Connection? Obamacare Job Impact & FDR “Court Packing” Case of 1937.

Posted on | February 5, 2014 | Comments Off on Connection? Obamacare Job Impact & FDR “Court Packing” Case of 1937.

Mike Magee

What do the latest CBO report on potential job losses associated with Obamacare have in common with the FDR “Court Packing” plan of 1937?

I’m about to answer that question. First a word on the CBO report.(1) It was released yesterday. The report suggests that the law will lead to a decrease of approximately 2 million jobs in the future. The headline begs the knee jerk conclusion that beleaguered small business owners will contract down in masses in response to the new financial burden associated with providing health coverage for workers.

That headline predictably got an extra shout-out from Speaker John Boehner who said,“For years, Republicans have said that the president’s health care law creates uncertainty for small businesses, hurts take-home pay and makes it harder to invest in new workers. The middle class is getting squeezed in this economy, and this C.B.O. report confirms that Obamacare is making it worse.”(2)

But if you were to read the CBO report or the article under the headline, you would uncover a very different picture. For example, this statement: “The budget office analysis found that the law, in effect, nudges workers to work less. The insurance expansion reduces the need for a person to take a full-time job just to get coverage. The premium subsidies effectively bolster household income. Higher taxes for richer households also reduce the incentive to work….The report stressed that there seemed to be no effect on part-time employment yet; the law’s penalties on businesses that fail to provide insurance for workers do not hit until 2015.”(2)

As it turns out, Americans decisions to stay in one job or another are affected by a variety of issues including need, pay, work conditions…and yes, until now, access to health insurance. We’ve known this for many years. Which brings me to the “court packing” controversy of 1937.

In 1932, the Depression was in full swing, and people were hurting. Franklin Delano Roosevelt was running for what would be the first of four terms of office as President. His campaign song was “Happy Days Are Here Again.” But that was an aspiration, not reality. And in his acceptance speech, he had said, “I pledge you, I pledge myself to a new deal for the American people… This is more than a political campaign. It is a call to arms.”(3)

So in the first 100 days of his Presidency in 1932, he felt a pressing need to deliver. And deliver he did. The circumstances nationally were dire. Unemployment stood at 25%. Industrial production was less that 1/2 what it had been in 1929. Farm prices were down 60%. Two million were homeless and two-thirds of the states had closed their banks.(4,5)

His “First 100 Days” were all about immediate legislative relief. With the backdrop of his dramatic words, “The only thing we have to fear is fear itself”, he sent an unprecedented number of bills to Congress and they all passed with ease. The Emergency Banking Act; the Glass-Steagill Act which created the Federal Deposit Insurance Corporation (FDIC) and segregated basic banking from speculative investing (later to be dismantled under the Clinton administration); the quarter million strong Civilian Conservation Corps; and a range of programs that left a national imprint on the economic affairs of the states and their communities – all received his signature.(4,5)

What Roosevelt did not plan on facing was the opposition of the Supreme Court, which reached a head on May 27, 1935, a date that critics of the Court would label “Black Monday”. In three rapid maneuvers, the Court attacked the New Deal by ruling against the National Industrial Recovery Act of 1933 (in Schechter Poultry Corporation v. United States); against the Frazier–Lemke Act (which allowed debt relief to farmers), and the Federal Home Owner’s Loan Act of 1933.(4,5)

Five of the Justices (George Sutherland, James McReynolds, Willis Van Devanter, Pierce Butler and Owen Roberts) had already signaled their opposition to the New Deal. They were opposed in part on the basis of states rights, and in addition did not like to see national economic regulatory actions linked to the growing social service relief effort. On the other side stood Louis Brandeis, Harlan Fiske Stone, Benjamin Cardozo, with Justice Hughes moving back and forth between the liberals and conservatives.

When a minimum wage dispute filed in New York City was decided in favor of business interests with Chief Justice Hughes siding with the Conservatives, and with the Social Security Act of 1935 coming up for consideration before the Court, Roosevelt had had enough. He decided to pursue strategies to limit the power of the Supreme Court which he saw as a threat to his national programs.

