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The Johnson Legacy and the Obama Challenge

James Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government

The present financial crisis poses challenges and opportunities for the incoming administration of a type not seen since the 1930s. We are witnessing a comprehensive crisis of the financial system, combined with instabilities emanating from a substantially unregulated global monetary and credit system. Many of the specific difficulties are familiar from that earlier era: the collapse of credit and homebuilding, the decline of the stock market, industrial and commercial bankruptcies, crisis in state and local finance, a squeeze on the retirement incomes of the elderly, foreign debt defaults. Others are novel: in particular the complex world of derivatives and credit default swaps which have the potential to transmit the crisis from virtually any point on the globe to any other.
The advantage held by the United States in this situation consists in the institutions created under the New Deal and the Great Society, which provide a comprehensive framework for public action. These include deposit insurance, the exchange stabilization fund, the Federal Reserve Act as amended in 1934 and 1978, the Securities and Exchange Commission, Social Security, the National Labor Relations Act and the minimum wage, Medicare and Medicaid, as well as such temporary programs as the Home Owners Loan Corporation, the Reconstruction Finance Corporation, the Comprehensive Employment and Training Act, Revenue Sharing and the Resolution Trust Corporation. Lyndon Johnson’s legacy stands as a link in this great chain of action and problem-solving; Barack Obama’s will be defined by how his administration rises to the particular conditions of the current crisis.

Click here to download a PDF of the full paper.