January 6, 2012
By JOHN HOOD
RALEIGH – The president was personally liked. But his policies were failing. After initial signs of improvement, the economy again began to sputter. Job creation was virtually nonexistent. Programs meant to stimulate “aggregate demand” had in reality funded wasteful and politically connected projects. Millions of Americans feared for the future.
The year was 1937. The president was Franklin Delano Roosevelt. And Josiah Bailey, a recently reelected U.S. senator from North Carolina, was determined to do something about what he saw as the excesses and dangers of Roosevelt’s New Deal program.
Although a Democrat who previously support Roosevelt, Bailey had become convinced that higher taxes, bigger budgets, and greater governmental involvement in private business were antithetical both to job creation and to America’s constitutional traditions. He wrote that the federal government had turned into “a gift enterprise and the gifts are at the expense of those who work and earn and save.”
Bailey was particularly appalled by the 1935 passage of what became known as the “Soak the Rich” tax bill. Among other provisions, it imposed a tax surcharge on those making above $50,000 (about $800,000 in today’s money) and raised taxes on corporate income and dividends. Together with the onset of the Social Security payroll tax and some new regulations, these changes dealt the economy a major blow in 1937. The unemployment rate shot up towards 20 percent, and Bailey considered the president’s policies to be directly responsible.
Roosevelt rejected that explanation. Instead, the president blamed wealthy business executives, professionals, and investors – whom he called “economic royalists” – for the country’s weak economy. Sound familiar?
There were other members of Congress who felt the same way Bailey did, however. After Roosevelt’s political momentum crashed against the harsh realities of 1937, these critics grew emboldened.
Secretly, Democratic Sen. Josiah Bailey of North Carolina and Republican Sen. Arthur Vandenberg of Michigan helped form a bipartisan group to craft an economic-growth plan. The resulting document eventually became known as the Conservative Manifesto, although many of its architects, including Bailey, didn’t use the term at the time. “I am a great liberal when it comes to the fundamental meaning of the word,” he wrote, “but I am not a liberal when they interpret liberalism in terms of a return to the old reactionary system of centralized power and control of the individual with a view to limiting his activities.”
The secrecy didn’t last. After the New York Times reported on its existence in December 1937, the legislative effort fizzled. Only Bailey was willing to go on the record as having helped pen the Manifesto, which argued that “private enterprise, properly fostered, carries the indispensable element of vigor.”
The Manifesto contained 10 policy planks, including spending reduction, a balanced budget, pro-growth tax reform, an end to government aid to labor unions and politically favored businesses, devolution of power to states and localities, and entitlement reform.
While the Conservative Manifesto didn’t lead directly to legislation, it did find an influential audience. Dozens of trade associations and business journals endorsed and reprinted it thousands of times. Republicans and pro-business Democrats, including some officials within the Roosevelt administration itself, began to push for a less hostile relationship with private investors and business leaders.
During 1938, these trends began to coalesce. More than 100 House Democrats crossed party lines to help defeat Roosevelt’s plan to strengthen executive power over Congress, the courts, and the private sector. And in November, voters gave Republicans one of the biggest midterm victories in American political history: 81 new House seats, seven Senate seats, and 13 governorships.
By no means was Franklin Roosevelt finished. He remained personally popular, and as the clouds over Europe and Asia darkened, Americans turned to the president for leadership through the coming international storm. But on domestic policy, the Roosevelt administration moderated.
Now, as the nation continues to suffer from the stagnating effects of the Great Recession, we need a similar bipartisan effort to recover and restore the American traditions of limited, constitutional government and free enterprise. But who will play the role of North Carolina’s Josiah Bailey?