In a recent NYT Magazine article on how best to head off the next financial crisis, David Leonhardt suggests that one critical flaw in the current reform proposals before Congress is that they are too nuanced and sophisticated. Leonhardt argues instead for simplicity. “Whatever their imperfections, simple rules,” he notes, “have the advantage of sending signals that can outlast a given administration or a given moment in the business cycle.” Leonhardt uses the sweeping ideas put forward by FDR as a classic example of this approach. “Roosevelt,” he observes, “guaranteed bank deposits, separated commercial banking from investment banking and banned misinformation about stocks.” These reforms, which were easy for both the public and the financial sector to understand, helped ensure the stability of the American banking and financial system for decades to come, and while Leonhardt argues that the restoration of the New Deal regulations (largely stripped away in the 1980s and 90s) will not be enough to deal with the current crisis, there is nevertheless something to be said for a return to a more straightforward approach. He then goes on to examine a number of ideas, such as more stringent capital requirements (similar to the standards set in Canada), a tax on banks and other provisions, which might make up the core of a new financial reform package.
Leonhardt’s observations make a great deal of sense. But the one element he perhaps overlooks concerns the overarching vision behind FDR’s reforms. For Roosevelt, fixing the economy was not enough, what he truly hoped to achieve was a more just and equitable society. When FDR said “the test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little,” he meant it. He spent a great deal of his time not only seeking the type economic reforms that might address the plight of those less fortunate among, but also in convincing the American people that they — and their government — had a responsibility to do so.
Leonhardt alludes to this when he speaks about “sending signals,” and when he discusses the danger in allowing highly leveraged financial firms “to become a dominant part of the economy.” This not only leads to the “too big to fail” phenomenon, but also draws in and wastes some of the best minds in the country, who instead of engaging in real work in the real economy, devote their time to what Leonhardt calls “devising ever-more complex means of creating money out of thin air.”
Leonhardt also reminds us that the boom that Wall Street enjoyed over the past three decades has not been shared by the rest of the American economy, and that real wage growth during this period for most workers “has been painfully slow.” It is his hope that re-regulation will help alleviate this problem by loosening Wall Street’s grip on the country’s financial and human resources, “so that they may be put to more productive use.”
A noble sentiment, to be sure, but given a ten percent unemployment rate and the deep frustration many Americans feel about the state of our country at present — driven in part by the ever increasing disparity between the super-wealthy and the rest of us — perhaps it is time for us to take a more Rooseveltian approach. Perhaps the real issue is not simply regulatory reform, but how best to create what FDR sought, a more just and equitable society where the benefits of capitalism are shared by all.
David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.