On this day in economic and business history…
Is the prestige really worth a place on the Dow Jones Industrial Average (Dow Jones Indices:.DJI)? Let’s ask Pfizer Inc. (NYSE:PFE), Verizon Communications Inc. (NYSE:VZ), and American International Group Inc (NYSE:AIG), which all joined the Dow on April 8, 2004. American International Group Inc (NYSE:AIG) shareholders are lucky to even have the chance to ask, as the insurance giant received the lion’s share of the 2008 and 2009 government bailouts during the financial crisis.
That knowledge should prepare you for the sobering results of these companies’ Dow performance:
Dow nine-year return (2004 to 2013): 39%
Pfizer nine-year total return: 19%
Verizon nine-year total return: 130%
AIG total membership return (company was removed in September 2008): -93%
It was only after the Dow swapped American International Group Inc (NYSE:AIG) out in 2008 that Verizon began to outperform. Up until AIG’s removal, the index and the telecom company were neck and neck with respective gains of 5% and 8%. However, the swap was not a total loss. Kodak, one of the removed components, would go bankrupt in early 2012. Still, it doesn’t speak well for the Dow’s track record of new additions in the last several decades. One has only to look back at one horrendously bad swap at the height of the dot-com bubble to see the wisdom in standing pat.
Pfizer, the “respectable” underperformer of the group, failed to impress the market despite three megamergers since the turn of the 21st century. However, the most recent merger — with fellow pharmaceutical giant Wyeth in 2009 — turned Pfizer Inc. (NYSE:PFE)’s fortunes around. Since that merger was announced, Pfizer Inc. (NYSE:PFE)’s return has trounced the Dow Jones Industrial Average (Dow Jones Indices:.DJI)’s, 95% to 60%. Perhaps what the index needs is more time to prove the value of its choices over the companies that were replaced.
FDR’s grand plan
President Franklin D. Roosevelt signed the Emergency Relief Appropriation Act into law on April 8, 1935. The cornerstone of this legislation was the ambitious Works Progress Administration, which superseded the Civil Works Administration that had done so much to build and rebuild the national infrastructure since its formation in late 1933. For its first year, the WPA was allocated nearly $5 billion, which at the time was almost 7% of GDP. Over the course of its existence, the WPA spent more than $13 billion. Wired‘s Tony Long writes on the opposition to, and outcome of, this massive project:
Roosevelt’s detractors, who spoke of “New Dealers” and “socialists” in the same breath, liked to characterize the WPA as a politically corrupt pork barrel where legions of layabouts leaned on their shovels while getting paid for it. But the project not only got about 8.5 million people off the dole, it yielded tangible results. During an eight-year run, WPA workers built or repaired 124,000 bridges, 650,000 miles of highway, 125,000 public buildings, 8,000 parks and 850 airfields.
More than $4 billion went to road improvement projects. More than $1 billion each went toward upgrading public utilities, constructing or improving public buildings, and providing welfare projects (much of which went to women, who made up 15% of the total WPA payrolls). Despite its huge amount of aid to the nation’s distressed workers, the WPA did not succeed in returning the United States to full employment — but that was never its goal. This ambition did not emerge as a national political goal until the U.S. was well into World War II, long past the point when Roosevelt had significantly (but only temporarily) undermined the WPA’s efforts with an attempt to balance the budget in 1937. However, if nothing else, the dramatic growth of American infrastructure built by the WPA would prove invaluable in the years following World War II as the country’s middle class exploded in a great suburban sprawl.
What could the U.S. do today if it made a similar commitment to its aging, overworked infrastructure?
FDR’s not-so-grand plan to fight inflation
FDR signed another notable act into law on April 8: Executive Order 9328, enacted on April 8, 1943, in the heat of World War II, aimed to do no less than bring prices and wages under government control. Roosevelt says as much in the signing statement accompanying the order:
The Executive Order I have signed today is a hold-the-line Order.
To hold the line we cannot tolerate further increases in prices affecting the cost of living or further increases in general wage or salary rates except where clearly necessary to correct substandard living conditions. The only way to hold the line ‘is to stop trying to find justifications for not holding it here or not holding it there.
No one straw may break a camel’s back, but there is always a last straw. We cannot afford to take further chances in relaxing the line. We already have taken too many. …
All items affecting the cost of living are to be brought under control. No further price increases are to be sanctioned unless imperatively required by law. … any further inducements to maintain or increase production must not be allowed to disturb the present price levels; such further inducements, whether they take the form of support prices or subsidies, must not be allowed to increase prices to consumers. …
There are to be no further increases in wage rates or salary scales beyond the Little Steel formula, except where clearly necessary to correct substandards of living. Reclassifications and promotions must not be permitted to affect the general level of production costs or to justify price increases or to forestall price reductions.
There was very little outcry over this sweeping use of executive power, arriving when the nation was fully committed to the defeat of fascism abroad. Such an act would never pass muster today unless it were enacted in the midst of a crisis near the magnitude posed by the Axis assault on Europe and Asia. The order was finally revoked in 1946, well after the end of war — but by this point President Harry Truman was already on his way to another sweeping use of executive power on private industry. This one would not be so easily enacted.