On FDR And The New Deal
Recently we have seen quite of a debate going over the New Deal and it’s impact on the Great Depression. A number of conservatives take the view that the New Deal did absolutely nothing to bring the nation out of the depression. Not surprisingly they are quickly challenged by more liberal arguments that the New Deal saved the country by ending the economic slump and restoring prosperity.
As is often the case when people take absolute positions both sides of the debate have some merit to their argument but also go a bit too far in adopting the all or nothing sort of argument.
To begin with the conservatives do have a point in doubting the degree to which the New Deal ended or solved the problems of the depression. If you look at economic statistics from the 1930′s you find the unemployment, industrial production, GNP growth, etc remained fairly bad throughout the decade. It really started to recover during the late 1930′s when World War 2 sparked a major increase in demand for production.
The second factor in the recovery of the economy started to take effect in the mid 30′s but did not really come into full bloom until the end of the decade and once again it was not really the result of government action. During the 1920′s the United States went through a major period of overproduction. We built far more of everything that the economy could ever possibly absorb.
At first this made sense because during the period around World War 1 there had not been much in the way of domestic production so there was something of a pent up demand for supplies. But once this demand wore off we started filling the warehouses with stuff that nobody could ever possibly buy.
By the mid to late 30′s this overproduction had worked its way through and demand rose again. It is perhaps in this area that we can look to solutions for our current problem in that the housing slump is very much the result of massive overbuilding of homes and it is likely to take many years for this to resolve itself.
So in one sense the conservatives in the debate have a point in saying that programs like NRA, CCC, WPA, etc did not really cure the depression. Government programs are not going to take the place of private industry unless you are going to totally abandon capitalism.
However the conservatives are wrong in saying that the New Deal did not play some role in bringing the country out of the depression era. For one thing they were vitally important in simply being there to carry us through the time that it would take to recover from the slump. Telling people that things are going to get better in the future is fine, but in the short term they need food to eat, a place to live and clothing to wear.
In that vein the New Deal was quite important in providing people with jobs and with support when they could not find them elsewhere. It also gave rise to many programs that even the most conservative person today would never even consider abandoning. Programs like unemployment insurance, Social Security, worker safety laws and so on. It laid the foundation for future programs like Medicare which are also important to the basic safety net today.
In addition the New Deal provided training for millions of workers so they would be ready for the private sector jobs when they became available later in the decade. Without these programs many workers would have remained unskilled and thus not in a position to take advantage of the later recovery.
Finally the New Deal sparked a massive improvement in the infrastructure of the nation, building the roads, dams, bridges, power plants, etc that would help to spark the growth in later decades. So in this sense the New Deal was vitally important to the recovery. And just as the overproduction during the 1920′s echoes the overbuilding of homes today, we do have a need for infrastructure improvements today as well as for programs to help people through the hard times.
Thus when it comes to this debate I think there is much to be taken from both sides, as long as you are not going to go to far one way or the other.
25 Responses to “On FDR And The New Deal”
All very interesting. Even if the New Deal did nothing in the short term to end the Depression (which I think is overstating it, but let's go with it), as you say, people still need to eat and live somewhere while you wait for the cycle to turn. It seems better in the long term if you provide that not with direct food and money for housing, but with jobs and tasks which will be useful down the road. Instead of giving a bowl of soup, build a road that may not be critical now, but will be very useful to the economy 20 years down the line.
“Finally the New Deal sparked a massive improvement in the infrastructure of the nation, building the roads, dams, bridges, power plants, etc that would help to spark the growth in later decades.”
This, so far as I'm concerned, is the most important outcome of the New Deal programs, making them well worth doing.
Jim Rhodes was an important figure in Ohio history, governor of the state for a total of four terms. He was a Republican. Toward the end of his life, he and two other former Ohio governors appeared at a seminar in Cincinnati. He was asked who his favorite president was. He said that it was Franklin Roosevelt. “Don't be surprised,” he told the audience, “I like people who do things.”
Great leaders are great improvisational actors when confronted with crises. FDR was one of the best such actors and the New Deal was a blessing to the country even if it didn't produce utopia. It did move us toward recovery in the face of a horrible crisis and it laid the foundation for future economic growth and activity.
