Monday, June 11, 2012

The Sick Chicken

After Franklin Roosevelt took office in early 1933, he launched numerous programs during his first hundred days in office. These programs - the first wave of the "New Deal" - affected many different aspects of daily life for ordinary citizens, and involved massive increases both in the amount of control which the government exerted over people and in the amount of debt which the federal government was creating. One of the largest of these programs was the National Recovery Administration (NRA), created by the National Industrial Recovery Act (NIRA).

FDR did so much so quickly that it took the public a while to sort out exactly what had happened during those first hundred days (the phrase 'first hundred days' is routinely used in many history textbooks to define the launch of New Deal programs). In fairness, President Roosevelt is not alone to blame for the misery created by the New Deal - he had a willing Congress. The legislation which passed both the House of Representatives and the Senate, the legislation which began the New Deal, would eventually be understood as having prolonged and intensified the Great Depression.

That was certainly not FDR's goal. The purpose of the New Deal was to help America during a severe economic downturn. Yet history so often reminds us about the law of unintended consequences. New Deal programs made things worse, not better. In addition to their harmful economic effects, they also impinged on personal freedoms. As these programs unfolded and developed in the months following "the first hundred days," ordinary people began to feel the tightening grip of many federal regulations on various aspects of their lives - like buying chicken in a grocery store.

Chicken was the topic of a major lawsuit which found its way to the Supreme Court, and which offered a defense of individual liberty in the face of Roosevelt's New Deal regulations. Historian Robert Murphy writes:

Perhaps the most outrageous injustice occurred in the Schechter case, which was appealed to the Supreme Court and led (in 1935) to the overturning of the original National Industrial Recovery Act as unconstitutional. The Schechter brothers were chicken butchers in Brooklyn, and were subject to the NRA's Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and about the City of New York.

Historian Amity Shlaes describes the Byzantine maze of NRA regulations governing poultry operations. Even the most compliant butcher would find it difficult to understand, much less conform to, the endless pages of fine print:

Section 2 of article 7 declared that it was prohibited "knowingly to purchase or sell for human consumption culls or other produce that is unfit for that purpose" ... The code prohibited "straight killing," defined it as "killing on the basis of official grade." The rule meant that customers might select a coop or a half coop of chickens for purchase, but they did not "have the right to make any selection of particular birds."

The Schechter brothers were prosecuted for failure to comply with the NRA rules, but the trial quickly settled on the question of whether the NRA rules were constitutional. Robert Murphy describes the facts of the case:

The Schechters were accused (among other code violations) of selling unfit chickens. However, the evidence against them "in the end, was based on the selection of ten chickens, which was then reduced to three suspect chickens, which, upon autopsy by the health authorities, turned out to include only one unhealthy chicken. It was an 'eggbound' chicken [meaning that] eggs, upon its slaughter, were discovered to have lodged inside it, something that would have been hard for the Schechters to detect before sale." This was the only "crime" that related to anything that would strike the average person as actually criminal. Nonetheless, the Schechter brothers were found guilty of violating the NRA code, and fined $7,425 - the equivalent of more than $100,000 at today's prices. One of the brothers received three months in jail, while his other brothers received lighter sentences.

As evidence was presented, and as the Supreme Court justices asked questions, it became difficult for those in the courtroom not to giggle, as "the absurdity of NRA became evident." Justice James Clark McReynolds asked questions to clarify the butcher's terminology of "straight killing" and how the selection of chickens for slaughter and sale was conducted:

McReynolds wanted to probe the meaning of straight killing, and he started with the chickens. "How many are there in a coop?" There were thirty to forty, according to the size of the coops. "Then when the commission man delivers them to the slaughterhouse, they are in coops?" They were in coops. "And if he undertakes to sell them, he must have straight killing?" He must have straight killing, yes. As [Schechter lawyer Joseph] Heller put it: "His customer is not permitted to select the ones he wants. He must put his hand in the coop when he buys from the slaughterhouse and take the first chicken that comes to hand. He has to take that." At this point there was laughter in the court. Then Justice McReynolds asked: "Irrespective of the quality of the chicken?" Irrespective of the quality of the chicken, Heller replied. Later on, Justice Sutherland asked, "Well suppose however that all the chickens have gone over to one end of the coop?" (More laughter.)

