This, however, is exactly that outline: He said he would pursue “the kind of bold, persistent experimentation that Franklin Roosevelt pursued during the only crisis worse than this one.”
Economists may differ on this issue, but the history is clear. FDR’s policies actually lengthened the Great Depression.
Why? Because businesses hate uncertainty.
FDR ran as a moderate in 1932, emphasizing sound, careful currency and financial measures. But once in office, he took to tinkering — in a big way.
“Using emergency powers, FDR yanked the country off the gold standard. Both American and international markets looked forward to a London conference at which a new monetary accord was to be struck among nations,” historian Amity Schlaes cites as an example in a 2008 Washington Post piece. “Over the course of the conference, though, FDR changed orders to his emissaries multiple times. Some days he was the internationalist, sending wires about international currency coordination. Other days he was the cowboy, declaring that all that mattered was what the dollar bought in farm states. The conference foundered.”
FDR went vacillated from being a budget hawk to a free spender. Policies were announced and abandoned.
“Uncertain, markets froze,” Schlaes records. “Businesses refused to hire or invest in equipment. Unemployment stayed stuck in the teens. The ‘deal’ part of the New Deal phrase was problematic; businesses didn’t want individual favors, they wanted clear laws for all.”
“Today, uncertainty also chills,” she wrote. “Questions abound over the future regulation of stocks and derivatives, over tax policy, over bailouts. All this makes it hard for the market to settle on equity or home prices.”
Investor’s Business Daily is characteristically pointed in its conclusion: “If Obama wants to conduct experiments, he should get a job as a high school science teacher, and not use the entire nation as guinea pigs, particularly when we already know how his tests will turn out.”
But the same sentiment should apply to former Massachusetts Gov. Mitt Romney, who has been known to do a little tinkering himself.
Whoever wins in November, the most important thing to the financial markets will be the establishment of a clear set of rules, rules that apply to everyone.
By looking to FDR as his role-model, Obama is spooking the financial markets with the specter of uncertainty. But so does any new administration. What it needs now is reassurances.