Wall Street Protesters Should Remember Stones Tune: Amity Shlaes

Oct. 13 (Bloomberg) — What do they want, and what do they need? That's the question about the protesters who now occupy Wall Street, Washington and just about everywhere else. Theirs is what might be called a Rolling Stones situation: They can't always get what they want, but if somebody tries, some time, they may get what they need.

Protesters want redress of a proximate wrong, or some "efforts to crack down on abusive practices" of Wall Street, as President Barack Obama put it last week. They need something more general: a job or a better job; cash or insurance for health bills; a way to pay off student loans. In other words, a stronger economy.

These days, political leaders typically respond to the want, and tend to overlook the need. After all, there's nothing more dangerous to a politician than giving a compelling crowd the cold shoulder.

But history offers evidence that focusing on the want over the need can be destructive, even for the wanting. And as Washington's response to an earlier protest movement — the Bonus Army — reveals, the converse also holds: When you get what you need, the wants seem a lot less urgent.

During the recession of the early 1920s, the U.S. was stuck in the same tired mood as today. Unemployment was as high as 15 percent in some cities. The more than 4 million men who had served in World War I had a hard time finding jobs, especially because almost 40 percent had returned from the war with injuries or disabilities. Amputations, in those pre-antibiotic days, were especially common.

There were not yet mass protests like those that would follow in the 1930s. Still, the veterans made their case with their physical presence in Washington. Legless soldiers stunned the crowds when they were carried out of trucks from Walter Reed hospital to attend Warren G. Harding's inauguration.

In 1921, the Senate passed a bill that would have paid veterans a bonus of $1.25 for each day they served overseas and $1 for each day of domestic service. To the vets, the Republican president seemed sure to sign the bill. Elected in 1920 as a good old boy from Ohio who would mend party divisions, the 29th president seemed to want, above all, to be loved.

'A Disaster'

But instead of giving in to the Senate's plan, Harding spoke out against it. At a time when the White House and Congress were trying to cut tax rates and reduce the budget by half — to $3 billion from $6 billion — the new legislation would cost more than $1 billion, he warned. It would prevent tax cuts that would yield recovery down the road and amount to a "disaster to the Nation's finances." Harding even walked over to the Senate and, standing at the vice president's desk, made his case personally.

Harding was able to kill the legislation, but many senators considered his aggressive move an insult, and they tried again the next year. The president threatened a veto: It was wrong, Harding said, to "establish the precedent of distributing public funds whenever the proposal and numbers made it seem easy to do so." The bill was stopped once more.

Harding was dead within two years, too soon to see his wager's outcome. But something surprising happened. The government, the country and even many of the vets won out. The federal budget stabilized in surplus. Unemployment dropped below 5 percent. Jobs for vets were plentiful for almost a decade. The Depression that followed was terrible, of course, but there's no way one can blame it on Harding. Most of the growth in that period was real, driven by productivity gains of a quality we admire today.

March on Washington

Still, by the early 1930s, after the Great Crash, unemployment had returned, and reached levels double those of today. After Harding died, Congress had finally delivered a bonus, in the World War Adjusted Compensation Act of 1924. The law promised vets a payment for time served, but it was structured as insurance, payable only in 1945.

The vets, by now well into their thirties, converged on Washington in 1932 to demand that the bonus be paid early. President Herbert Hoover gave them the cold shoulder, and even sent the cavalry to clear their tents, thereby providing snapshots of cruelty that helped ensure the victory of his opponent, Franklin D. Roosevelt, in the next election.

Roosevelt was better at public relations, but also refused to sign legislation that would pay the full bonus early and cost the Treasury billions. Congress overrode Roosevelt and in 1936, the protesters got their want — a bill paying the full bonus immediately, passed over FDR's veto.

Needs, Not Wants

That made for a happy snapshot. The vets spent the money they received, reviving the economy and pulling unemployment below 10 percent. But only for a year or so. Both Roosevelt and Congress failed to take longer-term pro-growth measures, including creating an environment hospitable to employers. When the stimulus petered out, the economy contracted again. Joblessness rose back to pre-bonus levels and stayed high for three years. Looking back at the 1930s, it was hard to say the bonus had done much, even for the vets.

The story of the bonus protesters suggests that what presidents and lawmakers do for the general economy is more important than meeting the specific wants of a group of protesters, no matter how sympathetic their cause. The equivalent policy to Harding's today would be reining in entitlements, cutting the budget and keeping tax rates as low as possible.

Such reforms may not give the Occupy Wall Street protesters what they want. But it's still possible they'll get what they need.

(Amity Shlaes is a Bloomberg View columnist. The opinions expressed are her own.)

© Copyright 2011 Bloomberg

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