Guess What? The New Deal Worked!

Since the economic crisis we’re now in is being compared to the Great Depression, the solutions being offered are being routinely compared to the New Deal. Republicans in particular have been quick to pronounce the New Deal a failure as a way of justifying their opposition to the new stimulus package and any other federal response to our new Great Depression.

Congressman Steve Austria (R-Ohio) is so angry at the New Deal that he told an audience recently that Franklin Roosevelt’s New Deal actually caused the Great Depression: quite an achievement given that the Great Depression was already three years deep by the time FDR was elected.

Whatever you think of the Obama administration’s proposals, to declare the New Deal a failure gets the history fundamentally wrong. The legacy that FDR created proved remarkably successful and remarkably enduring.

The New Deal operated at three levels: first, the programs established by the New Deal worked immediately to bring economic relief; second, the long-term changes the New Deal made to the structure of our economy brought the cycles of the economy under better control; and, finally, the New Deal re-shaped the social contract between our citizens and our government.

We usually associate the New Deal with the programs it created to put people to work, such as the Works Progress Administration and the Civilian Conservation Corps. Republicans hated these programs. They denounced the WPA as “We Putter Around.” The new Republican National Committee chairman, Michael Steele, recently parroted this accusation when he tried to explain that the government never creates jobs, just work.

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But the New Deal did provide jobs to hundreds of thousand of unemployed Americans, and while they “puttered” those workers managed to build tens of thousands of bridges, paved countless miles of roads, and planted 3 billion trees.

It’s certainly true that those programs by themselves did not end the Great Depression, though they did ease the crisis for the families who gained an income because of the New Deal. So while these short-term programs operated, the New Deal created a set of long-term structural changes to the economy whose impact lasted well beyond the Great Depression.

A few examples: Our bank deposits are protected by the Federal Deposit Insurance Corporation (FDIC), and the integrity of stock market transactions is guaranteed, or is supposed to be, by the Securities and Exchange Commission (SEC), both created as part of the New Deal. Most important, with the passage of Social Security in 1935 future generations of American workers could look forward to a more secure old age.

Few would argue that these New Deal initiatives have been anything but successful in the roughly 75 years since their creation. Former President Bush wanted to privatize Social Security and do away with FDIC. Notice that Republicans aren’t talking about that any more.

Finally, the New Deal altered the relationship between government and the economy. After World War II, Republicans and Democrats agreed that the government should take a more active role in regulating the economy, that it should use economic policy to promote the greatest good for the greatest number, and that it was obligated to provide a social safety net. They might quibble over the details, but there was a broad consensus around these points.

The result of that consensus was the greatest expansion of the middle class the country has ever experienced. The growth of the economy from the 1940s through the 1960s was widely shared. Conversely, when the economy did go into recession during those decades, the supporting frameworks set up by the New Deal helped keep those downturns relatively short.

In the early 1980s, under the leadership of Ronald Reagan, conservative Republicans set about dismantling this system. Regulations were gutted or not enforced, the social safety net was largely unraveled, and government tax policy shifted money from the middle class to the wealthiest. Since 1980 the result has been a nasty recession in the early 1990s, caused by the failure to regulate the savings and loan industry, and two devastating downturns, one in the early 1980s and the one we’re in right now.

More than that, during the 30 years in which we’ve moved away from the New Deal, the middle class has stagnated. As wealth and assets have shifted to the top 10 percent, the middle class has survived largely on credit cards and home equity loans. Now millions have no way to pay that piper.

steve_conn1.jpgThe system the New Deal initiated kept us from experiencing a second Great Depression for nearly half a century. We are in our current mess in large measure because we dismantled that system. Republicans would have us be afraid of a new New Deal. But based on the track record of the original, a new New Deal is just what we need.

By Steven Conn

Mr. Conn is a professor of history at Ohio State University and a writer for the History News Service.

Reprinted with permission form the History News Service.

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Comments

  1. Mordecai James-Bradford says

    Ha what a load of bullshit. If you pay attention to basic economics and the effects of centrally planned Economics you’ll learn that it was New Deal style policies which lead to the Great Depression. The same with the recent Housing Bubble which was spearheaded by Artificially Low Interest rates, Subsidies, Fannie Mae and Freddie Mac, Community Reinvestment Act etc.

