Democrats are dusting off their New Deal history books and openly discussing the idea of re-engineering Depression-era agencies for the 21st century. Democrats’ plan: New Deal 2.0?

With visions of a massive liberal majority in the next Congress and the power to remake economic policy for the next generation, Democrats are dusting off their New Deal history books and openly discussing the idea of re-engineering Depression-era agencies for the 21st century.

Several lawmakers want to bring back the Home Ownership Loan Corp., and others have discussed resurrecting the defunct Reconstruction Finance Corp., a federal program that made direct loans to businesses. Others see a lame-duck stimulus bill less as a short-term cash infusion for the economy and more as a long-term, government-driven jobs creator — a kind of modern Works Progress Administration that invests in infrastructure, bridges and roads.


Come next year, the new administration and the new Congress may be able to build an entire new bureaucracy to govern the economy for decades. Essentially, Democrats want to put some institutional permanence behind the sweeping executive actions taking place as the Bush administration moves to shore up banks and other financial institutions with Treasury’s new powers.

“This is the equivalent of what FDR had to do with the SEC — to regulate capitalism,” said Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee. “A failure to regulate the economy appropriately is what led to this mess. … We need to do what we can to prevent it from happening again.”



Did he just say FDR?

“Democrats 10 years ago considered the New Deal to be a liability,” said James K. Galbraith, University of Texas professor and leading expert among liberal economists.

Not so anymore.

“It’s not a rush to rebuild the New Deal out of enthusiasm,” Galbraith explains. “ It’s being pushed by events, and we’re looking at models of the past for how to go forward.”

Call it New Deal 2.0: an effort to mold a 75-year-old political philosophy for the 21st-century economy.

Or maybe just the End of the Reagan Revolution.

“This exemplifies the sort of old school, big government thinking that Democrats have shown in response to this crisis,” says Michael Steel, a spokesman for House Minority Leader John A. Boehner (R-Ohio). “It's a Model T solution in a Prius era. Rather than expanding the government and giving more money to bureaucrats, we need to empower the American people with policies like the House Republicans' economic growth package.”

Privately, Democrats are debating just how far they should go in discussing big ideas. One Senate Democratic aide warns that Hill Democrats should be careful not to “box Obama in” with too many big, unrealistic promises if he is elected. A House leadership aide says Democratic leaders are not taking a comprehensive look at New Deal agencies, but are studying what worked and what didn’t.

Nobody is discussing re-creating the Civilian Conservation Corps at this point.

And even as Democrats think about resurrecting some New Deal ideas, they’re trying to figure out which Depression-era agencies need to be dismantled or reworked. Some Democrats are now embracing a Treasury blueprint from earlier this year which suggests restructuring the Securities and Exchange Commission and the Office of Thrift Supervision.

One Democratic House aide said there is active discussion of creating a 2008 version of the Pecora Commission, the 1932 panel that studied the crash of 1929 and recommended creation of the SEC and a whole new regime of banking regulations that exist to this day.

Frank, along with Rep. Rahm Emanuel (D-Ill.), has asked the Congressional Budget Office to provide estimates on the cost of re-creating the Home Ownership Loan Corp., a 1930s agency that bought and restructured mortgages. Hillary Rodham Clinton was one of the early backers of relaunching the HOLC and continues to push the idea.

Sen. Charles Schumer (D-N.Y.), meanwhile, is studying a new program along the lines of the Reconstruction Finance Corp., which gave loans to banks, farm mortgage companies, railroads and localities. The RFC actually made money — nearly all of its loans were eventually paid back — and it disbanded in 1957.

“You’ve got to learn from the mistakes of the past, but there’s no harm in looking to the past,” Schumer said of the renewed interest in some New Deal concepts. “You’d have to be leaner [in a new agency], and look for basic models that work. In the future, a lot of the old agencies will go, and new agencies may be created.”

But historians caution that Congress should be careful about trying to force old institutional models on to the complex modern financial infrastructure.

“Looking to the past in terms of institutions is a mistake,” said Sean Wilentz, a Princeton University history professor who has studied the New Deal. “Looking to the past in terms of spirit is great. ... We are at the end of the age of Reagan, but it doesn’t mean we should go back to FDR.”

Many top Democratic strategists see this as a New Deal sort of moment for America. Schumer, the chairman of the Democratic Senatorial Campaign Committee, elicited skepticism over the past year as he hyped a “tectonic shift” in the electorate, but now he’s got a shot at being the architect of a 60-seat Senate Democratic majority.

Emanuel, who engineered the Democratic takeover of the House in 2006, has insisted for two years that we are in a two-step election wave that started with the 2006 congressional takeover and will be completed with an expansive Democratic majority, similar to the post-Watergate sweep of Democrats in 1976.