1937, 2010

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POLITICS FEBRUARY 17, 2010

1937, 2010

Supreme Power: Franklin Roosevelt vs. the Supreme Court
By Jeff Shesol
(W.W. Norton, 656 pp., $27.95)

In 1937 President Roosevelt tried to “pack” the Supreme Court--increase its size so that he could fill the vacancies thus created with liberals, who would shift the balance of power from the conservative majority that had invalidated a number of New Deal laws. Surprisingly--considering the overwhelming margin by which Roosevelt had been re-elected in 1936, the Democrats’ lock on both houses of Congress, and the pertinacity with which he pushed his plan--the Court-packing bill never even came to a vote.

This episode, I would guess, is known to few Americans, and interests still fewer--mainly students of the Supreme Court. It is therefore surprising that in 2010 a book of more than six hundred pages should appear written not by a law professor or an academic historian but by a speechwriter for President Clinton, and aimed at a popular audience, though its seventy-two pages of notes and bibliography attest to the depth of the author’s scholarship. It is still more surprising that Jeff Shesol’s book should be timely, for the light it casts on the politics of our current economic situation and on the situation itself. The book is also splendid to read. It will fascinate anyone who is interested in Roosevelt, the New Deal, the 1930s, Congress, the presidency, the Great Depression, judges, the Supreme Court, or constitutional law.

When Roosevelt was inaugurated in March 1933, the American economy was in dreadful shape. The unemployment rate was 25 percent; the banking system was in a state of near paralysis because the fear and actuality of numerous bank failures had caused massive withdrawals (there was no deposit insurance); economic output had fallen by one-third since 1929, and prices had fallen by 20 percent. Falling prices sound like a good thing, but they can be a disaster. Because wages even in a depression tend to be sticky, falling prices reduce firms’ revenues but not their labor costs, so they have to lay off workers to bring their costs in line with their shrunken revenues. And consumers who expect prices to continue falling will hold off on buying. Desperate to get them to open their wallets, firms have to cut prices even more drastically and thus lay off even more of their workers to control their costs, accelerating the economy’s swoon.

Roosevelt did four things immediately upon taking office to restart the economy. The first was to boost public confidence by delivering an inspiring inaugural address, inspiring not only in content (“we have nothing to fear but fear itself”--false, but reassuring) but also in the upbeat manner of his delivery. Confidence is all-important in getting businessmen to invest and consumers to buy; without confidence, both groups tend to hoard their money rather than spend it, and economic activity droops.

Roosevelt’s second measure was to declare a bank holiday. All banks were shut down while federal examiners pored over their books. After a few days, most of the banks were pronounced sound (this was sleight of hand--there wasn’t enough time, or enough bank examiners, to examine thousands of banks carefully) and allowed to re-open. The public was reassured, and the drain of bank capital ceased, so money was again available for borrowing by businessmen and consumers.

Third, Roosevelt took the United States off the gold standard. Until then, anyone could exchange the paper dollars issued by the Federal Reserve for gold. This limited the supply of dollars, because if the Fed increased the supply each dollar would be worth less, so people would exchange their paper dollars for gold and the government’s gold holdings would rapidly be depleted. With the government off the gold standard, the Fed could and did increase the money supply, which increased the ratio of dollars to goods, thus causing inflation. That was deliberate. Inflation, by increasing prices, reduces real wages (assuming, as is plausible, that in a depression employers can resist demands for wage increases even if they cannot force wage reductions) and therefore reduces producers’ costs. It also induces consumers to spend because the purchasing power of any money they hoard will be declining. And by reducing indebtedness it provides an additional encouragement to consumers to spend--and the more they spend, the more that output and hence employment will rise. Inflation also reduces the value of the dollar relative to foreign currencies. That makes exports cheaper and imports more expensive, which stimulates domestic production--production for export but also production of substitutes for the now more costly imported goods. And fourth, Roosevelt instituted public works projects that, within months, put millions of the unemployed to work.