A problem arises after the successes of great leaders, though. Their partisans and admirers want to mimic and enshrine their improvisations. Democrats were stuck aping FDR's alphabet soup responses to the Great Depression long after such approaches had become inappropriate. The same thing has happened recently with Republicans striving to out-Reagan Ronald Reagan. Politicians are as prone to fight the last wars as old generals, maybe more so.
There are lessons to be learned from FDR, particularly in the current economic situation. The most important one is probably simply: Do something.
A good post. Thank you for it.
Good well balanced explanation Patrick, thank-you for that contribution. Of course I have to wonder how things would have turned out if WWII hadn't come along. The idea that a war in modern history (even a necessary one) was critical to our growth and progress as a nation (as opposed to just being essential to our freedom) is thought provoking. Also worth speculating about is a scenario in which a less courageous or visionary person than FDR had been president. Whenever I see extremists demonizing FDR, they invariably and conveniently ignore the leadership he provided during WWII. Instead they only focus on the programs they wish to paint as socialism, programs which to them are seen (erroneously) as being somehow un-American.
JS – when discussing FDR in the light of the New Deal, I haven't made, and i haven't read, comments suggesting his role as President during WWII was anything less than stellar. It certainly was in my opinion, but the converse statement is also true. Just because he was a great war-time President doesn't make his New Deal better. There those of us, including many historical economists, that question that in fact the New Deal prolonged the Great Depression, for some of the same reasons that there is concern today that the Pelosi/Reed/Obama Stimulus (to allocate blame correctly) will end up prolonging our current economic downturn.
However, I will allow for the fact that the electrification program started as part under the guise of the New Deal was a significant step forward for the entire country. Roosevelt also had a much better ability to speak to the country about the reality of the hard times while still delivering a message of hope for the future. Unfortunately, so far the 'hope and change' message that Obama provided as a candidate has been replaced with a Carteresque 'doom and gloom'. IMHO.
FDR differs from Obama in very significant ways.
By the time he became President, the depression was four years old. Roosevelt had executive experience as Governor of New York, and many of his New Deal policies and programs he had already put in practice in NY in those intervening years.
FDR immediately declared a bank holiday…and sent his experienced people to banks across the US. Ones that didn't meet the standards did not open.
Say what you like about FDR…people had confidence that he was in charge and doing his best.
Obama has no executive experience, and it shows in contrast to FDR. Their approach to the economic situation is scattershot at best….with his team focused on who gets the nicest puffy beat sweetener in the NYT.
Compare them at similar periods in their presidencies:
FDR was inaugurated in March, 1933. In May 1933 he signed in law the Tennessee Valley Authority – an iconic example of the state building infrastructure that served the nation for decades to come.
Obama was inaugurated in January 2009. By March 2009 he signs a stimulus package that even proponents concede is bloated.
In contrast to FDR's targeted and branded programs…Obama offers a Super-Entitlement package that basically doles out money to favoured groups.
FDR launched targeted political strikes on what he saw as the enemy…the plutocrats.
The Obama shop launches their attacks on Rush Limbaugh (and then complain about it as a distraction).
There is really no contrast between FDR and Obama.
JS- there are certainly some extremists who demonize FDR, but there's also their counterpart- people who idolize him and pretend that everything he did was beyond criticism. Some of his programs (some which were passed, and others that got shot down) really were un-American in that they were found to be unconstitutional. He then tried to pack the courts in order to pass them anyway. Fortunately he failed in that quest.
I have no problem giving credit where it's due (Patrick's article did that very well and I agree 100% with the opinions he expresses) but FDR supporters have to be willing to see criticism where it's warranted as well, and to refrain from the pretense that everything will be good if we copy what FDR did. We can learn certain things from that period and from his policies but we have to be honest in order to learn the right lessons.
BTW- this is no different than the conservatives who idolize Reagan, and believe that 'all tax cuts pay for themselves' on the evidence that the Reagan cuts produced an increase in revenue. As Patrick stated, both sides need to stop overgeneralizing their conclusions to support their preferred policies.
Well said, Marlowecan. The crisis in confidence is quite striking compared to FDR.
I realize that our problems today are unprecedented and no one really does know what to do- but I imagine it was the same in 1933. Yet FDR projected confidence instead of using the magnitude of 'inherited problems' as an excuse for dithering.
