Obama Roosevelt and the new old deal to save American economy

Is President Obama's American Recovery and Reinvestment Act a new "New Deal" for the USA, asks E&T?

In his 1933 inaugural address, Franklin Roosevelt said: "This nation asks for action, and action now. Our greatest primary task is to put people to work. It can be accomplished in part by direct recruiting by the government itself, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganise the use of our natural resources."

Nearly 80 years later, Barack Obama used his first speech as President to say: "The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place and wield technology's wonders. We will harness the Sun and the winds and the soil to fuel our cars and run our factories."

Two Presidents, one vision: to sweep away economic woes; to harness the skills and energy of America; and to rebuild the country's infrastructure. In short, to get busy. In his hectic first 100 days in office, FDR reopened failing banks, took America off the gold standard and created government programmes that became the foundation of his New Deal. The Public Works Administration would provide jobs for millions and set the scene for Works Progress Administration (WPA) building projects that lasted through the 1930s.

President Obama's first three months were almost as frenzied. He announced plans to close the Guantanamo Bay prison, bailed out the insurance and car industries, set in motion healthcare reform and shepherded the $790bn stimulus bill - more accurately, the American Recovery and Reinvestment Act 2009 (ARRA) - through Congress.

As you might expect, there has been no shortage of people to draw comparisons between the two leaders, from the Washington Post musing over 'Obama's FDR moment' to a Time magazine cover that Photoshops Obama into a classic FDR image. The Brookings Institution calls ARRA the "largest and most comprehensive economic recovery package since the New Deal" and even the President himself admits to occasionally looking over his shoulder. "I would put these first four months up against any prior administration since FDR," he said at a recent fund-raising event.

One official making the link explicit is Federal Communications Commission acting chairman Michael Copps, whose agency will watch over the $7.2bn of stimulus money allocated to rolling out broadband Internet access nationwide. "If things go well," he says, "we may be launched on an era of reform to match what the Progressives and New Dealers of the last century gave us. What a shining, beckoning opportunity we have."

Obama's deal

The shining cash will be spent on grants and loans to upgrade America's digital infrastructure, developing fibre-optic systems, pushing cable and wireless networks further from their urban cores and exploring new technologies, such as broadband over power lines. In Obama's plan to extend Internet access to every citizen, Copps sees a direct parallel with the New Deal's electrification programme. In 1930, only one in ten rural homes had electric power. Just ten years later, only one in ten homes was without it.

"Just as rural electrification created a new group of home appliance consumers," says Copps, "so will a broadband-connected rural America want Internet-enabled phones, smart meters, telehealth, distance learning, video relay services, online music, streaming movies, interactive gaming, and a host of other broadband-related products and services. Simply put, broadband build-out to rural Americans promotes and encourages sustained economic development."

The agency that will manage much of the spending, the Rural Utilities Service, is the direct descendant of the Rural Electrification Administration created under Roosevelt. Another body that spans the decades between FDR and BHO (Barack Hussein Obama) is the US Army Corps of Engineers. Founded in the Revolutionary Era, the Corps is responsible for the vast majority of America's water infrastructure, including the New Deal's massive Bonneville, Grand Coulee and Fort Peck hydroelectric dams.

The agency received $4.6bn of Recovery Act money, which, it estimates, will create or maintain around 57,400 construction industry jobs and an additional 64,000 indirect positions, spread over hundreds of projects.

"We intend to quickly put these dollars into action to get our fellow citizens to work on Corps projects throughout the nation," says Major General Merdith Temple, deputy commanding general for Corps's Civil and Emergency Operations. "At the same time, we will use these funds to build long-term value for the nation in its water resources projects with these funds."

As important as the billions of dollars and thousands of jobs is a feeling of national purpose, according to Christina Romer, the chair of the White House's Council of Economic Advisers, charged with offering the President objective economic advice. "Signature programs, such as the WPA that directly hired millions of workers, no doubt contributed to a sense of progress and control," says Romer. "In this way, Roosevelt's actions may have been more beneficial than the usual estimates of fiscal policy suggest. If the actions President Obama is taking in the current downturn can generate the same kind of confidence effects, they may also be more effective than estimates based on conventional multipliers would lead one to believe."