So far, so good. But at his urging, Congress at the outset of the new administration passed a number of statutes, of which the most important were the National Industrial Recovery Act and the Agricultural Adjustment Act, that impeded recovery from the depression. (A forgivable weakness of Shesol’s book is that he does not recognize the economic incoherence of the New Deal program.) Since “ruinous competition” was (incorrectly) believed to be a cause of the depression, the ironically named Recovery Act encouraged industries to establish codes of “fair competition,” which if approved by the president became binding, and which essentially were agreements among competing firms to fix prices and, in conjunction with unions, wages. The effect was higher prices and higher wages. The higher prices were real rather than merely inflationary; they were cartel prices that reduced output and employment. And wage increases retard economic recovery. The agriculture act was designed to increase farm prices by reducing output, so again the effect was that of a cartel. Similar output-reducing statutes were enacted for the coal and oil industries.

These New Deal laws and others were invalidated by the Supreme Court in 1935 and 1936, though not because they were economically counterproductive. The Court opposed them because they delegated too much legislative power to the executive branch (that was the main ground on which the Recovery Act was invalidated), or because they exceeded Congress’s power to regulate commerce (for example because agriculture and mining were deemed local).

The Court that invalidated these laws was composed of three factions: a liberal faction of Brandeis, Cardozo, and Stone; an extreme conservative faction of Butler, McReynolds, Sutherland, and Van Devanter; and a moderately conservative faction of Hughes (the chief justice) and Roberts. The moderate conservatives lined up with the extreme conservatives in the 1935 and 1936 cases, joined often by one or more of the liberals: the invalidation of the Recovery Act--a widely unpopular law, mainly because of its chaotic administration--was unanimous. Some New Deal measures survived, including the most important one to come before the Court--the government’s repudiation of its contractual obligation to redeem paper dollars in gold on demand. The amount of gold that the government would have owed the obligees, whom inflation would have driven to demand redemption, would have exceeded the nation’s gold reserves by a factor of twenty-five. Roosevelt had resolved that if the Court decided against him, he would defy the Court’s decision.

Roosevelt was distressed by the Court’s elimination of New Deal programs, but less because of the specific programs than because of what the decisions portended for the rest of the New Deal legislative program. The Court’s grounds seemed likely to doom the entire remaining agenda, which included the union-friendly Wagner Act, wages and hours legislation, social security, consumer protection, prohibition of child labor, and much else besides. The Court seemed determined to prevent the growth of federal power that Roosevelt thought essential to economic recovery, social justice, and (given the growing prestige of totalitarian regimes in the 1930s) the survival of democracy. In fact, aside from the four measures that Roosevelt had taken immediately upon assuming office, the New Deal program was more likely to impede than promote recovery. But it was a response to powerful political pressures, and a failure to yield to them could have rent the nation’s political and social fabric.

Although the average age of the Supreme Court justices in January 1937, when Roosevelt’s second term began and an overwhelmingly Democratic Congress was sworn in, was seventy-one, there was no indication of imminent vacancies among the five justices who had voted most consistently to invalidate New Deal statutes. Given the potential for political instability and social unrest if the entire New Deal program was killed, Roosevelt was right to strike at the Court, especially as he had a more sensible conception of the Constitution than that of the conservative justices then, or their counterparts now, or of liberal justices beginning with the Warren Court of the 1960s--a conception of a Constitution flexible enough to permit the government to meet the needs of modern society that the Framers of the Constitution could not have foreseen.

The plan, which did not require a constitutional amendment to enact because the Constitution does not fix the size of the Supreme Court, was to enlarge the Court as follows: if a justice declined to retire within six months after reaching the age of seventy (as he could do at full pay), a new justice could be appointed. The maximum size of the Court was to be fifteen. Six of the justices were over seventy, so if all declined to retire, the Court would reach its maximum size. Even if none of the six septuagenarians (five of the conservatives plus Brandeis) retired, Roosevelt would still be able to appoint six liberal justices, and so the balance would shift from 6-3 in favor of the conservatives to 9-6 in favor of the liberals. If all six eligibles retired and Roosevelt appointed liberals in their place, the balance would be 8-1 in favor of the liberals--Cardozo and Stone plus the six new appointments. Roberts would be the sole conservative.