It became laughably clear that the NRA was an irrational compilation of rules and regulations attempting to manage specialized industrial processes about which the regulators knew nothing; it became clear that the NRA was an unconstitutional violation of individual liberty; and it became clear that the NRA was harming, not hurting, the economy's attempt to return to normal levels.

When the Supreme Court struck down the NIRA, it would seem a defeat for Roosevelt and his New Deal, and it would seem a victory for personal freedom. However, Roosevelt had another maneuver: his famous attempt at "court packing," although a tactical loss, would prove a strategic victory. When he moved to increase the total number of judges on the Supreme Court, which would allow him to "pack" the bench with judges favorable to his programs, he was again overruled, and the "court packing" plan found to be unconstitutional. But Roosevelt had shown that he would not stop, he would not give up, and he would continue to look for ways to exceed the limits placed on government by the constitution. Robert Murphy continues:

Although the Supreme Court would overturn the absurdity of the NRA, they were not nearly so bold after FDR's attempt to pack the Court with more justices who would see the wisdom of the New Deal. Rather than risk their (waning) sphere of power against the charismatic Roosevelt in an open confrontation, the Supreme Court became more compliant with the New Deal. Roosevelt, for his part, dropped his plan to pack the Court once it stopped throwing out his legislative victories.

Roosevelt's steady efforts at undermining the concept of "limited government" had long-lasting effects: for decades, the notion of what a government could properly regulate, and how a government could invade the personal lives of citizens with its rule, was expanded. Historian John Steele Gordon writes:

The Schechter case and others overturning major aspects of the New Deal led Roosevelt to attempt to "pack" the court with new justices more favorable to his programs. He failed, but in the "switch in time that saved nine," the court began to move to a more expansive view of federal-government power, especially with regard to delegation of powers and interstate commerce. Only in the 1990s did the court once more begin to narrow these powers.

As years went by, Roosevelt continued to bully the judiciary into allowed his New Deal programs. Eventually, as he appointed his own judges, the judicial branch went from allowing New Deal programs to actively fostering government intervention in the private sector. The Supreme Court went from striking down the NRA in 1935 to upholding a similar program in 1942. Historian Mark Levin writes:

The Constitution's interstate commerce clause had as its purpose the promotion of commerce and trade among the states. However, in 1942 the Supreme Court ruled in Wickard v. Filburn that a farmer growing wheat on his own land and for his own use was still subject to federal production limits, even though none of his wheat ever left the state, the Court "reasoned" that by withholding his wheat from commerce, the farmer was affecting interstate commerce, even though there was no commerce, let alone interstate commerce. This meant that private economic activity conducted for the sole purpose of self-consumption and occurring wholly within a state’s borders would now be subject to federal regulatory authority under the Agricultural Adjustment Act. Wickard swept away 150 years of constitutional jurisprudence, decentralized governmental authority, and private property rights protection.

FDR had successfully manipulated and reshaped the judicial branch so that it would conform to his notion that the government should be able to intervene and regulate almost anything and almost everything. Roosevelt's

judiciary seized a role for itself - the manipulation of law to promote a

New Deal agenda. FDR's version of the judicial branch

continues to this day. Indeed, through a succession of laws and rulings, all three branches - the judicial, the legislative, and the executive - now routinely exercise power well beyond their specific, enumerated authority under the Constitution.

Indeed, Roosevelt's massive influence on American politics changed the nature of political discourse. Since FDR's inauguration and the "first hundred days" with its New Deal legislation, a major question in the United States is whether we can ever return to the degree of personal liberty and individual freedom which we enjoyed up until 1933.

Friday, June 8, 2012

FDR Requires You to Volunteer

Upon taking office in early 1933, President Roosevelt began to unveil his numerous different plans to create agencies which would intervene in the economy in various ways and - so he hoped - fix the nation's problems. FDR knew that his efforts at unprecedented levels of government control needed some finesse: if he openly presented his desire for a command economy, it would be rejected. One way in which FDR hoped to persuade the public was by claiming that, rather than enforcing regulations, he was presenting guidelines to which individuals and businesses were voluntarily complying. Historian Robert Murphy writes:

Many grade school discussions of the National Recovery Administration - the epitome of the (first) New Deal approach to battling the Great Depression - talk of businesses drawing up their codes of fair competition as if Roosevelt had merely offered helpful suggestions. In reality, of course, the only way to make the NRA codes "work" was to enforce their provisions on the small producers, once the big producers (and big labor unions) had hammered out the code for a given industry. Countless producers were fined or jailed, such as Jacob Maged, a Jersey City dry cleaner.

