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TechnoratiGuess 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.
But the New Deal did provide jobs to hundreds of thousands 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 Corp., and the integrity of stock market transactions is guaranteed, or is supposed to be, by the Securities and Exchange Commission, 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 George W. 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.
The 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.
Steven Conn is a professor and director of public history at Ohio State University and a writer for the History News Service. Readers may send him e-mail at conn.23@osu.edu
37 Comments so far
Show Allthegreatrockyhill February 20th, 2009 12:18 am: "We need a perpetual New Deal, one that goes even further than the first one, and one that includes everyone and excludes no one."
That would be called 'democratic socialism' and it's successfully practiced in Scandinavia, among other places. But, since the word itself is a shibboleth of the corporate Republicans and anathema to the Big Media, and the 'great unmentionable' of the Democrats, we'll have to find another term for democratic socialism. How about 'True Conservative Capitalism' or the 'America-First Economy' or simply 'Americanism'?
Of course, the hardest part is getting as much air time as the corporatists on the BM to promote this idea.
We need a perpetual New Deal, one that goes even further than the first one, and one that includes everyone and excludes no one.
Madhoosier February 18th, 2009 5:36 pm
"We have started the stimulus part of the New Deal but the reform part to reign in corporate abuses and the social safety net parts of the New Deal are conspicuously absent so far. I don’t think we’ll see those until the people take to the streets."
You might be right. We'll have to wait for Geithner's next performance to see how he dances around the Wall Street abuses being left in place.
Alan Greenspan's recent appearance set the stage for more of the same, esentially saying that we can't control human behavior (Wall Street fervor) and can't predict/control bubbles.
Seems to me that millions of people would be robbing banks and stores on a daily basis if human behavior couldn't be controlled. When laws are made and enforced to control sociopathic behavior through punishment (jail time), the majority will always choose to control that behavior for fear of spending time behind bars.
As far as bubbles go, if you fail to learn from history, it WILL repeat itself as it has done time and time again. We are bailing out another real estate bubble today as we did in the 1980s, but this time on a much grander scale. Did they not learn from history that you can't artificially elevate real estate values without causing a bubble? Economics 101!
In an article at Counterpunch.org Paul Craig Roberts tell us that the stimulus will not work, partly because it does not address the issue of 'free trade,' which he says is not really free trade at all, but treason:
The American economic elite are hiding their treason to the American people behind “free trade.”
I want to say this as clearly as it can be said. The offshoring of American jobs is the antithesis of free trade. Free trade is based on comparative advantage. Jobs offshoring is an activity in pursuit of lowest factor cost--an activity that David Ricardo, the originator of the free trade theory, described as the betrayal of one’s own country in pursuit of “absolute advantage.”
The “free market” shills on the payroll of the U.S. Chamber, NAM, and in economics departments and think tanks that are recipients of grants from transnational corporations are whores aligned with elites who are destroying the American work force.
Obama has appointed to his National Economic Council blatant apologists for the offshoring of American jobs.
Possibly Obama loves the country that elevated him to its highest office. But his administration is populated with people whose loyalty does not extend beyond elites to the American people.
chessgames56 February 19th, 2009 8:55 am, I agree with Roberts' analysis that ruthless corporate 'free trade' multi-national capitalism and the outsourcing of American jobs and wealth, of the kind practiced recently, is the antithesis of the ideals this country was founded on and treasonous to a government of, by and for the people.
The only argument I'd make is that the apologists for the theories that caused this global economic catastrophe no longer have much credibility, even within the investor class. (Babbling idiots like CNBC's Rick Santelli notwithstanding -- that man's as stone crazy as Michael Steele and Steve Austria.)
There has been a collapse of trust on Wall Street and throughout the banking system and a consequent curtailment in the movement of money; either Obama restores that trust with government regulation and gets the money circulating again, or the country, and the world, goes down the tubes.(As it is, we are going to have a year or two worse than the Great Depression until there is some balance restored.)
We either return to Keynes and Galbraith, or perish with Friedman and Laffer.
