Democracy In Power: Investing in America in a Time of Crisis

The Hill Heat Book Club, with Jordan Haedtler.

Late last year, as the Biden administration was winding down and I braced myself for the tough road ahead, I had the opportunity to read a book by an economic thinker whom I really admire.

Democracy In Power is Sandeep Vaheesan’s new history of electrification in the United States. The book contains a powerful vision for how to conduct energy policy in a manner that addresses the climate crisis while also advancing democracy. Its release is very timely, since it focuses on American energy policy during a time when extreme wealth concentration gave way to a global depression, which fueled the rise of fascist governments.

Vaheesan’s history is most detailed in describing how New Deal public power policy helped overcome these enormous challenges. This involved imaginative and expansive building of new institutions and ways of conducting public policy. As Vaheesan told me,

The early chapters tell an exhaustive story about American utilities in the late 19th and early 20th century. Public power advocates like Cleveland mayor Tom Johnson warned against allowing private utilities to become the powerful and pernicious political forces that they’ve become today. Utilities fought hard against these crusaders. Eventually, the tension resulted in a compromise known as the “regulatory compact.” 

Progressive Era figures like Hiram Johnson and Woodrow Wilson believed the regulatory compact would be sufficient to manage the delivery of electricity to businesses and households in the public interest. But by the end of the 1920s, the arrangement turned out to mostly be working to concentrate wealth. Utilities had seized on the regulatory compact to form complex financial holding companies, steering profits to executives and avoiding electrification of rural communities.

Then the Great Depression hit. Numerous scandals related to financial holding companies broke out, including the collapse of the financial empire of Samuel Insull, godfather of the regulatory compact. Vaheesan writes that “Millions of ordinary Americans who had invested in holding companies relying on the glowing representations of their executives lost their life savings.“

Shortly before winning the 1932 presidential election, Franklin D. Roosevelt delivered a landmark campaign speech condemning the “Insull monstrosity” and calling out the corruption behind private utility regulation. Vaheesan describes how FDR “criticized public utility regulators, including those in his own state, for not aggressively protecting the public from monopolistic rates and instead meekly serving as umpires adjudicating disputes between customers and power companies.”

Once in office, FDR oversaw a New Deal Power Policy that transformed the American energy landscape. One of the most powerful institutions in implementing this policy was the Reconstruction Finance Corporation (RFC), which was created at first to respond to the emergency of the Great Depression, but ended up being instrumental in shaping the industrial policy necessary to fight World War II. It was necessary to deliver electricity to areas of the United States that hadn’t had it before, and to build a reliable and affordable electricity supply for the whole country.

Parallels to the present moment have been observed by financial and economic scholars. In response to the COVID crisis, Cornell Law professor Saule Omarova proposed a “modern version of the RFC” known as the National Investment Authority (NIA). In a paper titled “The Climate Case for a National Investment Authority,” Omarova described how the NIA’s infrastructure bank and asset manager functions could also be useful in coordinating the federal government’s power to address the climate crisis.

Through the Inflation Reduction Act (IRA) and other Biden administration initiatives, it was possible to see how the American economy could be restructured around the imperative of addressing climate change. Although Biden’s energy policy was somewhat muddled, the IRA’s roadmap to integrating climate and industrial policy was visible. Incomplete though this roadmap was, it has only taken a few weeks for Trump to violate the law, circumvent Congress, and seriously damage major aspects of the IRA’s vision for economic transformation.

It has never been more important to hold the future in mind. Works like Democracy In Power help us understand the democratic institutions that will have to be repaired and built anew to address the climate crisis.

In late January, I spoke with Vaheesan about his book. Our conversation focused on the New Deal era, when new policies were enacted and new institutions were created to break up wealth concentration; electrify America; fight the economic depression; and defeat fascism.

In the first excerpt from our interview, coming to your inbox tomorrow, Vaheesan describes the moment in 1932 when FDR outlined his vision for public power. The full interview will run in segments over the coming days.