Let's compare the US's track record in the thirties with that of other industrialized countries:
Germany: Hitler 1933 ( Only caused the death of a few million people)
Spain : Franco 1936 (Only caused the death of a few hundred thousand Spaniards)
France: Blum 1936( Socialist)
Italy: Mussolini 1933 (Only caused the death of a few million people)
Portugal: Salazar 1932 (Only caused the death of tens of thousands)
When you look at the people who came to power in other countries during the depression, you should thank your lucky star that FDR & the New Deal limited the damage.
And you should thank Smedley D Butler for stopping a coup against FDR that would have taken the country down the road to Fascism.
Say what you like about FDR…people had confidence that he was in charge and doing his best.
Obama has no executive experience, and it shows in contrast to FDR. Their approach to the economic situation is scattershot at best….with his team focused on who gets the nicest puffy beat sweetener in the NYT.
Agreed. While Obama has been thrust into a crisis not of his own making he isn't really prepared to handle it. He is having to rely very heavily on advisers such as Geithner and subsequently this seems more like “recovery by committee” than one that is being led.
My concern during the campaign was that his lack of experience would make him something of an empty suit and easily swayed by advisers and Democratic leaders. So far I haven't seen much to dispel that opinion.
CStanley said: “The crisis in confidence is quite striking compared to FDR.”
Yes, I agree. I am struck by this.
Particularly so given that this crisis is a walk in the park in comparison to the Great Depression.
Unemployment in the US averaged over 25% during the Depression, and well over 50% in some cities. Today unemployment is just over 5%.
Talk of a Depression is clearly media hype.
If the US had to deal with those numbers with its present government, the outlook would be disastrous.
As Don Quijote rightly notes, the Depression contributed to the rise of dictatorships everywhere.
Would Huey Long have become an American dictator without FDR standing in his way?
Would the plutocrats have engineered an American junta…as some allege they planned?
FDR deserves his place in history. Hated passionately by many…loved by millions…he saved American capitalism from itself…and saved an isolationist America from its own stupidity in the face of evil.
Good points also. I have to admit, I first laughed at DQ's comment because it came across as comparing FDR to the worst despots in order to say 'See, FDR wasn't like them therefore it was all good.'
But looking at it more closely I see the point that the crisis at that time could have resulted in someone other than a benign despot grabbing power. I think there's a danger in overlooking the dangers of the broad expansion of power that FDR wrought- but I'm perfectly willing to say that he took on these powers with the very best of intentions and even managed to make many of them temporary (much like Lincoln did in his time.)
DaGoat said: “…this seems more like “recovery by committee” than one that is being led.”
That is a very good way of putting it.
FDR's “brand” seemed to be everywhere during the Depression…from the earliest days of his administration…in all those acronymous organizations that grew like wildflowers across the landscape: the WPA, the TVA….
While Obama's picture is in magazines everywhere…we do not see his “brand” on government…or really know clearly what the Obama brand stands for.
I would have thought a targeted infrastructure rebuilding (roads, bridges, schools) program would have been how Obama would go. Obama could have branded it.
Work would be needed in every district…and the GOP congressmen would doubtless have come onside for that.
One could have seen the Stimulus working in one's daily life. Concrete benefits (if you will excuse the pun)…that would probably cost a whole lot less…and with less waste.
Building a little more confidence in government in the process.
Obama runs a puzzling shop.
FDR also had the advantage of having observed Hoover policies that had failed to improve the economy, such as the apple selling program, relying on charitable organizations to help the poor, the Bonus Army debacle, failing to intervene as food prices collapsed–it would have been reasonable to assume that some of Hoover's ideas may have borne fruit. They didn't, so FDR knew what not to do, which is always helpful in dealing with complex problems
No the U3 which is the rate the gasbags on TV use is 8.1%, the U6 which is accurate and complete is 14.8%
Of course neither of these rates take into account the 3+ million people in jail, a good chunk if which will have to be released due to the fact that the states are broke.
