Hazlett in WSJ: What Would FDR Do?

A look at the first 100 days of the Franklin D. Roosevelt administration indicate that its success relied heavily on rallying the confidence of the nation's conservative business and banking leaders, a lead that Professor Thomas Hazlett says should be followed by the Obama administration in its initial days to deal with the current crisis in the country's financial markets.

In Hazlett'e op-ed in the The Wall Street Journal, he compares the the Obama administration's "opening policy sprint—massive deficits and bailouts, with sweeping health-care and education reform, plus cap and trade to come" with Roosevelt's efforts to close troubled institutions, inject capital into healthy ones, and reassure Americans of their deposits' safety, pointing out that the FDR administration's policies were conservative in nature and relied on conventional banking methods, rather than those that might be viewed as radical.

"Whatever is to come," says Hazlett, "an Obama administration reset button that focused on investment incentives could stimulate confidence and give our economy a fighting chance to recover."

What Would FDR Do?, The Wall Street Journal, March 19, 2009. By George Bittlingmayer and Thomas W. Hazlett.

"But FDR did not launch his New Deal with a program that roiled financial markets. On the contrary, his first step was to stem the banking panic with a national bank holiday (many states had already imposed their own). He closed troubled institutions, injected capital into the healthy ones, and reassured Americans that their deposits would be safe.

"His approach met with quick success. The New York Stock Exchange, closed during the bank holiday, opened up 15% on March 15. By July 3, the Dow Jones Industrial Average was 93% above its close on March 3, the day before Inauguration Day in 1933. FDR's fast start, embraced by Wall Street, provided him with early, and crucial, political capital when his agenda later veered left.

"As Raymond Moley, an FDR adviser intimately involved in crafting the bank holiday and other 100 days policies, wrote in his book, 'After Seven Years,' 'It cannot be emphasized too strongly that the policies which vanquished the bank crisis were thoroughly conservative . . . Those who conceived and executed them were intent upon rallying the confidence, first, of the conservative business and banking leaders of the country and, then, through them, of the public generally.'"

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