Although FDR was encouraging his political allies to insinuate that the New Deal corresponded to populist notions about helping the "little guy" in the face of "big business," Jacob Maged was the littlest of the little guys, being bullied by the National Recovery Administration (NRA). Historian Burt Folsom explains:

Maged had been pressing pants for twenty-two years and his low prices and quality work had kept him competitive with larger tailor shops in the better parts of town. The NRA Cleaners and Dyers Code demanded that 40 cents be charged to press a suit. Maged, despite repeated warnings, insisted on charging his customers only 35 cents. "You can't tell me how to run my business," Maged insisted. When threatened with jail, he said, "If you can send me to jail, go ahead." Not only was Maged thrown in jail, he was also slapped with a hundred-dollar fine. "We think that this is the only way to enforce the NRA," said Abraham Traube, a director of the NRA code authority for the Cleaners and Dyers Board of Trade. "If we did the same thing in New York City we would soon get the whole industry in line."

This hardly seems like voluntary compliance! Yet Hugh Johnson, operating the NRA for Roosevelt, continuously put forth the notion that businesses across America were freely choosing to operate according to NRA guidelines. It is true that, in many cases, there was no official enforcement. In those cases, however, enforcement was left to thugs and ruffians hired by Hugh Johnson, who made ominous comments about what could happen to small business owners who didn't comply. Major American cities had NRA parades in which workers marched like soldiers. The message was clear: everyone was expected to join. Across the country, dozens of men were fined or jailed - or both - for failing to volunteer.

Despite the heavy-handed enforcement, the NRA in fact failed to help the economy. Roosevelt was actually relieved when the Supreme Court canceled the program, because he did not then need to admit that it had failed. Historian John Steele Gordon writes:

In fact, the court did the Roosevelt administration a big favor. The whole system established by the NRA was collapsing as public opinion turned decisively against it. "The excessive centralization and dictatorial spirit," columnist Walter Lippmann explained, "are producing a revulsion of feeling against bureaucratic control of American economic life." The original bill had contained a two-year sunset provision, and it was increasingly unlikely that Congress could have been persuaded to renew it.

FDR had learned. His future attempts at reducing the economic freedom of the ordinary citizen would be more subtle.

The Problems with the New Deal

President Franklin Roosevelt's famous New Deal programs caused, and still cause, controversy. Although well-intentioned, they were plagued by a number of problems: they limited freedom, they were unconstitutional, and they simply didn't work. FDR's initiatives actually lengthened and worsened what would have been a relatively mild and short-lived economic setback. Historian Robert Murphy writes:

Despite his undeniable rhetorical gifts and his cozy "fireside chats," FDR did not charm everyone. Many business leaders feared and loathed him, considering the New Deal to be a dangerous lurch towards the collectivism that was sweeping other industrialized nations. Roosevelt also butted heads with the Supreme Court, which in 1935 threw out the National Industrial Recovery Act as an unconstitutional expansion of federal (and in particular executive) power over free commerce in the Schechter Poultry case. In another major setback to the New Deal, the Supreme Court threw out the Agricultural Adjustment Act in 1936 in United States v. Butler, on the grounds that the federal government did not possess the authority to micromanage agricultural production. Incensed at what he considered the Court’s interference with the clear will of the American people, in early 1937 Roosevelt famously threatened to "pack the Court," meaning he wanted the authority to appoint more Justices than the traditional nine. Realizing the danger this plan posed to the checks and balances designed by the Founders to restrain the tyranny of the executive branch, many of Roosevelt’s allies deserted him. However, at the same time the Supreme Court became much more compliant, and upheld new legislation that replaced the voided components of the original New Deal. In particular, the Court surprised many business owners by upholding the constitutionality of the National Labor Relations Act in April 1937. A month later the Court gave its blessing to the Social Securities Act as well, and Roosevelt decided to drop his controversial plan. The spirit of his New Deal survived, and a costly constitutional crisis had been avoided.

