax advantages and subsidies ruthlessly to achieve his boss' grand goal: to expand public-sector utilities. C&S lost in court against the TVA, then won, then lost again. Meanwhile, the TVA expanded in the Tennessee Valley. FDR signed legislation so restrictive to the private sector that a clause within it was referred to as the "death sentence." The utilities industry, which should have been a growth leader, paid a terrible price for Washington's attacks. Between early 1932 and early 1936 the DJIA rose 88%--the Roosevelt Rally. Utility stocks barely budged during the same time frame.
Obama-Intensity Adoration
In a radio debate in January 1938, five years into the New Deal, Willkie found his Dimon moment. Roosevelt's casual epithets of "economic royalists" and "banker control" had actually chilled investment, Willkie said. The New Dealers' high capital gains and undistributed profits taxes were retarding American firms' recovery. The government was making the Depression worse by getting in the way. "For several years now," Willkie warned, "we have been listening to a bedtime story, telling us that the men who hold office in Washington are, by their very positions, endowed with a special virtue."
Hearing Willkie, the country snapped awake. Perhaps the New Deal had all been "a bedtime story." Maybe citizens should have spoken out in 1933, not 1938? The Saturday Evening Post dubbed Willkie "The Man Who Talked Back." Other businessmen from other companies and industries soon publicized their own concerns.
Citizens began to see the rumpled utilities executive as a potential GOP candidate. In 1936 Roosevelt had won his record landslide, but in the 1938 midterm election the GOP reclaimed some House and Senate seats--not enough to form a majority, but enough to place a thoughtful question mark over Democratic certitude. The market rallied. Journalists developed an Obama-intensity crush on Willkie that lasted for years. The most egregious of their tributes was an epic poem by Muriel Rukeyser, embarrassing both in its length (330 pp.) and bathos: "Wounded he lay. And for good reason. His wounds our wounds."
When Willkie finally ran for President in 1940, he did not win, but he did aggregate enough support to deal a blow to Democratic radicalism. Roosevelt was not over, but the New Deal was. The point is not that those who talk back are perfect. The canny Dimon probably isn't. Willkie sure wasn't. The takeaway is that daring to talk back is worthwhile--especially when you do it early.
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