TRUMP | "Fitness" for the Presidency

Former Defense Secretary
James Mattis.

September 9, 2020—Today we learned that Donald Trump was described as totally “unfit” to serve as President by Former Defense Secretary James Mattis. 

This label appears in Bob Woodward’s soon-to-be-released book, Rage. Mattis was talking with then-Director of National Intelligence Dan Coats, says  Woodward (https://bit.ly/32f6XVd). 

Mattis resigned his position in late 2018 because of disagreements with the president on defense policies. He told Coats that the President was “dangerous” and “there may come a time when we have to take collective action” against Trump, according to excerpts from the Woodward book reported on by The Washington Post this morning (https://bit.ly/35qM8rV). 

The “collective action” Mattis is referring to is presumably Article 25 of (25th Amendment to) the Constitution, which provides for either (1) a President declaring himself/herself incapable of carrying out his/her duties or (2) those around the President, i.e., the Cabinet, so declaring (https://www.law.cornell.edu/constitution/amendmentxxv).

However, Article 25 was designed for addressing a disability rather than a mental or temperamental disorder. 

What Makes a President Fit or Unfit?

Two key factors make someone fit to be President, apart from general sanity. They are experience (including education) and temperament. 

Going back to the ten presidents before Trump, all had either legislative (four as Senators— Barack Obama, Gerald Ford, Lyndon Johnson, Jack Kennedy—and one as a Representative, George H. W. Bush) or government executive (five Governors: George W. Bush, Bill Clinton, Ronald Reagan, Jimmy Carter, Richard Nixon). 

Trump had neither legislative nor government executive experience. He had some business experience, but one that viewed government as the enemy, an environment with little connection to the constraints of government administration and leadership.

Historically—The Best Presidents

C-Span has an interesting list of qualifications that make for the best presidents. It has an ongoing tabulation of the best ones ever, updated to 2017. In first place, consistently since 2000, is Abraham Lincoln. (If George Washington's presidencies created the nation, Lincoln's preserved it.) 

George Washington and Franklin Delano Roosevelt take the next two spots (they traded places between 2000 and 2009). Theodore Roosevelt comes in fourth. See https://www.c-span.org/presidentsurvey2017/.

George Washington and Lincoln get respect for creating and preserving the United States. But the two Roosevelts had challenges more like the ones we have today. They needed a lead a team to address problems that the private marketplace was facing to address.

Franklin Delano Roosevelt

FDR in particular inherited a country that was in a deep Depression, with bank failures panicking depositors and unemployment at 25 percent. It required political savvy and administrative skill to steer the country through that era and then through a World War.

FDR was well prepared to take on these challenges because he had both the experience and the temperament to do so. He had two terms as Governor of New York State, during which time he led the country in innovative responses to the Depression.

He gained important experience operating in Washington from his eight years as Assistant Secretary of the Navy under President Wilson. He was appointed by the Secretary of the Navy, Josephus Daniels, who had been editor of the Raleigh News & Observer. He learned to work with members of Congress. He helped reorganize the Navy Department. He mastered the facts of the Navy Department and stuck to them at Congressional hearings. He learned to work with his party in Washington and in New York.

When the United States went to war with Germany on April 6, 1917, FDR got a taste of wartime decision-making. He presided over a four-fold increase in the Navy's strength in six months, involving the building of new ships and stockpiling of supplies.

Donald Trump did not have anything like this kind of preparation for his presidency.

FDR | Mar 12—First Fireside Chat

FDR Delivering a "Fireside Chat"

March 12, 2017—On this day, 84 years ago in 1933, eight days after his inauguration, President Franklin D. Roosevelt gave his first national radio address or Fireside Chat, broadcast directly from the White House.

In their way, they were as revolutionary as President Trump's Tweets.

FDR had told his Republican Treasury Secretary, William H. Woodin, that he didn't want to be bothered with the details of actions to solve the bank panic because he was going to concentrate on communicating the resolution to the public. FDR began his first address with the words:

“I want to talk for a few minutes with the people of the United States about banking.”

Columbia Prof. Raymond Moley had been serving as FDR's adviser on the banking crisis, wanted to consult with FDR at every point. He was disappointed that FDR didn't want to be involved, but the President wanted to concentrate on honing his message.

Secretary Will Woodin had been a manager and a CEO a quarter of a century and knew exactly what he had to do. He went right to work. His contribution to calming the panic has never been adequately appreciated and remembered.