We can see two of the several strands of opposition to FDR's New Deal, and more particularly opposition to the National Recovery Administration (NRA) created by the National Industrial Recovery Act (NIRA): opposition from the business community, which saw that the program would hurt the economy and stifle job creation, and opposition from the Supreme Court, which saw that Roosevelt had exceeded the constitutional authority given to the office of the president. Roosevelt, in turn, responded to each of these: among business leaders, he supported the crony capitalists against the free-market capitalists; against the Supreme Court, he used threats and bullying. To what extent FDR succeeded is debatable: although some of his programs were nixed, he succeeded in creating more debt than had every been imagined, and he succeeded in allowing government to interfere with the daily life of ordinary citizens to an extent imagined only perhaps by Woodrow Wilson. Historian John Steele Gordon writes:

When the new Supreme Court building opened in 1935, the New Yorker magazine praised its architecture, saying it was "a magnificent structure, with fine big windows to throw the New Deal out of." But even Justice Louis Brandeis, hardly a member of the court's then-dominant conservative wing, told members of the administration, "This is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything." Free enterprise, and its sine qua non, competition, had been rescued by the court.

The tug-of-war between Roosevelt's desire for government control and the Supreme Court's desire to preserve individual freedom had mixed results. The Supreme Court was able to preserve some economic liberty, although not as much as Americans had enjoyed before 1933; Roosevelt increased the government's intervention into the economic choices of ordinary Americans, but not to the extent he wanted. This tension continues in American politics today.

Wednesday, June 6, 2012

FDR's Disaster

Historians and economists have debated the causes of the Great Depression: there is more than one plausible explanation for the economic downturn which started in late 1929 or early 1930. But in any case, it is clear that one set of causes created the Great Depression, while a second set of causes exacerbated it. If FDR had not instituted his slate of New Deal programs, the Great Depression would not have lasted as long, nor been as severe.

One example is the famous National Recovery Act. Generating cognitive dissonance on a grand scale, Roosevelt argued that the economy would blossom if industry groups were exempted from antitrust laws and allowed to set wages and prices. President Roosevelt was essentially saying that we should build monopolies: an odd enough thought on its own, but even stranger coming from a self-proclaimed progressive who'd supported his uncle's creation of the antitrust legislation. Historian John Steele Gordon writes:

As the disaster of the Great Depression deepened, many economists of the day thought that a major cause was "excess competition." As companies fought for market share, they drove down prices, which put pressure on wages, which reduced purchasing power among consumers, creating a vicious circle. The solution, these economists argued, was the establishment of industry associations that would set minimum prices and standardize work rules and labor conditions.

Essentially, Roosevelt's economic advisors were hoping that across-the-board price increases would stop the Great Depression: inflation as the cure. Government-sanctioned price-gouging of American consumers would, however, only make raise the unemployment rate by reducing demand, and stifle any attempts at economic growth by discouraging new businesses, or innovations in old businesses. Although not an actual monopoly, federally-approved collusion on prices across entire industry groups had the same effect.

The act, signed on June 16, 1933, authorized industrial and trade associations — exempting them from the antitrust laws — to agree on prices, and negotiate among themselves such matters as maximum work hours, minimum wages and labor conditions. The codes that resulted in each industry would have the force of law, as long as President Franklin D. Roosevelt agreed to them. The NIRA, in short, provided for the cartelization of much of the American economy.

Looking for support, Roosevelt found little among free-market capitalists, but was embraced by crony capitalists. Those capitalists who reject the principle of competition in a free market, and instead embrace opportunism - including a willingness to benefit from government regulations which favor them - saw that the National Recovery Act (NRA) would provide them with a windfall.

Many of the biggest and most powerful corporations, or at least their CEOs, endorsed the plan, including Gerard Swope of General Electric and Charles Schwab of Bethlehem Steel. Henry Harriman, the president of the U.S. Chamber of Commerce, actually helped draft the legislation.

Those industrialists who clung to the notion of a truly free market saw the NRA as a sweeping violation of economic freedom, dictating prices to corporations and consumers alike.

But, of course, there were other industrialists who were adamantly opposed, including Henry Ford and Alfred P. Sloan of General Motors. The National Association of Manufacturers also opposed the bill.