    • Patrick Harris says

      I fail to see how Hoover’s obsession with balancing the budget during the Depression is “New Deal-style”.

  2. craig says

    This whole article is full of flat out lies. Somehow the author goes from talking about new deal programs, in which he leaves out the fact that those very programs are the reason we have such a large debt right now when you include entitlement spending like social security. It cannot be denied that social security will destroy our economy if it is not fixed soon. But beyond that, he then somehow goes on to blame Regan for the more recent recession with a bunch of babble that makes not sense whatsoever.
    Pretty much the only truth in this article is that the new deal created a “safety net” for people who couldn’t work. Unfortunately this safety net also helps people who just don’t want to work. We all know people who are able bodied and intelligent enough to work for a living, but who DECIDE to live off of the government for as long as possible. There is no doubt that some new deal programs helped ease the burden for some people during a very difficult time, but they also extended that period of time, and set us up for worse problems down the line. Namely a huge nanny state that can no longer pay for itself, not that it ever has been able to pay for itself, and will eventually bankrupt our country if politicians don’t stop playing games and deal with the facts.

  3. Jordan says

    guess what? The new deal DIDNT work! guess why the government is in the debt they are now… the new deal put them there. When the great depression started people turned to the government to help them out. Carter turned away and held to his “If business created the mess, business should repair it”. When FDR took office he turned to a socialist named Dr. John Maynard Keynes of New England to help him solve the problem… thus the New Deal. All the New Deal did for us was give the government permission to put us into a debt whole (of which is over $10 trillion today) and gave the government more power than they should have ( Thus the FDIC was born,the gold standard was lowered, government was now involved in the market, they controlled every aspect of it). Grover Cleveland stated “It is the responsibility of the citizens to support their government. it is not the responsibility of the government to support it’s citizens.” I believe we have lost that view and we look to the government too much for help when if we just toughed it out and changed some policies of our own, we would be a better nation as a whole.

  4. Rosalio Munoz says

    Franklin Roosevelt and his “braintrusters” were indeed among the positive forces in pulling our country out of the great depression, but even more so was the heightened political/economic struggle of the US people who eventually rejected the “prosperity is just around the corner” promises of our first California President Hoover. I like much of the input here, but it misses the middle president and vp Richard Nixon and the anti worker anti democracy red baiting domestically and internationally including Taft Hartley, the Smith Trials, deportations, legal murder, launching of the nuclear arms race, etc., etc., Korean War, Vietnam War, Bay of Pigs, etc, etc.

    Labor rights, class and democratic struggle of the people were critical to the success of the New Deal! I would add that the United Nations initiative of the Roosevelt(s!) was part of the New Deal.!

  5. Ben says

    Guess what? This is not proof the ‘New Deal’ was a good thing. As an example, just because a job was created by the New Deal, does not mean that there would not have been another job created in the private sector. We’ll never know since the government took the resources away from the private sector.

    And trying to claim the current crisis is due to ‘dismantling’ what the New Deal setup is absolutely ludicrous. Government interference in the market CREATED this mess in the first place by distorting capital flows, through such actions as artificially low interest rates and entities like Freddie & Fannie. Just because some New Deal programs may have been altered does not mean that there is now no government interference; the interference is just different.

    To me the idea of having the government getting involved even more in the market is great, if we want the whole economy to end up like certain areas the government already has a heavy hand: education (how is the US doing in that again?), health care, our infrastructure, housing, farming. Should I keep going? Are you getting the point? These areas are NOT functioning well, and it is areas where the gov’t is very involved.

Trackbacks

  1. [...] FDR’s New Deal: face it — pure laissez faire capitalism doesn’t work. This is the simple lesson of the 1800s. Whether caused by greed, corruption, or simply, well, panic, the financial “Panics” of the 19th century proved that a modern nation cannot successfully ignore its economy, or leave it entirely to private, self-interested actors. Make no mistake, capitalism works, and remains the engine of America’s success, but it works best complemented by a healthy regulatory regime. Regardless of your affection or distrust of government intervention in the economy, the New Deal is the reason you don’t have to worry about your money disappearing from your bank account tomorrow. Quite simply, revisionist history notwithstanding, the New Deal worked. [...]

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