The issue with Obama is that:
a) He has only been in the White House 6 weeks, give the guy a break.
b) He is afraid to do what is required to fix this economy,
1. Nationalize the banks, wipe out the stock holders, give a massive haircut to the bond holders.
2. break-up the banks and put them back on the market (citi becomes four or five banks)
3. regulate, regulate, regulate (they cannot be trusted)
4. put a single payer healthcare system in place
5. Invest in infrastructure (National Power Grid, Trains, Water, Sewer, Upgrade Internet, road, bridges, etc… )
6. Raise Gas taxes to pay for the above and reduce our dependency on Oil, balance our trade deficit and improve the environment.
7. Deepen & Fix Nafta, get out of the WTO, China & India are killing the American Middle Class.
8. Put a Tobin tax into effect on all stock transactions.
9. Get the hell out of Iraq & Afghanistan.
10. Downsize our military, it 's at least 3 to 4 times larger than it needs to be.
11. Raise tariffs to protect US & Nafta trading block.
Don Quixote, your list is pretty amazing. You seriously see all of those things are directly necessary to fix the current economic crisis?
And aside from that — have you considered the ramifications of #1 and #8? Particularly as relates to stock holders? Who do you think invests in stocks, anyway?
I agree that Obama has huge shoes to fill in emulating FDR, who never seemed to let any crisis faze him. I think he helped to create a vibrant middle-class and the comfortable retirement that seniors enjoy today as well as the many infrastructure projects that were built in the '30's.
But even FDR made many mistakes because he tried anything and everything just to see what would work. FDR also never had to deal with a 24-hour cable news cycle or the frustration of fighting a limited war. I guess if they were the greatest generation, today's Americans are the softest generation— expecting a great standard of living and a secure America without any personal sacrifice.
I think the biggest difference between Obama (so far) and FDR from what I've read and seen is that FDR was a ruthless politician, whereas Obama is very much following the Clinton mold of triangulation. Obama shouldn't be given carte blanche to pursue his agenda, rather he should embrace bold ideas and sell them to the country while his popularity is still soaring. The American people will reward him in four years if his plans worked, if they didn't, people won't give a damn about his attempts to craft centrist policies.
#1 – The investor put money in the market, didn't do due diligence, took the short term profits, didn't think any further than the next quarter and let a bunch of thief run corporations into the ground.
#8 – About a few hundred millions more to invest at home every month.
Pension Plans & Mutual Funds who did not do their jobs.
No. Because taxing on both the front end and back end will absolutely kill investment altogether.
Ah. I see. And they no doubt used pennies from their personal little piggy banks to make those investments.
Speculation – yes, Investment -No.
Marlowecan, et al.
First, I think Patrick has it pretty well.
Marlowe points out how quickly Roosevelt acted. He also points out that FDR came in 3 years after the Depression started. It is easy to forget what a difference those three additional years could make. After three years of misery, people were willing to try anything to alleviate the pain. FDR had a lot more flexibility. We are nowhere near that stage now. It would be more accurate historically to compare Obama with Hoover (in some ways) .
Obama is doing what he thinks it will take to keep the country from deteriorating to the point it was in 1933. Hoover did not understand the depth of the crisis facing the country. Obama does. Even if Hoover had tried the equivalent in 1930, he would have failed. Things were just not bad enough. And, like the right today, the right still thought the old model would work. In April of 1933, FDR had a 60 to 35 majority in the Senate and a 312-117 majority in the House (5 from Farmer-Labor). No one could even hear the Republicans, let alone pay them any mind.
It's nightmarish to hear the comments from both left and right today that Obama's stimulus plan isn't working. WHAT??!! For crying out loud, it was just passed on 10 February. How could anyone with even a modicum of common sense expect to see results from the stimulus plan less than 6 weeks later? (OK, who said congress or the Republicans have common sense?) The equities markets are simply not a valid short term indicators. Of course, they can be leading indicators, but no single day or or even week's pattern is predictive. And, anyone who fails to take “The Madness of Crowds” into account misunderstands the system.
Obama is no more or less effective – at this point in his presidency – than FDR. Recent polls indicate that the American people are a lot more patient than the Washington politicians and pundits.
In homage to Rodney King: “Can't we all just be a LITTLE patient?” I mean months, not weeks.
Oh, and by the way, I don't recall that FDR walked into a couple of wars to boot.
I supported Obama, but I am not an idolater. I wish he had been governor of Illinois before running for president. But, he was not. He is what we have, and a basic understanding of economics should tell anyone that the consequences of his actions will be, at best, months away.
Richard York
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