Like many New Deal programs, and many progressivist initiatives of earlier eras, the NRA was carried out with a military spirit. Propaganda spread the idea. Enforcement, even though part of the code were supposed to be voluntary, was heavy-handed.

The act established the National Recovery Administration, headed by Hugh Johnson, and its symbol, the blue eagle, and motto, "We Do Our Part," soon became ubiquitous, found in advertisements and store windows across the country. The NRA also produced a blizzard of codes (more than 750 of them, covering 23 million workers) and regulations. Thousands of business practices that had been standard were now forbidden.

Roosevelt's NRA faced a number of difficulties: it represented a repressive curtailment of individual economic freedom; it was unconstitutional; its directives, if followed, would not help the economy, but rather make the Great Depression worse; and it relied on voluntary compliance, which meant that either nobody would comply, or that it would eventually be enforced surreptitiously by Hugh Johnson's ruffians. Cengage's history textbook tells us that

the government decided to limit production through persuasion and association - techniques that Hoover had also favored. To head the National Recovery Administration (NRA), authorized under the National Industrial Recovery Act, Roosevelt chose General Hugh Johnson, a participant in industrial planning experiments during the First World War.

Roosevelt's New Deal wasn't so new: first, he followed in the footsteps of President Hoover, who'd tried the same thing - an attempt at voluntary regulation. Relying on Hoover's notion of associationalism inevitably resulted in either utterly toothless regulations, or a tough persuasiveness which amounted to extortion. Second, FDR hired Hugh Johnson, whose wartime lockdown on economic freedom under Woodrow Wilson amounted to an unconstitutional imposition of a command economy, with freedom of speech being revoked as well. Johnson organized conferences or groups to oversee each industrial sector and

specify prices, wages, and hours throughout the sector. He also asked each conference to restrict production.

The results were predictable: what didn't work during World War One also didn't work during the Great Depression. Constricting economic freedom can only hurt the economy.

In winter and spring 1934, economic indicators plunged downward once again, and manufacturers began to evade the code provisions.

Individuals were willing to risk a physical beating from one of Hugh Johnson's thugs - there was no official government enforcement, since NRA regulations were allegedly voluntary - because there was no other way to put bread on the table, except to violate the NRA guidelines. To try to preserve hope for both economic recovery and for preserving some degree of individual freedom, voters filed a lawsuit, hoping that the Supreme Court would help. John Steele Gordon writes:

Naturally, opponents of the NRA went to court. The case that made it to the Supreme Court was formally titled A.L.A. Schechter Poultry v. United States. The Schechter company was one of a group of New York City kosher wholesale butchers who had been charged with violating the rules established under the NRA code covering the poultry industry. Among the charges that reached the Supreme Court were those involving the sale of an unfit chicken to a local butcher, and the sale of two uninspected chickens. This led Hugh Johnson to dub it "the sick-chicken case."

The Supreme Court's decision in this case would be crucial. If it did not find a way to stop FDR's attempt to control the economy, a major chunk of personal freedom would be permanently lost.

Although the Second U.S. Circuit Court of Appeals had upheld the National Industrial Recovery Act, the Supreme Court reversed, and did so unanimously. Chief Justice Charles Evans Hughes wrote that while Congress had the authority to regulate interstate commerce, it could not delegate that power to the NRA, let alone to private industry. In his concurrence, Justice Benjamin Cardozo called it "delegation run riot."

Not only did the Supreme Court stop FDR's power-grab, but it did so unanimously - a rare show of unity on the divided bench. The opinion made it clear that the federal government had no place in attempting to regulate such businesses:

Further, Hughes ruled that the Schechters' business was too small and inconsequential to have a real affect on interstate commerce, and therefore could not be regulated by the federal government at all.

At this point, the NRA had been ruled unconstitutional, had failed to achieve any positive economic result, and had become widely disliked by the public. Cengage tells us that

by fall 1934 it was clear that the NRA had failed. When the Supreme Court declared the NRA unconstitutional in May 1935, the Roosevelt administration allowed the agency to die.

The NRA, which had become extremely unpopular, was gone, and the voters were glad to see it go. The American public, at first hopeful that something good might come of FDR's New Deal, began to dismiss his bewildering jungle of government programs as "alphabet soup," of which the NRA was the worst.