The actual record is quite different, and FDR’s New Deal was anything but liberal. Indeed, the centerpiece of FDR’s economic recovery plan, the National Industrial Recovery Act, replaced Herbert Hoover’s relatively aggressive antitrust enforcement with a national policy of state-encouraged cartelization, complete with immunity from the antitrust laws, analogous to that in place in fascist Europe. More than 500 industries eagerly proposed “codes of fair competition” that harmed consumers by fixing prices, and also disadvantaged small entrepreneurs, minorities, and others on the margins of economic life. The same was true of the Agricultural Adjustment Act and regulation of the coal industry. Progressive hero John Maynard Keynes even warned FDR that the NIRA would slow recovery by mandating inflexible wages and prices, and thus interfering with the process of macroeconomic adjustment. Indeed, FDR’s policy of “bold experimentation now, get permission later,” which Feldman holds up as an example of what we need today, created so much legal uncertainty that businesses held back on investment. Keynes made this point at the time, declaring in exasperation that FDR should either nationalize the utilities or leave them alone, but in any event should stop chasing them in a different direction every week.
Recent empirical work confirms the suspicion by Keynes and others that the NIRA and similar policies combined to slow recovery and destroy wealth. Thus, the “activist” Supreme Court did consumers and workers a great favor when, in Schechter Poultry, it unanimously struck down the NIRA, thereby helping clear the way for economic recovery. One can only imagine the additional economic misery that would have resulted had the Court validated the sort of all-encompassing regulatory authority that FDR and other progressives were seeking to wield.
The reader who did not know better might conclude from Feldman’s narrative that coercive interference in the free market inevitably protects helpless workers and consumers, enhancing public welfare. The actual historical record suggests otherwise. Feldman’s errors are not simply academic; the mistakes and errors in his account point to the very substantial risks posed by the sort of Leviathan that progressives seek to empower by molding the Constitution in their own ideological image. If, as Feldman would have us believe, the modern conflict between conservative and progressive constitutional visions is a rerun of the debates during the Lochner and New Deal eras, then Americans would do well to learn and incorporate the real lessons of economic history instead of being misled by the self-serving liberal lore that pits heroic progressives protecting the poor and the weak against conservative judges protecting such abstractions as private property and the free market. Property rights, after all, are exercised by individuals who, via voluntary cooperation in free markets, create the very wealth that progressives are so anxious to redistribute.
Ultimately Feldman is mistaken about the relationship between government and the market. He sees the market as an external force that threatens to overwhelm democracy and create economic catastrophe if left to its own devices. For example, Feldman treats the financial crisis as a straightforward failure of unregulated capitalism. We believe this view is simplistic at best and in many ways just wrong. The primary cause of the financial crisis is the pervasive way in which government affirmatively acted to create perverse incentives through loose monetary policy (set by the Fed, not the market) and massive moral hazard problems created by implicit and explicit government guarantees of major financial institutions. It isn’t that we have a market that spontaneously created a huge problem independent of government policy, which taxpayers then had to clean up. Rather, misguided government policy created the crisis.
Hence, we ultimately agree with Feldman that there are huge dangers when concentrations of capital manipulate the political system. Feldman thinks that the problem is that the market is prone to titanic bouts of irrationality from which the state must protect us. He fears politically powerful businesses and an allied Supreme Court will prevent benign regulators from acting. We think that the politically powerful businesses have already in large measure captured the none-too-benign regulators and it is this pathology of government policy — rather than the irrationality of the market — that caused the financial crisis.
One final note: Feldman’s essay exemplifies a longstanding disconnect between many progressive scholars of constitutional law, on the one hand, and basic principles of political economy and economic history, on the other. Indeed, many of the progressive constitutional thinkers that Feldman is calling to the breach seem — at some deep level — uninterested in markets and how they function. Feldman views the financial crisis through the lens of constitutional law, as though legal doctrine were itself capable of interpreting and evaluating what are at bottom economic phenomena. Likewise, the understanding of the market that he presents is based on a historical narrative crafted by constitutional lawyers rather than economists. This is, we think, ultimately a very bad way of thinking about market regulation. We can only hope that Elena Kagan rejects this faith-based approach in favor of one based on evidence, experience, and economic logic.
– Mr. Meese and Mr. Oman are professors of law at the William & Mary Law School.