The Friday before FDR's inauguration, most banks had already been closed because so many states had initiated their own bank holidays, to give the banks some breathing room as depositors were lining up to withdraw all their money (outgoing President Hoover wouldn't act without FDR's agreement, and FDR's position was that he was not going to try to second-guess Hoover until he became President on March 4).

The local scenes of panic throughout the banking system were exemplified vividly in Frank Capra's movie It's a Wonderful Life (1947), starring Jimmy Stewart as small-town banker George Bailey, who is considering suicide as he sees his depositors destroying his bank, one depositor at a time, while others not in line were desperately worried about their deposits.

FDR's first act was to announce a Federal "bank holiday" – i.e., a presidentially ordered closing of all banks – pending examination of the banks, starting with the largest ones first. The idea was that only "sound" (solvent) banks would be reopened.

Secretary Woodin knew what to do as a top manager, because he had been Chairman of a locomotive company and President of a railway car manufacturer that in 1928 were two of the 20 companies in the Dow Jones Industrial Average. He started working around the clock as if it were a three-shift factory, pushing government staff to:

• Print $2 billion more greenbacks for the banks to have on hand.
• Publicize the printing and packing of the greenbacks with filmed news clips for the cinemas, the equivalent of today's YouTube posts.
• Ensure that all the banks in the country were closed.
• Examine the banks one by one for solvency, with priority given to the largest banks.
• Reopen the sound banks.
• Take steps to close and liquidate the unsound banks.
• Prepare new legislation to prevent a recurrence of the banking crisis–the legislation being passed within months as the Banking Act of 1933, aka the Glass-Steagall Act, named for the bank-regulatory provisions proposed by Senate Banking Chair Carter Glass (D-Va.) and the deposit-insurance plan proposed by House Banking Chair Henry B. Steagall (D-Ala.).
• Prepare new legislation to provide oversight over non-bank financial institutions, which became the Securities Exchange Act of 1933.

Meanwhile, FDR worked on the public-communications groundwork for all these steps. He did not have a Twitter or YouTube outlet, or even television, but he did have the radio.

In his first radio Fireside Chat, FDR explained the closure of the banks as necessary to stop a surge in withdrawals by depositors afraid of losing their savings. Many banks would be reopening within days, FDR said, and he thanked Americans for their  “fortitude and good temper” during the period of the bank holidays.

When FDR took office, the United States was at the low point of the Great Depression, with the unemployment rate between 25 and 33 percent (the reporting of unemployment became more precise during the next decade).

The Fireside Chat got its name from radio journalist Robert (Bob) Trout, called "the Iron Man of Radio" for his ability to keep up a patter during a breaking news story when new information arrived in dribs and drabs.

FDR's purpose was to inspire confidence in himself and in the nonfunctioning banking system. While the chats sound folksy, FDR took great pains to make them that way, using simple vocabulary and anecdotes. Presidents had previously communicated with their citizens almost exclusively through journalists. The Fireside Chats were without precedent and they were effective because radios were still magical and were owned by 90 percent of U.S. households. They were the 1933 equivalent of what Tweets are in the very different America of 2017.

FDR | March 4–Inauguration

The Brains Trust with President-elect FDR.
L to R: Cary Grayson, Norman Davies, Raymond
Moley, Redford Tugwell, Will Woodin, FDR.

On this day, March 4, 1933, at a climax of the Great Depression, Franklin Delano Roosevelt was inaugurated as the 32nd U.S. president.

For his rained-on Inaugural Address outside the east wing of the U.S. Capitol, FDR had to ascend the steps to the podium to take the oath of office.

To do this, an elaborate series of wheelchair-accessible ramps was constructed and hidden. FDR walked the last few yards leaning heavily on the arm of his son James.

FDR then outlined his New Deal–an expansion of the federal government to create jobs and improve the quality of life for Americans. He told Americans that “the only thing we have to fear is fear itself.” His Inaugural March, composed for the occasion by FDR's Treasury Secretary, William H. Woodin, was played in the rain. Despite the downpour, FDR delivered a speech that conveyed an upbeat, can-do spirit.

The President then had to face serious the bank panics and gold outflows. He turned that job over entirely to Treasury Secretary Woodin so that he could focus on the message that he wanted to deliver to his country.

