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History Dept.

What Donald Trump Could Learn from Herbert Hoover

A 1932 fight over an economic relief agency has parallels to today’s politics—and the electoral fortunes of both Democrats and Republicans.

"Herbert Hoover as the new president," Oscar Edward Cesare (March 17, 1929)

With the U.S. health crisis showing no signs of abating, and recognition growing that even the historic $2 trillion bailout won’t be enough to keep our economy on ice while keeping people whole, ideas are piling up for what to include in future relief packages.

Proposals are moving far beyond traditional benefit spending to include big new structural innovations. Those include ideas like a National Pandemic Production and Financing Board that could take equity stakes in health supply companies to help ramp up and produce medical equipment, or a Health Finance Corporation that could fund the crisis response by raising money in debt markets. Versions of these ideas have been championed on the left and the right, and by politicians from Bernie Sanders to Marco Rubio.

This type of agency, which uses public dollars to make big economic investments designed to help resuscitate the U.S. economy and produce needed supplies, might seem like a dramatic new emergency measure, and indeed it might be—but it wouldn’t be unprecedented. A common denominator of these proposals is they have a big, successful but controversial antecedent: the Reconstruction Finance Corporation, a government body that helped the U.S. fight the Great Depression and then went on to fund the massive efforts required to fight World War II and the Korean War.

Over the course of two decades and change, the RFC plowed tens of billions into banks to restart lending, manufacturing firms to build essential supplies, utilities to keep services afloat, exporters to build new supply chains and even cities to keep their teachers on the payroll. At one point, it was the single largest investor in the U.S. economy.

Though controversial, it was hugely successful in what it aimed to do. And not just because of its structure and policies, but because of its bipartisan political origins, and how it brought Republicans and Democrats closer together in a time of crisis.

Today, a big hurdle for Democrats considering options for economic relief is whether they can trust President Donald Trump to set up a new RFC-type agency that would dole out billions of dollars to the private sector and other agencies competently and noncorruptly. And from a purely electoral perspective, Democrats will try to balance the real need to help people and firms now, with the risk that doing so helps Trump win reelection.

As such, a lot of the lessons of the RFC startup are for Democrats, whose signoff will be needed for any new government investment body. That said, both parties can learn something from the RFC experience, including practical advice on how to do big industrial policy—whether in a 2020 Biden administration or a 2024 Rubio one.

Here are three lessons for today’s politicians.

Lesson One: Demand Power Sharing

Though it is today associated with Franklin Delano Roosevelt’s New Deal, the RFC was actually launched in 1932, President Herbert Hoover’s last year in office. It attracted support from progressives and centrists among Democrats in Congress, granting enormous powers to a slow-moving conservative president in an election year in which he was the incumbent.

Hoover was not beloved by Democrats. His dithering response to the Great Depression and his refusal to heed Congress’ call to build a social safety net riled progressives. Similar to today’s balance of power, the 1930 midterms had seen Republicans narrowly retain the Senate and Democrats take back control of the House of Representatives (after 16 years in the wilderness). And as today, some Democrats who wanted relief for their constituents were nonetheless wary of letting Hoover direct it, fearing he would simply dole out money to big banks and supporters.

In his definitive history, James Stuart Olson describes Hoover as reluctant to move forward with the RFC—originally proposed to him by bankers in October 1931—as a way to help restart the economy. After dragging his feet for two months and hoping private markets would fix themselves, he finally submitted legislation in December that would have lending operations overseen by a board composed of his Treasury secretary, his farm loan head, the Federal Reserve chairman he had nominated, and two other Republicans.

Democrats were having none of it. Carter Glass, the ranking member of the Senate Banking Committee (the seat held by Sherrod Brown today) demanded that the board seats be expanded to seven and that three of them be Democrats. After Hoover signed the RFC Act on January 22, 1932, House Speaker John Nance Garner (in the position Nancy Pelosi occupies today) demanded businessman and Democratic activist Jesse Jones be one of the Democrats on the RFC board—and Hoover agreed. Over the next year, Jones would play a leading role in keeping the RFC focused on the needs of Main Street over Wall Street, fighting with a Fed chair who wanted the opposite.

Democrats were right then and would be right today to demand a voice on the board. In return, Republicans pulled legislative victory from the jaws of defeat and showed that they weren’t totally incapable of governing.

