The four-month Presidential transition from Hoover to FDR illustrates the perils of a government changeover during a time of economic crisis. There is much we can learn from it today; doubtless, Senator Obama's transition team has been studying it already.
The Presidential interregnum from November 8, 1932 until March 4, 1933 was quite possibly the most dangerous period in modern American history. During this period of essentially leaderless government, the U.S. economy ground to a halt, so many banks failed that most states enacted ‘bank holidays,' and millions of workers were left unemployed and hopeless. This was the last extended Presidential transition before the enactment of the Twentieth Amendment shortening the transition time.
In the winter of 1932-1933, private relief organizations, dependent on private largesse, were collapsing under the weight of increased demand. Likewise, today with so many Americans facing hardships in 2008-2009, charitable organizations now find themselves financially strapped and unable to fill the relief gaps created by government budget cuts at all levels During the Depression, self-help and barter cooperatives were set up to provide some means of support for those in need. We may have to revisit such temporary, ‘stop-gap' solutions.
In many cities during 1932-1933, municipal workers went without pay as many cities approached bankruptcy. Today, Vallejo, California has already declared bankruptcy, and many other local governments are teetering on the brink. A local and state government financial crisis is looming, and some communities may only to survive this winter with diminished essential services.
The 1932-1933 crisis saw the rise of both right-wing and left-wing movements – and demagogues, as well as farmer demonstrations to stop foreclosures, extensive labor unrest, and the growth of Hoovervilles. If, today, unemployment levels mushroom and home foreclosures continue to increase, we may see parallels: movement to both right and left of the political spectrum, anti-foreclosure demonstrations, labor turbulence, and a dramatic growth in homelessness. Already, most homeless shelters and food shelves are strained beyond capacity.
To make matters worse, President Hoover attempted to restrict as much as possible the policy options of the incoming FDR Administration. Herbert Hoover, like his successor 75 years later, thought that the economy was "fundamentally sound," and that the crisis was one of simple investor confidence, not of structural economic deficiencies. During the 1932-1933 interregnum, he sought by various stratagems to force FDR's acquiescence to the following policy guidelines: 1) no tampering or inflation of the currency; 2) a balanced Federal budget, even if higher taxes were required; and 3) maintenance of government credit by restrictions on Federal borrowing. FDR steadfastly refused to sign up for what was perceived as an endorsement of Hoover's failed policies.
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By narrowing the choices, the lame-duck Bush Administration has already forced both candidates to accept its prescription of a financial bailout. During the transition period, Bush and his advisers may attempt to further restrict what policy options remain open to a possible Obama Administration.
Hoover also insisted on linking economic recovery to international issues like repayment of allied war debts. In 2008-2009, it is undeniable that there is a global dimension to the economic crisis, but, as in 1932-1933, there is very little that the U.S. government can do directly about the situation. We should remain vigilant regarding the political repercussions of the economic downturn, especially in critical countries like Russia and China that are deeply affected by the crisis. (It must be remembered that Hitler became German Chancellor on January 30, 1933, when Germany was suffering both from the worldwide depression and from hyper-inflation.)
A lame-duck session of Congress convened between December 5, 1932 and March 4, 1933, but accomplished very little. The Democrats had a small majority in the House and depended on several Republican Progressive votes for a majority in the Senate. Today the situation is similar: the Democrats have the narrowest of majorities in the Senate, with Sen. Lieberman – McCain's steadfast supporter – representing the swing vote. In the Hoover lame-duck session, there were several declaratory moves to balance the budget, legalize beer, and provide farm relief. As President-elect, FDR played a balancing act by seeking to placate conservative Democratic leaders in Congress, along with activist Progressives. No one was quite sure what the New Deal entailed when he was inaugurated on March 4th. If elected, Obama will hopefully refuse to bend to pressures from the Bush Administration and will remain purposely vague about the details of his economic recovery program.
Unemployment is rising today, and, by next January 20th, programs to get people back to work could well be the highest priority of the incoming Administration. Development of a ‘green jobs' initiative might find a favorable political environment. But programs of immediate, direct assistance, perhaps modeled on the New Deal's Works Progress Administration, might also gain political traction. One of the last remaining pillars of the Reagan "consensus" is the refusal to countenance direct Federal relief programs. Swelling unemployment rolls, coming on the heels of the 2008 financial crisis, may well overwhelm any residual resistance.
Obviously, history can only serve as a guide, not a prescription, to the policymaker. But the 1932-1933 transition does offer political lessons that may be useful as a new Administration takes over in 2009.