Court packing (and unpacking-eliminating a vacancy to prevent the president from making an appointment) was not new. But it had not been done since 1867, and Roosevelt badly misplayed his hand. He had not mentioned the Court during the election campaign and thus had not prepared the electorate for an assault on it. He sprang the plan on Congress without warning, which congressional leaders resented; they were allowed no hand in drafting the Court-packing bill. (Obama has been careful--maybe too careful--to avoid this kind of mistake.) And he justified the plan publicly on the patently false ground that the older justices could not keep up with the work of the Court and that as a result the Court was falling behind. In fact, then as now, the justices were not overworked and the elderly ones carried their share of the workload--and everyone knew it. Moreover, a plan grounded in considerations of judicial efficiency could not inspire the public support that Roosevelt needed to overcome the fear, which was not limited to his conservative opponents, that he was trying, albeit by constitutional means, to unbalance the balance of powers created by the Constitution. (It didn’t help that the Nazi press praised the Court-packing plan!) And the ground on which Roosevelt sought to justify the plan set the stage for a devastating riposte by Chief Justice Hughes, who arranged to be invited by Senator Wheeler, an outspoken opponent of the Court-packing plan, to write Wheeler a letter concerning the justices’ ability to keep up with their workload. The letter, which Hughes implied spoke for the entire Court, assured Wheeler, who quickly made it public, that “The Supreme Court is fully abreast of its work.”

What finally killed the plan was an unbroken string of surprising victories for the New Deal in the Supreme Court--twelve in all, with no defeats--while the Court-packing plan was being debated, coupled with the sudden retirement of Justice Van Devanter, one of the four extreme conservatives (who accelerated his retirement in order to help defeat the plan), and topped off by the sudden death of Senate Majority Leader Joseph Robinson. Having been promised by Roosevelt appointment to the first vacancy on the Court, Robinson was at the time of his death making Herculean efforts to persuade his colleagues to vote for the Court-packing plan.

Hughes and Roberts abandoned the other conservatives in all twelve cases. They may have done so in order to defeat the Court-packing plan. It is true that the first of the decisions--which, overruling an earlier decision of the Court, upheld the federal minimum-wage law, and which is generally regarded as the turning point for the Court because it was the first decision in the string--was voted on by the justices (though not issued) before the plan was announced. But the vote came after the 1936 election, and it was believed that Roosevelt would mount some kind of serious challenge to the Court. Hughes and Roberts, especially Hughes, were less conservative than Butler, McReynolds, Sutherland, and Van Devanter--less inclined, therefore, to go down with the ship--and they may also have been influenced by an extraordinary wave of sit-down strikes and labor violence that coincided with the Court-packing controversy and made it seem that the country was coming apart at the seams (though the economy had improved a good deal). The two justices may have come to believe that to kill the New Deal would be playing with fire in the name of dubious constitutional doctrines to which neither of them was as emotionally committed as their extreme conservative colleagues. If that was their thinking, I am enough of a legal realist to withhold criticism of their “political” decision making.

When Hughes finished reading from the bench his opinions upholding the Wagner Act, “a prominent lawyer” in the audience section of the courtroom “rose from his seat, turned to a colleague, and said, ‘Chief Justice Hughes has saved the Supreme Court.’ ‘I think,’ his colleague replied, ‘he has saved the United States as well.’” As The New Yorker sarcastically observed, “the Supreme Court’s about-face was not due to outside clamor. It seems that the new [Supreme Court] building [completed in 1935] has a soundproof room, to which the Justices retire to change their minds.” And as Roosevelt remarked after the Court-packing plan went down to defeat, “We lost the battle, but we won the war.” He indeed had won, though at substantial cost to his prestige, and to his relations with Congress, whose barons he had treated with disdain.

 

I said that Shesol’s book was timely. Like Franklin Roosevelt, Barack Obama is an ambitious and charismatic liberal who took over from a discredited conservative administration and a demoralized Republican Party at a time of severe economic stress. Like Roosevelt, he is passionately hated in some quarters and the subject of vicious, groundless rumors. As with Roosevelt, the election that brought him to power created strong Democratic majorities in both the Senate and the House of Representatives, yet also like Roosevelt he faces a politically conservative Supreme Court that is more than willing to invalidate state and federal laws that it does not like.

Then as now, bankers, who “just a few years earlier had been second to no one in prestige and self-regard,” saw “the world they knew ... turned on its head.” Then as now, a liberal president was attacked from the left as well as from the right, “taking heat from liberals for the big-business orientation of the New Deal, for siding frequently with industry against the claims of labor and consumers.”

