What a bad transition would look like

  • Share
  • Read Later

So now we get a presidential transition, one that is likely–given the fragile state of the financial system and the economy–to pose challenges unlike any we’ve seen in decades. Challenges similar, although as yet far less severe, to those that faced Herbert Hoover and Franklin Roosevelt during the long, horrible handoff of 1932 and 1933.

That was probably the worst presidential transition ever. It was also the last transition to go on for more than four months. Congress had in early 1932 already approved a Constitutional amendment to moveĀ  Inauguration Day to January. But the necessary number of states (in those days it was 36) didn’t get around to ratifying it until Feb. 6, 1933–too late to move FDR’s inauguration up from March.

And so the country backpedaled, after what had seemed to be the beginnings of an economic recovery in the summer of 1932, into the single worst stretch of the Great Depression. Banks failed by the hundreds, unemployment rose sharply, price deflation was rampant. Hoover blamed the economy’s problems on fear of the incoming administration. FDR didn’t say much at all. As Susan Estabrook Kennedy wrote in The Banking Crisis of 1933:

Like Abraham Lincoln, he saw no reason to underwrite the programs of the defeated incumbent or to dissipate his own mandate by forecasting his reactions to events still four months in the future. Therefore, he reserved himself for March 4, remained a private citizen, and left the governance of the nation to Hoover. …

Hoover’s tenacious belief that Roosevelt was responsible, however, prevented him from either taking an active role during the interregnum or questioning his own policies in their effect on public confidence. Hoover knew that the voters had rejected him and felt that all energy now belonged to his more popular successor; therefore, he never considered vigorous action on his own to counteract the economic slide.

Somehow I don’t think things will be nearly as bad this time, in part because President Bush has already outsourced economic and financial policymaking to the trio of Hank Paulson, Ben Bernanke and Sheila Bair–meaning that we’re unlikely to get the sort of outgoing-president/incoming-president standoff that paralyzed Hoover and FDR. Paulson, while certainly controversial in his own right, is not closely associated with the economic policies of the current administration and seems more than willing to do whatever he thinks he needs to do and make deals with whomever he thinks he needs to make deals with. He’s also spent a good amount of time on the phone with Obama over the past month or so–meaning that they already have a working relationship. Bernanke and Bair, while Bush appointees, aren’t part of the administration, and will continue to serve under President Obama. Bernanke won’t be up for reappointment as Fed chairman until January 2010; Bair’s term doesn’t run out until mid-2011.

Meanwhile, the president-elect seems to be on pace to choose his whole cabinet within a couple of weeks. One of the likeliest candidates for Treasury Secretary is a guy, New York Fed President Tim Geithner, whom I could have listed above as a member of the team that Bush has outsourced economic and financial policymaking to (but chose not to because I wanted to save him for this paragraph). Bair too has been mentioned as a possible Treasury choice.

I think part of what’s going on here is that, at least when it comes to crisis-fighting, there is not a huge partisan divide over what should be done. Then again, that was at least partly true by the latter days of the Hoover administration: The bank rescue plan that FDR implemented in the first weeks of his presidency had been drawn up by Hoover’s last Treasury Secretary, Ogden Mills. Hoover simply chose not to act upon it. Bush could still choose to behave the same way.

But New Deal reforms enacted later in 1933–the creation of the FDIC and a reorganization of the Federal Reserve that gave the chairman much more power–have at least ensured a continuity in financial policymaking that was absent back then. Which is probably a very good thing.

Still, the next couple of weeks should be extremely interesting. Will Obama play any kind of role in Bush’s planned G20 economic summit? Will Bush be willing to sign an economic stimulus package that doesn’t revolve around tax cuts?

Finally, there was talk in some circles in November 1932 that Hoover should appoint FDR Secretary of State, then resign (and get his vice president to resign), so the president-elect could take charge immediately. The Presidential Succession Act of 1947, though, put the House speaker and Senate majority leader ahead of the Secretary of State in the line of succession, so that would be awfully difficult to manage today. But it would be highly entertaining if they tried. Especially for President Pelosi.