But when it comes to engineering and infrastructure, not everyone thinks that Obama's stimulus package bears comparison with Roosevelt's New Deal. "I just don't see it," says Wayne Klotz, president of the American Society of Civil Engineers (ASCE). "The WPA went into it knowing it was a multi-year programme. They built libraries, they built schools, they built big dams. They built things that took four or five years from the time they were conceived to the time they came online. That was never the intent of Recovery Act."

The stimulus bill

The stimulus bill specifies that every last penny of the $790bn must be spent by the end of September next year. That's great for getting people back to work quickly, says Klotz, but it limits the size and scale of projects that can be funded. "The bill was written so as to select 'shovel-ready' projects that were ready to go. It did not create a place where you could draft new projects that would take several months to design and several more to get approved and then several more to get environmental clearance. So a huge percentage of the stimulus dollars right now is being spent on deferred maintenance."

This is no bad thing, according to the ASCE, which estimates that essential infrastructure in the US is being underfunded by $220bn annually. "If you don't maintain what you have, then the cost of bringing it up to speed through replacement brings the cost up by a factor and not by a percentage," says Klotz. "These are basic necessities that need to be looked after. We built our interstate highway system in the 1950s and early 1960s, and we've got water pipes in many cities that are 100 years old. They have lived a long and useful life and yet, with greater urbanisation and densities, we're putting more and more demands on systems that were designed for people with very different usage patterns."

The ASCE recently gave the USA's civil infrastructure an overall rating of D (poor) and put a price-tag on raising it to a C (mediocre) at a staggering $2.2tr over the next five years. Leaks in water pipes waste seven billion gallons of potable water every day, more than a quarter of the country's bridges are structurally unsound or obsolete, and for every hazardous dam that is repaired two more are declared deficient.

In that context, says Klotz, "the stimulus money is a good first step towards addressing infrastructure inadequacies. However, we believe it is exactly that: a first step, a stop gap. It is not a sustainable way to improve infrastructure". Talking of sustainability, Klotz has only kind words for ARRA's environmental aspirations. "When Congress gave money to the Environmental Protection Agency (EPA) on the water and wastewater side, they allocated money to green projects for green infrastructure. We're going to use stimulus money to try new things. I'm encouraged by that kind of initiative, even though the number of dollars allocated was significantly less than for transportation."

"We must ensure a focus on the basic principles of pollution prevention and sustainability," says EPA administrator Lisa Jackson. "We can build infrastructure that minimises the environmental footprint we leave for future generations and leverage these investments to maximise environmental progress." Under the EPA's Clean Water initiative, a fifth of all funding must be spent on green infrastructure, promoting water and energy efficiency, low impact development and water harvesting and reuse.

One of the most popular programmes in FDR's New Deal was the Civilian Conservation Corps, an army of millions of unemployed Americans that planted billions of trees, built fish hatcheries and fought soil erosion in the Dust Bowl. Obama's 21st century spin on this is to fund clean and renewable energy to the tune of $80bn, including funding to develop a smart grid, improve battery technology and increase energy efficiency in federal buildings.

Greenpeace USA welcomed what its Global Warming campaign director, Steven Biel, calls "a substantial down payment on America's new energy future", but gave E&T a stern "no comment" when asked for an opinion on ARRA's largest single line item: a $27.5bn allocation for road and bridge construction projects.

Carbon footprint

A report that the organisation commissioned on the carbon footprint of the Recovery Act was largely positive, finding that the bill's energy efficiency and conservation provisions could cut carbon dioxide emissions by over 61 million tonnes each year, even as its road-building plans added three million tonnes annually in construction and extra vehicle emissions.

The ultimate question is whether stimulus spending works. In the 1930s, unemployment started to edge down once the New Deal kicked in, from a high of 25 per cent in 1933 to a low of around 10 per cent by the start of World War Two. In 1935, Roosevelt shuffled his economic cards and announced a second New Deal, where he unveiled Social Security legislation and formed the powerful Works Progress Administration.

Will Obama do something similar? In a recent meeting with Republicans, the President is reported as saying: "FDR's initial steps did actually work. Then he pulled back towards a balanced budget and what you had was a recession within a depression. Then World War Two came along and was the biggest stimulus plan ever."

If his choice is between a budget-busting deficit, a recession within a depression or another world war, Obama will surely be hoping that sometimes history does not repeat itself.

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