Lesson 2: Keep the Pressure On

Just fixing the original bill was not enough. Over the course of 1932, Democrats waged a relentless inside-outside strategy to simultaneously force the RFC to be more aggressive in fighting the crisis, while highlighting all the ways that Hoover’s cautiousness was making matters worse. On the inside, Congress engaged in constant oversight of the RFC’s operations, especially when it looked like resources were being doled out to the president’s political allies. Outside, on the campaign trail, candidate Roosevelt blasted the RFC, calling it a sop to bankers and corporations that ignored the needs of the common man.

This sustained pressure campaign enabled Democrats to push their agenda still further. In May, Senate Minority Leader Joseph Robinson (the Chuck Schumer of his day) pushed Hoover to use the RFC to fund public works programs. By July, Hoover had given in and signed another major stimulus law. And, frustrated that the RFC was holding back its full firepower under its majority Republican board as the election neared, Hoover kicked out its chairman and gave Democrats the majority.

Herein lies a lesson for Trump. From the vantage point of winter and spring, he might see fellow Republicans as his natural allies and distrust Democrats’ intentions. But as the weeks click along and programs continue to be botched, self-interest can kick in: A more competent Democratic-driven response that he can at least claim partial credit for is better than a fumbling one no one wants to be associated with.

Lesson 3: Settle for Half Measures, If the Elements are Right

Democrats wanted far more relief spending than the Hoover administration was willing to give or the RFC felt it could prudently unleash into the economy. But they were able to get many of the functions they wanted set up in small offices.

Accepting those half-measures turned out to be a smart move: After Roosevelt came into office, there were already an infrastructure and experienced personnel in place to rapidly scale up into full-blown RFC divisions and spinoff agencies. A division inadequately funding infrastructure projects in 1932 became the standalone Public Works Administration in June 1933. A program aiding states and local governments under Hoover became the Federal Emergency Relief Administration under Roosevelt. An agricultural loans unit became the Commodity Credit Corporation—a body that exists to this day and that the Trump administration has used extensively. And Jesse Jones went from being a mere member of the RFC board to its chair in May 1933. He would preside over the federal government’s planning apparatus for the next 12 years, appointing, training and advancing the careers of countless New Dealers.

Indeed, the RFC was so successful that its infrastructure would be tapped through the 1950s to serve an ever-proliferating number of policy goals. Through practice, the RFC—and the other agencies that used it as a funding source—got good at doing things we today think government wouldn’t be able to pull off, such as ushering in whole new industries like synthetic rubber and subsidizing upstart competitors to take on Alcoa’s aluminum monopoly. And these tasks became exceedingly radical, such as firing inept management at private firms and putting in their own people. Hoover had inaugurated the RFC with many constraints on its activities, requiring high interest rates so that it couldn’t compete with private banks. But by the time World War II came around, the RFC was being used to structurally change the entire private sector.

And that’s part of what led to its eventual demise. Over time, the agency became increasingly disliked by the right. After Republicans rode Dwight D. Eisenhower’s presidential coattails to a congressional majority in the 1952 elections, they abolished the RFC, relocating its few remaining functions to other agencies like the Small Business Administration, servicing a constituency the party saw as more receptive to their brand of politics.

Still, the RFC’s bipartisan roots show that Democrats and Republicans can find common ground in eras of economic crisis.

That’s not to say we could exactly replicate the RFC experience, in part because while there are some similarities between 1932 and 2020, there are also important differences. 1932’s crisis was caused by a cratering of economic demand by the unemployed, while 2020’s is in the first instance about a pandemic-caused supply shock. Back then, the parties had factions like the Progressive Republicans—elected officials like Wisconsin’s Robert La Follette—who echoed the political economy perspectives of many Democrats. Today, there are only a few Senate Republicans who bolt from party orthodoxy on limited government. Moreover, Hoover—for all his ideological aversion to economic planning—was universally acknowledged as an expert in disaster management, having led food relief efforts during and after World War I. Whatever Trump’s manifold claims to expertise, few take them seriously.

In short, Congress is right to worry about how much to trust Trump with new powers. But history shows that with persistence, strategy and a willingness to make the right kinds of compromises, Democrats and Republicans could use the political fights of the next few months as a springboard for a governing strategy for the next eight years—and build a more resilient economy in the process.

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