Professor/Lecturer Ellmann's Course Materials Page

new New Deal
economic thought
MBA/MA - Anglo-American University International Finance
ERASMUS - International Finance
MBA - Money and Financial Markets
ERASMUS Money & Banking
M.A. Public Policy Economic Sociology
On the Origin of Facts

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America Needs
A New New Deal

The Bush administration has proposed the most expensive government
spending plan in American history, allocating as much as $700 billion
to a Wall Street bailout. The proposal was attacked by members of both
parties, who immediately began negotiations to find an alternative.
The Bush plan was not only a political blunder; it was also a complete
repudiation of the administration's own economic policies. It could
not be justified by any of the core beliefs governing free enterprise
and the free market.

As with the decision to invade Iraq, the administration sought to
commit the federal government to massive spending without a clear exit
strategy. Most important, it drew upon the New Deal's legacy of
government intervention in the marketplace - without any of the New
Deal's fundamental concern for the well-being of ordinary Americans.

This year happens to be the 75th anniversary of the New Deal, a
revolution in governmental philosophy that began with the Emergency
Banking Act of 1933. That first piece of New Deal legislation was a
hurried response to the worst banking crisis in U.S. history - until

President Franklin Delano Roosevelt outlined the problem clearly in
his first fireside chat, a week after taking office. "We had a bad
banking situation," Roosevelt said. "Some of our bankers had shown
themselves either incompetent or dishonest in the handling of people's
funds. They had used the money entrusted to them in speculations and
unwise loans . . . It was the government's job to straighten out this
situation and do it as quickly as possible."

President Roosevelt's banking plan ended the panic. But it did much
more than that. In Roosevelt's words, it "reorganized, simplified, and
made more fair and just our monetary system."

Compare those aims and that achievement with what the Bush
administration proposed. Having championed the free market, small
government and deregulation for years, the administration asked
taxpayers to assume the costs of Wall Street's poor investments -
while allowing Wall Street to hold on to the good ones.

The size and scale of the Bush administration's proposal are
mind-boggling. During the New Deal, the Roosevelt administration spent
about $250 billion (in today's dollars) on public-works projects,
building about 8,000 parks, 40,000 public buildings, 72,000 schools
and 80,000 bridges. The entire cost of all the New Deal programs (in
today's dollars) was about $500 billion. The secretary of the Treasury
now wants to spend perhaps twice that amount, simply to prevent a
financial collapse.

Of course, something must be done - and quickly. "Government
intervention is not only warranted," President George W. Bush said
last week. "It is essential." With those nine words, he contradicted
the governing philosophy of the Republican Party for the past 30

According to President Roosevelt, the New Deal had three fundamental
aims: relief, reform and reconstruction. On Wednesday night, President
Bush described his far more expensive but far less inclusive spending
plan as merely a "rescue effort." Mr. Bush's proposal - to hand over
$700 billion to Wall Street banks without any Congressional oversight,
without any means to prevent conflicts of interest, or without any
measures to help ordinary Americans - was disgraceful.

What we really need is a new New Deal: a systematic approach to the
financial and economic problems of the U.S.

Firstly, we need relief for ordinary Americans. At the moment, four
million households are behind on their mortgage payments and facing
foreclosure. Some estimates suggest that an additional two million may
face eviction next year.

On Wednesday in this newspaper, Sen. Hillary Clinton called for a
revival of the Home Owner's Loan Corporation (HOLC). Organized in the
early months of the New Deal, the HOLC avoided widespread foreclosures
by purchasing troubled mortgages from banks and then reissuing them
with more favorable terms. It proved a tremendous success - for
homeowners, taxpayers and banks.

A new HOLC should be created immediately, and with the power to keep
people in their homes.

As winter approaches, millions of families will need help keeping
those homes warm. During the past year, the cost of heating oil has
increased about 30%. Meanwhile, the Bush administration is now trying
to cut funding for the Low Income Energy Assistance Program. Instead
of cutting, the federal government should more than double the current
budget of $2.6 billion. That is awfully small change on Wall Street
these days.

Second, we need reform. In recent years, one federal regulatory agency
after another has been handed over to the industries they were created
to regulate. It should come as no surprise that during the Bush
administration the U. S. has witnessed the largest recall of
contaminated beef in its history, thousands of deaths from unsafe
prescription drugs, and one of our worst financial meltdowns.

Advocates of the free market must confront the fact that both the
Great Depression and the current financial chaos were preceded by
years of laissez-faire economic policies. Strictly enforced
regulations not only protect consumers, they protect companies that
behave ethically from those that don't. The sale of tainted baby food
in China demonstrates, once again, that when industries are allowed to
police themselves, there's absolutely no limit on what they'll do for

Third, we need reconstruction, not only of America's physical
infrastructure, but also of its society. Today close to 50 million
Americans lack health insurance. About 40% of the nation's adult
population is facing medical debts, or having difficulty paying
medical bills. A universal health-care system would help American
families, while cutting the nation's long-term health-care costs. And
a large-scale federal investment in renewable energy and public-works
projects would build the foundation for a strong 21st century economy.

Contrary to the myth of the free market, direct government
intervention has played a central role throughout American economic
history, subsidizing the growth of the railroad, automobile, aerospace
and computer industries, among others. It will take well-planned
government investment to break our dependence on foreign oil and
create millions of new Green jobs.

The events of the past month have proven, beyond any doubt, that the
federal government must actively address America's great social and
economic problems. That necessity was recognized by Franklin Delano
Roosevelt during the 1930s - and by his cousin, President Theodore
Roosevelt, a generation earlier.

The opposing view, promoted by President Bush until recently, is now
as bankrupt as one of our leading investment banks. A Wall Street
bailout plan that relies upon the mechanisms of the New Deal, while
betraying its underlying spirit, should be rejected. Federal relief
should not be aimed at the top and somehow expected to trickle-down.

A new New Deal wouldn't require another alphabet soup of federal
agencies, micromanaging every aspect of the economy. It would simply
ensure that federal spending is driven by the needs of every American.
Anything less than this - any proposal that rewards those who created
the problem and penalizes those who can least afford it - is a raw

Ms. vanden Heuvel is editor of the Nation. Mr. Schlosser is author of
"Fast Food Nation" (Harper Perennial, 2002).

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