Also like Roosevelt, Obama has a three-track legislative program. The first track is recovery from depression and includes the auto and bank bailouts, and the $787 billion stimulus package, and the stress tests of the banks, and mortgage relief, and a moderate inflation--all recovery measures that resemble Roosevelt’s. The second track (illustrated in the Roosevelt administration by federal deposit insurance, the separation of commercial from investment banking, and the creation of the Securities and Exchange Commission) is financial regulatory reform designed to prevent a recurrence of the conditions that caused the depression. The third is long-term socio-economic reform.

In Obama’s administration as in Roosevelt’s, the second and third parts of the president’s program are at war with the first. Imposing new regulatory restrictions on business creates uncertainty in the business community, and uncertainty tends to freeze economic activity. The restrictions also reduce output by increasing costs. The new credit card law, for example, and the pressure that the administration is exerting on banks to modify rather than foreclose mortgages, are adding to the costs of banks and by doing so reducing their lending. And just as New Deal measures designed to increase wages and prices by reducing competition in labor and product markets retarded recovery, so the present administration’s programs of health-insurance reform and climate-change legislation are likely, if adopted, to increase the costs of businesses and, by increasing our immense federal budget deficits, push up interest rates and thereby curtail economic activity.

Despite his brilliant opening moves in the battle against the Depression, Roosevelt had little understanding of economics (but, in that, he had the company of most economists and businessmen). He probably did not sense the tension between New Deal measures that would promote recovery and the larger New Deal program of social reform that would slow down the recovery. His lack of understanding is shown by a series of disastrous moves in 1937, which included both higher taxes and reduced government spending, measures that in combination with the Federal Reserve’s pushing up interest rates to curb rising inflation brought on--within months after the Court-packing controversy ended--a second depression before the nation had fully recovered from the first one. That second depression weighs heavily on policymakers today. Our deficits are creating a risk of serious future inflation, yet measures to reduce the deficits, whether through higher taxes, cuts in government spending, or higher interest rates (which would reduce the amount of money in circulation and thus the potential for a serious inflation) would impede recovery from our current economic doldrums.

John Maynard Keynes warned Roosevelt about the dangers of trying to combine recovery with reform--he urged that reform be postponed until the economy recovered. Roosevelt rejected Keynes’s advice. I don’t know whether Obama’s economic advisers have given him similar advice; but if they have, he, like Roosevelt, has rejected it, whether out of political calculation or ideological commitment.

 

The defeat of the Court-packing plan holds three specific lessons for today. One is the role of passion in the political process. Votes in political elections are not weighted by intensity; a vote cast with lesser-of-two-evils tepidness has the same weight as one cast with passionate conviction. Conservatives took a tremendous shellacking in the 1936 election, yet within a few months they were able to mount a powerful and, in the end, successful campaign against Roosevelt’s first post-election initiative, because their emotional intensity far exceeded that of the plan’s supporters. This disparity in commitment weighed with politicians thinking about the next election. For passion would affect turnout and campaign contributions. We are seeing this today: the opponents of Obama’s legislative program are far more excited than its supporters.

Second, and again observed today, are the limits of congressional party loyalty to the President, even among members of Congress who rode into office on his coattails. Members of Congress are more concerned with their prerogatives and their prospects for re-election than with “their” president’s achieving his legislative goals. A president may actually have an easier time when the opposing party controls Congress. That is illustrated by the improvement in Clinton’s political fortunes and policy accomplishments after the Republicans won majorities in both houses of Congress in the 1994 election, until the Lewinsky scandal tempted the Republicans to try to bring him down. When the executive and legislative branches are in different hands, both have an interest in compromise and the president’s party accepts that he must govern from the middle, which is where a president can expect maximum popular support. The current Democratic Congress designed a stimulus program poorly, as a result of which it is widely regarded (unfairly, I think) as a giant pork barrel, and it has made a mess of the president’s health insurance initiative, and it is fighting with the president over financial regulatory reform.

