A new direction.....

[mrvette]

Subject: A History Lesson





If President Obama still wants to turn our economy around, it's time for him to act more like Franklin Roosevelt-but not in the way he might think. It takes a special kind of courage for a president to abandon a failed approach to economic policy and then embrace its opposite. Yet, faced in May 1940 with America's greatest foreign policy crisis since the nation's founding, that's exactly what Franklin D. Roosevelt did. FDR-architect of the New Deal and outspoken opponent of Big Business-was forced by the collapse of Europe's democracies under Hitler's blitzkrieg to turn to the corporate sector to prepare America for war.


Roosevelt had almost no choice. In 1940, the United States had the 18th-largest army in the world, right behind tiny Holland. While not so small, its Navy was totally unprepared to face a determined invader. Gen. George Marshall, Army chief of staff, warned Roosevelt that if Hitler landed five divisions on American soil, there was nothing he could do to stop them.

Neither the War nor Navy Departments had a clue how to mobilize a $100-billion civilian economy for war. Their joint "plan" ran to fewer than 20 typed pages. America's defense industry had been dismantled after World War I-"the war to end all wars."

So, reluctantly, on May 28, 1940, Roosevelt picked up the phone and called his archnemesis, General Motors President William Knudsen.

Knudsen was a Motor City legend. The Danish immigrant had worked his way up from the shop floor to become president of Chevrolet and then GM. He was a mass-production wizard.

He was also a Republican, and one who remembered Roosevelt's fierce denunciation of businessmen as "economic royalists who hide behind the flag and the Constitution." He also knew what historians have since learned: that FDR's vaunted New Deal, with its massive new government programs and
antibusiness regulations, had done nothing to end the Great Depression. After six years of FDR, unemployment in 1939 still stood above 17%.

With a friendly smile and hearty handshake, President Franklin D. Roosevelt greeted William S. Knudsen, president of General Motors Corps., when the
latter arrived at the White House for the first meeting of the new National Defense Commission in Washington on May 30, 1940. Knudsen was named in
charge of industrial production for the president?s defense program. (AP Photo/George R. Skadding)

Yet Knudsen's answer to the appeal from FDR was immediate. He quit GM and moved to Washington to mobilize his friends in the private sector to get
America ready for war. He joined with U.S. Steel's Edward Stettinius, Sears, Roebuck's Don Nelson and other corporate executives and engineers
who left their jobs to accept a federal salary of $1 a year. Together, they made Roosevelt a promise.

If the president gave them 18 months, they would persuade enough of American industry to convert their plants to making planes, tanks, ships and munitions without throwing the rest of the economy into a tail spin. The result, they pledged, would be the most massive outpouring of weaponry the world had ever seen.

Roosevelt was under intense pressure from his own administration-and from his wife Eleanor-not to agree. They believed it was impossible to convert to a wartime footing without a comprehensive, centrally directed plan for total mobilization and a single commanding figure in charge-in short, a war-production czar. "Democracy must wage total war," his aide Harry Hopkins wrote in a secret memo. "It must exceed the Nazi in fury, ruthlessness, and efficiency."

Knudsen disagreed. "If we get into war," he told the administration, "the winning of it will be purely a question of material and production"-and the best way to do that was to harness the forces and energies of private industry.

His advice was to clear away antiquated antibusiness tax laws and regulations and give the military's orders for materiel to the most productive sectors of the economy-the automotive, steel, chemical and electronics industries. Federal dollars would follow the trail of productivity and innovation, not the other way around.

Knudsen also insisted on keeping the process voluntary and decentralized, so that companies would be free to decide on their own which war materiel
they were best suited to bid on, and how to produce it. The point was to reduce Washington's interference in the production process to a minimum.

This proposal was in effect Roosevelt's first introduction to supply-side economics. To arm the nation for war, Roosevelt not only had to agree to set aside his own ideological misgivings but almost a decade of his own failed economic policies. "Dr. New Deal," Roosevelt told the press, was going to have to make way for "Dr. Win the War."

The results, as Knudsen had promised, were staggering. Barely a year later-by the time Japanese bombs fell on Pearl Harbor in December of 1941-the scale of American war production was fast approaching that of Nazi Germany.

America truly became the "arsenal of democracy" (the phrase Knudsen invented). By the end of 1942 we were producing more tanks, ships, planes and guns than the entire Axis; by the end of 1943 more than Germany, the Soviet Union and Britain combined. American companies and farmers were
equipping and feeding our allies as well-in the Soviet Union's case, Americans were providing almost a fifth of gross national product. Ford Motor Co. alone produced more munitions during the war than fascist Italy's entire economy.

Contrary to myth, the war didn't end the Depression or make Americans prosperous. Even with rising wages, they had to put up with rationing and very limited choice in consumer goods. National wealth, in terms of assets as measured by the Commerce Department, had barely changed. But unleashed
to help win the war, American business enterprise had been brought back to life, and in 1945 it was ready to convert from making machine guns to washing machines and tractors again.

Many feared that with the end of government wartime spending-almost $300 billion worth, or $3 trillion in today's dollars-unemployment would boomerang, wages (which wartime work had driven up by an average of 70%) would fall and hopes for prosperity would be extinguished. Instead, private
investment came roaring back, triggering steady economic growth that pushed the U.S. into a new era, as the most prosperous society in history.

"You are the great American," Undersecretary of War Robert Patterson told Knudsen at the war's end. And certainly, Bill Knudsen deserves credit for
turning American business loose to build the greatest military in the world. But it was Franklin Roosevelt who had the courage to make a call in May of 1940 that sharply changed the direction of his own administration-and with that the future of the country.

[DJ_Critterus]

Obam Bam is too much of a narcissist to even think about changing directions... even if his polling numbers plummet further.

[Sea Six]

This is an excellent article.