Woodin immediately focused on printing more bills, getting them to the banks to solve the liquidity problem, publicizing the generation of liquidity, opening solvent ("sound") banks, and closing down banks that were insolvent. Meanwhile, Woodin worked on the passage of the Banking Act of 1933—the Glass-Steagall Act—and the Securities Exchange Act of 1933. The turnaround in the financial markets was almost immediate and endured.

FDR was born in 1982 to an old Dutch family in Hyde Park, NY, the fifth cousin of Theodore (Teddy) Roosevelt, who served two terms as the 26th U.S. president in 1901-1909. In 1905, FDR, then a student at Columbia University Law School, married Anna Eleanor Roosevelt, Teddy Roosevelt's niece. After three years practicing law, FDR followed his cousin Teddy's lead and campaigned for, and won, election to the NY State Senate in 1910 as a Democrat. He soon earned a reputation as a reform-oriented charismatic politician.

After supporting progressive N.J. Governor Woodrow Wilson in his successful 1912 bid for the Democratic presidential nomination, FDR was appointed assistant secretary of the U.S. Navy, a post that Teddy Roosevelt once held. In 1920, FDR won the Democratic nomination for vice president on a ticket with James Cox. The Democrats to Republicans Warren Harding and Calvin Coolidge, and FDR returned to his law practice and some  business ventures.

In 1921, FDR was stricken with polio and became nearly totally paralyzed. His wife, Eleanor, kept the Roosevelt name alive in Democratic circles. In 1924, partly recovered (although he could never again walk unaided), FDR returned to politics, nominating NY Governor Alfred E. Smith for the presidency with a rousing speech at the Democratic National Convention.

In 1928, he again nominated Smith, and the outgoing New York governor urged Roosevelt to run for Governor. Roosevelt campaigned across the state by automobile and was elected even as the state voted in the presidential election against their favorite son and for Republican Herbert Hoover.

As governor, Roosevelt worked for tax relief for farmers and in 1930 won a resounding electoral victory just as the economic recession brought on by the October 1929 stock market crash brought on the Great Depression. Governor Roosevelt mobilized the state government to play an active role in providing relief and spurring economic recovery. His aggressive and effective approach to the economic crisis won him the Democratic presidential nomination in 1932.

The contrast between FDR's activist response in NY State to the Depression and President Hoover's laissez-faire inaction nationwide couldn't have been greater, and FDR had no trouble defeating Hoover in 1932. Many blamed Hoover for the Depression, and FDR carried all but six states. During the next four months before the inauguration, bank panics increased, the economy continued to decline. When Roosevelt took office on March 4, 1933, most banks were closed, farms were suffering, 13 million workers were unemployed, and industrial production stood at just over half its 1929 level.

FDR's Treasury Secretary, Will Woodin, was a Republican industrialist who had once run for Congress on a hard-money program. He was a fan of Teddy Roosevelt and helped FDR with his Warm Springs Foundation and with fundraising for his runs for Governor and President.

Woodin was a key player during the financial reforms of the first 100 days of FDR's presidency. Aided by a Democratic Congress, Roosevelt took prompt, decisive action, and most of his New Deal proposals were approved during these 100 days. Most important for the financial sector were the Banking Act or Glass-Steagall Act of 1933, a trade of tough bank regulation for a limited deposit insurance program sought by the banks, and the Securities Exchange Act of 1933. Woodin as Treasury Secretary was deeply involved in the passage of these laws.

Job-creating programs also passed in the first 100 days included the Agricultural Adjustment Act, National Industrial Recovery Act, and the Public Works Administration and Tennessee Valley Authority.

Although many in the business community stubbornly criticized FDR's regulatory and job-creating programs—both FDR and Secretary Woodin were called traitors to their class—the programs unquestionably improved America’s economic climate and FDR was reelected handily three more times. Woodin became sick from the long hours and stress of his job, and died in May 1934; FDR called him a "martyr to public service."

WOODIN | FDR's Last Letters to His Friend Will, 1934

This post has been moved to a private blog. To gain access, contact jtmarlin@post.harvard.edu.

CHINA | Its Move Today vs. FDR's in 1933-34

FDR's moves to stabilize financial markets and devalue the
dollar paid off.

China's devaluing the renminbi (aka the yuan) appears to be based on the idea that by devaluing in stages, the rest of the world is less likely to care.

Actually, no.

It seems that the Chinese government had in mind loosening the effective peg of the renminbi to the dollar, allowing the currency to fluctuate within a wider band against the dollar.

But markets react fast. Once people in the marketplace think they understand what is happening, they worry about losing money every minute they delay in acting on the knowledge.