He had discovered that the U.S.Constitution did not define the number of judges that could be appointed to the Court. The number nine had been established in the Judiciary Act of 1869 which also ensured no age limit on the Justices’ terms but also lifetime full pensions were they to retire. FDR constructed a rationale, based on the advanced ages of the Justices, to add 6 new appointees (one for every Justice over the age of 70 years and 6 months), with the hope that the new appointees would more youthful and better aligned with his politics, in order to protect his legislation.(4,5)

Keeping the idea secret until the last moment, he sprung the “Judicial Procedures Reform Bill of 1937” (what became known as the “court-packing” plan) on both Congress and the Court on February 5, 1937. They were not amused, and the public and media didn’t much like the plan either. By March 9,1937, the battle, which FDR ultimately lost, was fully engaged and was the subject of FDR’s “Fireside Chat” with the American people that evening.(6)

But in a singular brilliant political move, Chief Justice Hughes sent a letter Congress co-signed by the beloved 81 year old liberal Justice Louis Brandeis. As FDR advisor latter stated, “This letter, without expressing itself as to the policy of the president’s plan, sought to prove in great detail that the court did not need any extra help to handle its work since it kept right up with its docket. It then went on to congress the opinion that more judges would make for inefficiency and delay. It was good tactics,” The clear bipartisan message – old judges are wise judges.(4,5)

Still, at the time Justice Hughes was clearly concerned that FDR might still prevail in his “court packing” strategy. So in the next relevant judgement, the West Coast Hotel Co. v. Parrish, on a minimum wage law in Washington state, he signaled compromise to the President. Chief Justice Hughes convinced Owen Roberts to join him in voting with the liberals in favor of protecting workers’ rights. That maneuver was forever dubbed “the switch in time that saved nine”. That coalition held up in March in support of FDR’s National Labor Relations Act. And most importantly, hung tight in support of the Social Security Act in May, 1937.(4,5)

There was more at stake in May, 1937 than FDR’s legacy. Social Security had passed in 1935. But like Obamacare, it was challenged in the courts. Also like Obamacare, it was an enormously complex venture. By May, 1937, 26 million Social Security Numbers had been assigned by 150 field offices around the country. 150 million dollars in payroll taxes had been collected. But the entire program rode on that decision by the Supreme Court in May 25, 1937.(8)

Following that battle, relations between FDR and Chief Justice Hughes stabilized. While FDR lost the right to “pack the Court”, many historians believe he accomplished two important goals when he went public on the issue and emphasized that 5 of the 9 Justices would be over 75 by May, 1937 and weren’t signaling any interest in retiring even though they were ensured lifetime full-pay pensions by law. Those two effects: 1) The movement of Justice Owen Roberts with the Chief Justice over to the liberal side, and 2) The pressure on aging Justices to consider retirement.(4,5)

In the next few years, FDR received the unprecedented opportunity to appoint 6 new Justices after all. Three Conservative Justices retired in 1937, 1938, and 1941 and a fourth died in office in 1939. Two liberal Justices retired in 1938 and 1939.(9) Why exactly did they retire? We’ll never know for certain. But as with shifts in employment following another massive legislative victory and bureaucratic challenge, Obamacare, it likely involved an assessment of the risks and benefits of staying in the job, and the reality that, at the end of the day, leaving the job was a realistic,beneficial, and desirable opportunity.

For Health Commentary, I’m Mike Magee.

References:

1. CBO. The Slow Recovery of the Labor Market. February, 2014.

2. Lowery A., Weisman J. Health Care Law Projected To Cut Labor Force. NYT. Feb. 4, 2014.

3. In Roosevelt History. 1932 Campaign. http://fdrlibrary.wordpress.com/tag/1932/

4. Shesol J. Supreme Power: Franklin Roosevelt vs. the Supreme Court. 2010. W.W. Norton and Co.,

5. Simon J.F., FDR and Chief Justice Hughes: The President, The Supreme Court, and The Epic Battle Over The New Deal. Simon and Schuster. 2012.

6. FDR. Fireside Chat. 3/9/1937

7. Constitution Daily. How FDR Lost His Brief War On The Supreme Court. February 5, 2014

8. Constitutionality of Social Security Act: In-Depth Research – Early Issues. 2014. http://www.ssa.gov/history/court.html

9. List of Justices of the Supreme Court and their Terms.