And third, there is the mystique of the Supreme Court, a source of formidable political power because it makes the Court seem to be “above” politics. (Judges like to refer to the legislative and executive branches of government as “the political branches,” as if the judiciary were not a political branch as well.) Even though political considerations figure significantly and often decisively in federal judicial appointments, especially at the Supreme Court level, and even though the vagueness, complexity, occasional antiquity, and frequent internal inconsistency of American law combine to vest our judges with enormous discretion--above all in constitutional cases that touch on political issues--a sense persists that judges are different from politicians and should be immune from political retaliation for unpopular decisions. Judges are different from other senior officials. They are on average more professional, less partisan, much less subject to interest-group pressures, abler to take the long view of issues, and more decorous and restrained than elected politicians. The Constitution is venerated by Americans--one of the founders of the American Liberty League, the New Deal’s fiercest antagonist, said that the League’s “first appeal should be to the effect that the Constitution is perfect”--and the Supreme Court likes to think of itself as the custodian of the Constitution, its faithful oracle. As Shesol points out, “the more aggressive [the Supreme Court justices in the 1930s] grew in overruling legislatures, the more they assumed a posture of humility and passivity.” The Wall Street Journal’s comment on the decision invalidating the National Industrial Recovery Act was that “the Constitution has survived the depression.” Constitutional idolatry is a platform of today’s right wing as well; it is the sophisticated version of biblical inerrancy.

The conservative justices of the 1930s were on notably weak ground in invalidating New Deal laws for supposed inconsistency with the constitutional text. The text did not speak to such issues as whether agriculture is a part of interstate commerce and thus can be regulated by the federal government, or whether legislative power can be delegated by the legislature to federal agencies or, as in the case of the National Industrial Recovery Act, to trade associations whose exercise of delegated power is subject to review by a federal agency.

Like Roosevelt, Obama is trying to shift the line between government and business leftward. He already has done so to a degree, in the auto bailouts, the banker pay caps, the credit card law, the stimulus law, and the mortgage-relief law. He wants to go further. Will he at some point collide with the Supreme Court? It is not impossible, though I think it unlikely. The current Court, the most conservative since 1937, with four very conservative justices, four liberal ones, and a moderate conservative (Kennedy) occupying the Hughes-Roberts swing position, has backtracked on the broad New Deal understanding of federal power to regulate interstate commerce and has invalidated federal statutes with something approaching abandon--forty between 1991 and 2009, compared to only twenty-nine between 1918 and 1936.

I would be giving a misleading impression of Shesol’s book if I did not remark his striking portrait of Roosevelt. Few question the greatness of Roosevelt as a president, but there has been a tendency to question his intelligence, or at least his intellectual energy. He had not been a good student, or a good lawyer. He was an impatient reader, who preferred oral briefings. His legislative program lacked coherence. He was shrewd, politically astute, charismatic, courageous, buoyant, and humane. But Shesol shows that he was also a keenly engaged, intellectually resourceful student of the Constitution and the Supreme Court. He had speechwriters, but he shaped and altered their drafts. His State of the Union speech of January 6, 1937, delivered just a month before he sent his Court-packing plan to Congress, articulated a more sophisticated constitutional philosophy than that of his opponents when he said that the Constitution’s framers “were fully aware that civilization would raise problems for the proposed new Federal Government, which they themselves could not even surmise; and ... it was their definite intent and expectation that a liberal interpretation in the years to come would give to the Congress the same relative powers over new national problems as they themselves gave to the Congress over the national problems so their day.... Means must be found to adapt our legal and our judicial interpretation to the actual present needs of the largest progressive democracy in the modern world.”

Would it really have been so terrible had the Court-packing bill passed? I am not so sure. It would have increased turnover on the Court, reduced the average age of justices, made an appointment to the Court less prestigious, and made the justices more cautious about bucking strong political forces, because they would have learned that Congress was willing as well as able to rein them in. We would probably have been spared the excesses of the Warren Court, which turned Roosevelt’s idea of the “living Constitution” on its head: where Roosevelt wanted the Court to stand aside so that the government could deal with the distinctive problems of modernity, the Warren Court responded to the surging crime rates of the 1950s and 1960s by increasing the rights of criminals.

Richard A. Posner is a judge on the U.S. Court of Appeals for the Seventh Circuit and a senior lecturer at the University of Chicago Law School.

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posted in: politics, from the back of the book, united states, bank holiday, barack obama, clinton, franklin roosevelt, jeff shesol, joseph robinson, van devanter, wheeler, congress, senate, supreme court, us federal reserve

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