FDR and his first Treasury Secretary, Will Woodin, had the brains first to stabilize the financial markets in March-April 1933, and then to buy all private gold in May 1933. They were preparing quietly for a devaluation in order to:

• reduce the foreign (gold) equivalent of U.S. public and private debts
• encourage exports and
• discourage imports.

Gold played a role vis-a-vis the dollar then that the dollar today plays vis-a-vis the renminbi.

FDR in 1933 forced the sale to the government of private gold (other than gold coins in the hands of collectors). Then, at the beginning of 1934, FDR devalued the dollar against gold in one fell swoop, from $20.67 for an ounce of gold, where it had been for a century (except for the Civil War), to $35 an ounce.

His action was meant to be a one-time event, and so it turned out to be.

An example of what appears to be the Chinese program is conveyed by an old Irish joke. A Kerry man in the Dail urges his colleagues to change all the road signs so that vehicles drive on the right, as they do in Continental Europe. He figured that the cost could be spread out over several years. The first year they would move the trucks over to the right lane. Then they would move the buses, and the third year they would move over the private cars.

As Lady Macbeth says in Act 1, Scene 7: "If it were done when 'tis done, then 'twere well / It were done quickly." FDR understood that. The Chinese government, if we understand their moves aright,  does not.

THE DEPRESSION | Causes

The red bars are the years of GDP
decline, i.e., recession/depression.
The Depression started August 1929.

Martin Kelly posts, under about.com, useful summaries about different points and periods  in American history. He recently posted on "The Causes of the Great Depression". Understanding the causes of the Depression is vital to avoid repeating the mistakes we made in the 1920s.

Since I am working on a biography of FDR's first Treasury Secretary, William H. Woodin, I was interested. Woodin faced the brunt of the initial Federal response to panic that greeted FDR's arrival in Washington. (I believe the stress killed him. He resigned for health reasons at the end of 1933 and died not much more than a year after FDR took office.)

I think some of Kelly's statements in his first two "Causes" about the timing of the Depression and the timing of bank failures are erroneous. Americans should remember the facts about their history correctly.  I will limit myself to the first two on his list.

Cause #1 - The "Stock Market Crash of 1929"

Kelly considers the stock market crash of October 1929 as the first cause of the Great Depression. Here are his words:

Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression.

The Depression of 1929-1933 ended with FDR's
New Deal. But the The Recession of 1937-1938,
resulted from a weakening of the New Deal.
 World War II revived the economy in 1938.

My Comment: The Bureau of Economic Analysis at the U.S. Department of Commerce has kept track of the size of the American economy, the Gross Domestic Product (GDP), since after World War II. GDP is a measure of all goods and services produced during a year.

Business cycles are dated by an independent Business Cycle Dating Committee, also known as the Wise Men although not restricted to men. It reports through the National Bureau of Economic Research.

The Committee dates the Great Depression by two declines in GDP.

• The first was August 1929 (or more broadly the third quarter of the year) through March 1933 (the first quarter), lasting three years and seven months. Starting with the arrival of FDR, the economy was recovering from the 26.7 percent decline in the economy.
• The second was the recession from May 1937 (second quarter) to June 1938 (second quarter), when the economic decline was a serious 18.2 percent. This was precipitated by lower profits, and by misguidedly tight fiscal and monetary policies.  

So... the misleading statements in Cause #1 in Kelly's post I think include the following:

• The stock market crash occurred two months after the Depression started. Since the Depression started before the crash, something else was at work.
• America did not enter the Great Depression at the end of 1930, but 18 months earlier.
• The crash of the New York Stock Exchange is not a cause of anything except through the opinions of investors, of which it is simply an indicator. The cause of the Depression must be sought in the high value placed on stocks in the late 1920s, and the reason for the high level of speculation, i.e., borrowed money. The reliance of investors on debt subject to margin calls increased the riskiness of the stock market and added to the intensity of the revaluation of stock prices.
• The $40 billion loss by investors in two months doesn't sound like a lot in today's stock market. It would be more meaningful to say that the 1929 high value of all stocks on the New York Stock Exchange was $87 billion and this valuation fell to $19 billion in 1933 - a drop of 78 percent. More than three-fourths of the value of listed stocks was wiped out.

Cause #2 - Bank Failures

One of the sources of the Great Depression is the instability of the banking system and therefore of the stock market that depended on it and the national economy that depended on both.

Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures.

Bank failures virtually ended in 1933 with passage of the
Glass-Steagall Act, which created federal insurance of bank
deposits (via the FDIC) and, as a price for that, separated
banking from more speculative financial activities.

My Comment: The problem in making bank failures the cause of the Depression is  the timing. For A to cause B, A must precede B. The Depression is dated 1929-1933. There were no bank failures between 1926 and 1929 (see chart). The largest number of bank failures were the result of stress tests (bank examinations) by the Treasury's Comptroller of the Currency, in 1933, after the previously cited March 1933 end of the Depression.

There were bank failures in 1925, but that's a long time before the onset of the Depression and a lot of growth occurred in the late 1920s.

An underlying problem was the belief by depositors that they should be able to convert their deposits into gold or currency without limit. But the attempt to do so made banks illiquid and insolvent.

Printing greenback dollars that were not backed by gold or silver was no longer controversial. It was problematic when Lincoln did it to pay the Union Army, but by 1929 paper dollars were well established. However, in the 1920s, depositors were still of the belief that some or all of their deposits were backed by gold or silver. Some of the dollars were marked "gold certificates" with a yellow color on a part of the bill to indicate their special status.

Some depositors still believed that if they asked for it they would be entitled to redemption of their money in gold. In fact, what started to happen in the 1920s and especially in the early 1930s, is that banks could not redeem demand deposits even with paper money. They were out of cash. Relatively few were insolvent, but many were illiquid.

The fear that a bank could fail and depositors could lose their money was a basic underlying flaw in the banking system, leading to "runs on banks".

So here I think is what is wrong with what Kelly said about bank failures as a cause of the Depression:

• Bank failures were not the cause of the Depression - they were a symptom of problems in the banking system that contributed to the Depression. As Warren Buffett has said: "Only when the tide goes out do you find out who is not wearing a bathing suit.”
• Bank failures did not occur "throughout the 1930s". They occurred mostly before FDR was inaugurated in March 1933. The banks that were closed by the Treasury's Comptroller of the Currency were already insolvent.
• Bank deposits were uninsured only until 1933. But starting in 1933, the Glass-Steagall law created the Federal Deposit Insurance Corporation, insuring most deposits and virtually ending bank closings. In 1934, only 57 banks closed, and after that the FDIC's guarantee and oversight was enough.

The year 1933 was crucial. Withdrawals of paper money and gold from banks occurred in February 1933 at three times the previous rate of $5 million per day. That month, Louisiana declared a bank holiday, and then Michigan did the same, closing the banks for eight days. By the day that FDR took office, 400 more banks closed. In the month before the inauguration, $320 million was withdrawn, and most of it $226 million, was withdrawn in the last week.

On Inauguration Eve, March 4, 1933, at 1 a.m., FDR ended discussions with Hoover about the crisis and told everyone go to sleep. Instead, Secretary Woodin suggested to Barnard Professor Raymond Moley, leader of FDR's brains trust and the man who recruited Will Woodin to work for FDR that they go over to the Treasury to meet with outgoing Treasury Secretary Ogden Mills and his key staff, who were working on declaring a bank holiday the next day. Woodin and Moley found that the Treasury was following the lead of 21 governors who had announced a bank holiday on Monday. The Treasury had called the remaining governors. All but New York Governor Herbert Lehman had been persuaded to follow suit. Woodin and Moley asked  the President of the Federal Reserve Bank of New York to go to Lehman's house to ask him to agree to a bank holiday, which he did at 4:20 a.m. The bank holiday was now in effect in every state,  starting the next day, Monday, March 5.

FDR and Secretary Woodin followed the three-day national bank holiday (through Wednesday, March 7) with measures to stop the export and hoarding of gold. Woodin personally supervised printing more dollars in three shifts. The bank holiday was extended to Tuesday, March 13, and Woodin made it a priority that the Comptroller of the Currency would perform stress tests quickly so that the healthy banks could be reopened.

These measures restored calm. Confidence returned. The public began putting their money back in the banks. The country returned to a growth in its GDP. Moley said:

If ever there was a moment when things hang in the balance, it was on March 5, 1933 - when unorthodoxy would have drained the last remaining strength of the capitalist system. Capitalism was saved in eight days, and no other single factor in its salvation was half so important as the imagination and sturdiness and common sense of Will Woodin.  (Moley, After Seven Years, NY: Harper, 1939, Chapter V, p. 155.)