Analysis: Why Obama has it much easier than Roosevelt

Many people have compared the economic crisis faced by Barack Obama at his inauguration this week with the one that faced Franklin Delano Roosevelt when he was inaugurated on March 4, 1933. Many are wondering if New Zealand faces the fallout from a repeat of history and a return to Depression. There are many parallels. Both Presidents inherited nations desperate for change and cloaked in a climate of crisis and fear. Both Presidents spoke in stark terms about the economic and security threats to America and the world. Roosevelt talked of "nothing to fear but fear itself", while Obama said the nation had chosen "hope over fear". Confidence in the American model of capitalism was fundamentally shaken, if not broken, when both presidents took office. Faith in the financial systems of both eras had evaporated. Markets were in turmoil. Both were planning massive government spending programmes to rescue the economy. But a closer look shows that Roosevelt had a much tougher job than Obama.

America was already three years in to the worst depression of the century when Roosevelt was sworn in. Unemployment was 25% and many people were short of food and basic medical care. Most of the banks were closed to prevent panicked depositors from trying to withdraw the rest of their money. Many were hoarding gold. One of Roosevelt's first acts was to declare a "˜holiday' for all banks to give them time to reorganize under the supervision of the government. He then ordered the effective confiscation of all privately held gold and banned hoarding of gold. Roosevelt also faced the growing threat of Nazism. Hitler had just been voted in to power and was rapidly destroying the remaining vestiges of democracy and civility in Germany, which had the capacity to build an army to threaten the rest of Europe. Many wondered if Roosevelt would be the last US President before a socialist revolution destroyed America's democratic tradition. Obama, however, has inherited an unemployment rate of 7.2%. The American economy has been in a bad recession for a year, but is still a long way from a depression. US industrial output fell 47% from 1929 to 1933 and real GDP fell 30%. Even the most pessimistic forecasters are expecting US real GDP to fall just 5% over a two year recession ending in 2010. Americans are also a long way from starving. If anything, America suffers from over-consumption and too much to eat than too little to eat. Medical care is excellent for many and available for most. The banking system is still operating. Payrolls still work, ATM machines still dispense cash and few depositors are worried about losing their money in savings accounts because they are insured by the government. The new President does still have some massive challenges that New Zealanders will hope he can surmount. American consumers and businesses have gone into their shell. That is dangerous for both the American economy and for the rest of the global economy. It is particularly relevant for New Zealand, which is a very open economy that depends either directly or indirectly on American consumers for its income. Our biggest trading partner, Australia, exports the coal and metals that power the factories in China, Japan and Korea that export the cars, electronics and nick-nacks that Americans have been buying hand over fist in recent years. Our top 5 trading partners (Australia, US, China, Japan, Korea, Britain) depend to a large extent on the US consumer. Obama is preparing a massive fiscal stimulus and more financial bailouts to encourage consumers and businesses to abandon fear and start spending and investing again. He will not have it all his own way. The first financial bailout supported by Obama appeared to disappear into a black hole filled with bankers reluctant to lend. A Democrat controlled Congress may actually be more troublesome than a Republican one. We all hope it can avoid the mistakes of the Democratic Congresses in the 1930s, which embarked on a wave of trade protectionism that deepened the Depression.