[StBernard] The Man Who Talked Back

[Westley Annis]

The Man Who Talked Back



Everyone tries to identify that moment in a downturn when recovery starts.
It may be that our recovery started in mid-April, when Jamie Dimon of
JPMorgan Chase renounced further government aid for his company. Dimon
called the $25 billion in aid his firm had accepted early on "a scarlet
letter." Or recovery may have started even earlier, when Rick Santelli of
CNBC accused the government of picking "losers" and forcing the rest to fund
those choices.

What makes such moments significant is that Dimon and Santelli didn't merely
think their protests; they spoke them aloud. Once a few people start
speaking the truth publicly, the rest who agree soon begin acknowledging it.
The government realizes it has pushed too far. The market notices the
government's shift.

Back in the 1930s another character on the national stage spoke out--not
just once but for years. His alarms did indeed help turn the economy around.
That man was Wendell Willkie.

Willkie didn't set out in life to make it as Franklin Delano Roose-velt's
gadfly. He set out to make it, period. In the 1920s, when Willkie was a
young lawyer in Indiana and Ohio, the up-and-coming industry was utilities.
In New York innovators such as Alfred Lee Loomis and Landon Thorne were
trying to update and clean up the industry and supply power to rural
America. Dow Jones was creating a utilities index. Willkie joined a new
company, Commonwealth & Southern, and became its president. C&S' ambitious
goal: to light up the South.

When the stock market crashed in 1929, President Herbert Hoover was quick to
blame Wall Street. His successor, FDR, ratcheted up the hostility further,
referring to Wall Streeters as "economic royalists" and denigrating the
utilities industry specifically. Hoover had raised taxes, but FDR raised
them yet again, targeting business directly with creepy levies such as the
undistributed profits tax. Shortly after his inauguration in 1933, Roosevelt
established a direct competitor to C&S: the Tennessee Valley Authority ( TVC
- news - people ). The TVA's premise was radical--reorganize the U.S.
economy around river basins, generating hydropower through the public
sector. C&S' assigned interlocutor at the TVA was David Lilienthal, a
lawyer, like Willkie, from Indiana.

Willkie and Lilienthal met over a dark wood table at Washington's Cosmos
Club. Willkie wanted a deal and thought he could get one out of the younger
Hoosier. If Lilienthal and he agreed to trade power, Willkie would buy his
company time. The TVA wouldn't last forever, Willkie's thinking went; it was
too ambitious and expensive. Lilienthal had to be reasonable--after all, the
next Congress could refuse to fund him. In public Willkie would be as
conciliatory as possible. Most executives in the U.S. adopted a similarly
friendly posture toward the New Deal, the attitude being to give the new
Administration time.

But as years passed Willkie realized his cooperative stance was costing C&S'
shareholders. Lilienthal used tax advantages and subsidies ruthlessly to
achieve his boss' grand goal: to expand public-sector utilities. C&S lost in
court against the TVA, then won, then lost again. Meanwhile, the TVA
expanded in the Tennessee Valley. FDR signed legislation so restrictive to
the private sector that a clause within it was referred to as the "death
sentence." The utilities industry, which should have been a growth leader,
paid a terrible price for Washington's attacks. Between early 1932 and early
1936 the DJIA rose 88%--the Roosevelt Rally. Utility stocks barely budged
during the same time frame.

Obama-Intensity Adoration 

In a radio debate in January 1938, five years into the New Deal, Willkie
found his Dimon moment. Roosevelt's casual epithets of "economic royalists"
and "banker control" had actually chilled investment, Willkie said. The New
Dealers' high capital gains and undistributed profits taxes were retarding
American firms' recovery. The government was making the Depression worse by
getting in the way. "For several years now," Willkie warned, "we have been
listening to a bedtime story, telling us that the men who hold office in
Washington are, by their very positions, endowed with a special virtue."

Hearing Willkie, the country snapped awake. Perhaps the New Deal had all
been "a bedtime story." Maybe citizens should have spoken out in 1933, not
1938? The Saturday Evening Post dubbed Willkie "The Man Who Talked Back."
Other businessmen from other companies and industries soon publicized their
own concerns.

Citizens began to see the rumpled utilities executive as a potential GOP
candidate. In 1936 Roosevelt had won his record landslide, but in the 1938
midterm election the GOP reclaimed some House and Senate seats--not enough
to form a majority, but enough to place a thoughtful question mark over
Democratic certitude. The market rallied. Journalists developed an
Obama-intensity crush on Willkie that lasted for years. The most egregious
of their tributes was an epic poem by Muriel Rukeyser, embarrassing both in
its length (330 pp.) and bathos: "Wounded he lay. And for good reason. His
wounds our wounds."

When Willkie finally ran for President in 1940, he did not win, but he did
aggregate enough support to deal a blow to Democratic radicalism. Roosevelt
was not over, but the New Deal was. The point is not that those who talk
back are perfect. The canny Dimon probably isn't. Willkie sure wasn't. The
takeaway is that daring to talk back is worthwhile--especially when you do
it early.