Behind the front-stage soap opera–or is it the Shakespearean tragedy? The Moliere farce? The Marx Brothers stateroom buffoonery?–that is Washington today, much of import is going on backstage.
Legions of conservative activists, former corporate executives, and former lobbyists are working to dismantle the modern American state. Most of this would be happening if we had a President Cruz or Walker, too. (Some of us are old enough to recall an earlier such period, when Ronald Reagan took office in 1981, only then the deconstruction was done with some finesse and principle.) In such an era, it is worth taking a brief historical glance at how the federal government, stepping in for an ineffective market, has sustained average Americans–even if many of these instances of help are now largely forgotten.
Boy Scout Making Deposit, 1913
Indeed, forgetting such help from the past–and even overlooking it in the present– seems to be a general American trait.
The People’s Bank
In a new article titled “Banks of the People,” historian Christopher W. Shaw tells the story of how, from 1911 to 1966, the U.S. Post Office provided banking services to working-class and rural Americans, helping them secure their savings when the banks wouldn’t.
Banks were difficult for average Americans to use, were reluctant to lend to the less affluent, and were prone to failing, taking depositors’ savings down with them. For years, laborers’ and farmers’ organizations campaigned for postal banking services; people could deposit their savings in secured accounts at the post office. Most European countries had them; Canada started one in 1868. U.S. banks successfully fought off the idea until the Panic of 1907 and a confluence of political interests during the (Republican)Taft administration pushed through postal savings, albeit with limits on deposits, caps on interest, and no checking accounts.
Despite the restrictions, postal savings became popular in the 1910s, especially among urban immigrants and rural coal miners. The agricultural depression of the 1920s spurred many farmers to sign up. Subsequently, the bank failures and wider economic destruction of the Great Depression brought yet more depositors to the post office. “Between 1930 and 1933, [commercial] bank deposits fell from $59.8 billion to $45.9 billion, while postal savings funds skyrocketed from $164 million to $902 million,” writes Shaw. Deposits in the postal system were insured; business hours suited working people, many of whom rushed to deposit their weekly pay late on Fridays; and only the post office took deposits by mail.
Supporters of postal savings tried to raise deposit and interest levels, to allow checking accounts, and to let the system lend out money, all initiatives resisted by bankers. One of those bankers declared, “If the alarming rate of increase in the Postal Savings System continues, it will ultimately result in the destruction of our entire banking system.” However, the postal savings system did not expand, because, ironically, the New Deal resurrected commercial banking by regulating it and by establishing new sources of lending.
The Roosevelt administration created special agencies to lend to farmers and to subsidize loans to home buyers. (Previously, home mortgages were rare, short-term, and carried high interest rates, ruling out would-be buyers of modest means.) It set up the Federal Deposit Insurance Corporation, which taxed the banks to guarantee most deposit accounts against bank failures, thus alleviating the greatest fear average Americans faced when they banked.
Postal savings remained popular through World War II, especially with servicemen and women around the globe, but deposits declined afterwards, in part because of the limit on how much interest accounts could earn. Bank lobbying and free-market ideological opposition to postal savings continued into the 1950s and ‘60s while support for it waned, now that the commercial system had been compelled to better serve average Americans. Postal savings closed in 1966. Who remembers it now? (Still remaining on the agenda is poor Americans trouble getting banking services such as checking accounts and low-interest loans.)
The People’s Electricity
The New Deal also brought electricity to rural America. Building power lines out to America’s farms was not a profitable enterprise for commercial power companies (nor was developing out telephone lines profitable for telephone companies). The Rural Electrification Administration, which provided heavily subsidized loans and expert guidance to rural cooperatives, helped drive the rate of rural farm electrification up more than 200 percent in the 1930s alone, even in the face of the Great Depression. By 1950, all but 10 percent of American farms had electricity. Economists Carl Kitchens and Price Fishback have calculated what the final payoff was for these federal investments.
Kitchens and Fishback systematically compared rural counties that had received the cheap REA loans to those that had not, controlling for other differences between the counties, including the presence of other New Deal programs. They calculate that each dollar in REA loans per farm increased the total value of a county’s farm products by about 4 percent. Moreover, property values increased, farmers worked less off the farm, and small farms survived. (This accounting, by the way, does not include the saving of farmers’ and farm wives’ health by automating the backbreaking, spirit-draining labor of pre-electrified farming.)
Thanks, Gov?
I noted in a post about eight years ago the irony that many descendants of Americans who benefited greatly from such programs–for example, from crop price supports in the Depression–seem in denial and hostile to government programs. This aversion may be rooted in the insistence in American culture–especially rural American culture–on the importance of rugged self-reliance. Political scientist Suzanne Mettler’s new book tells us that it is not just the descendants of the assisted who forget the assistance.
In earlier work, Mettler showed that most Americans receive multiple kinds of federal subsidy but often do not recognize the help and certainly do not think of those subsidies as being “welfare.” The major subsidies most widely received are the tax breaks on employer-provided health and retirement benefits, the home mortgage interest deduction, Medicaid, and the Earned Income Tax Credit. Many less obvious subsidies operate through tax reductions rather than through direct payments. To Mettler’s list of federal programs, one could add state and local subsidies like caps on property taxes, cheap transit fares for the elderly, and tax-abatement incentives for new businesses. In her latest book, Mettler asks, “How can government do so much and yet be so despised?” Paradoxically, people in those parts of the nation that receive the most federal subsidies seem to most despise government programs.
Mettler shows that Americans who get their help in obvious, means-tested, and often grudging programs–for example, by applying for insurance at the unemployment office or signing up for food stamps–tend to acknowledge that assistance. But Americans who get their help in less visible or more indirect ways, notably through the tax code, or in programs that do not target the needy, such as Social Security, are less likely to report that they have ever been helped by government.
Moreover, visibly-helped Americans, for example, those on food stamps, tend, because of their lesser education and greater poverty, to vote less often than do Americans helped in less visible ways. And the latter tend to vote conservatively, against visible government help. So, when elected officials follow voters’ guidance, Mettler argues, they try to curtail the visible subsidies for the needy, not the invisible subsidies for the not-needy.
One might expect more gratitude for the help-–whether historical or recent–provided to us by our fellow citizens (through government). But the urgency to say, I did it on my own, or, My ancestors did on their own, is powerful.
Update Jan. 13, 2021: A more recent study of the US Postal Savings System is here.