The "stimulus plan" is, like the previous bailout was, a transfer of wealth from those who pay taxes, now and especially in the future, to those who don't, or barely do. Some who benefit from this will be deserving, hard-working people, but there will a great burden of shady projects and operators.
The same largely applies to the perpetuation of the wars. Ask yourself what would be the immediate economic effect and highly-placed political effects of ending current imperialist military endeavors, and you will understand why Obama, the future Butcher of Afghanistan, can scarcely pull out, even if he wanted to.
The Roaring 20's, Great Depression, and FDR have an unmistakable rhyme with the 90's, today's economic mess, and Obama. I think there is every reason to fear that the next phase will also have its precedent in WWII. The only way out is international socialist revolution, but the party to execute that task is nowhere in sight. Building that party is THE task of today's heros.
And Republican president Herbert Hoover pursued a direction that made the situation worse. That is why those homeless camps in the Depression were called Hoovervilles. FDR and his wife Elenore did alot to boost the morale of the American people through extremely hard times. But it was the massive effort to industrialize and provide military and factory jobs in WWII that actually brought us out of the Great Depression.
Other than a war to fight for national survival, I see no other option available to FDR that would have brought us out of the Great Depression.
Should history be revised to fit Republican dogma? No. The uncomfortable truth is that no one really knew about how to bring the world out of a Great Depression in that era. For economists this was the parallel of agriculture and no one knew about how to avoid a Dust Bowl (winds basically blew top soil away due to over use of crop lands instead of using crop rotation, cover crops and fertilization). The state of the art for both economists and farmers wasn't advanced far enough.
I think Obama has part of the solution absolutely correct, JOBS. However, I think we need to return to the industrial production based economy we had just after WWII. We have become far too dependent on making money by money investment. We are far too dependent on the stock market and stock brokers. If I were to look at our history and come up with a solution from the past that would be relevant to our current situation, it would be a mix of the New Deal and the Marshall Plan which enabled Japan to recover from WWII to quickly become an economic world super power through converting war time industrialization to commercial industrialization.
OBAMA'S STIMULUS PLAN WILL WORK MODERATELY WELL FOR 2 OR 3 YEARS.
After that, the economy will go into an even steeper dive because the pile up of debt will wreck the dollar. As Cassandra says: "in 1933 the US Government did not have the kind of debt it does now."
When the level of debt is so high that China and Japan, et al, no longer believe they will be paid back, they will cease to invest in dollars, or even pull out, and the dollar will crash.
There are three possible responses to the debt pile up. 1) Raise interest rates to attract more loans, which will dry up private investment, and 2) reduce government spending. The result of that will be the same as in 1937 when Roosevelt did it. Reduction in purchasing power will restart the recession.
A third option, however, would work. Raise taxes on the very rich to pre-Reagan levels: 70% income tax as opposed to the present 35%. When you transfer wealth from multi-millionaires, who don't spend very much of their income, to create jobs for workers, who spend it all, you stimulate spending without going into debt.
Without raising taxes on the rich the economy cannot be saved. Will Obama do it? Not bloody likely. Obama is the man who just asked Congress to soften income restrictions for bankers on the dole. On the advice of his good friend Treasury Secretary Geithner. Even if Obama wanted to trim billionaires somewhat, it would never get through a filibuster in the Senate. And Harry Reid is not about to go for majority rule.
A debt fed stimulus will work for a while, but after that, get ready for some very rough times. The good news. Since many countries will not continue to drink the cool aid of billionaire dominance, as we do here, we can anticipate the end of American hegemony.
"When you transfer wealth from multi-millionaires, who don't spend very much of their income, to create jobs for workers, who spend it all, you stimulate spending without going into debt."
But don't the rich invest their money in ways that could stimulate the economy? Or do the put it under the mattress as this post seems to imply?
WVK
Hello WVK,
Especially in a time of recession, when there is no purchasing power because working people have no surplus cash, CORPORATIONS AND THE RICH DO NOT INVEST in new production. Why should they produce more when there is no one to buy? Instead, they use their surplus cash to 1) SPECULATE, and build up stock, housing and other bubbles, and 2) BUY EACH OTHER OUT. Bigger companies buy out the smaller, creating bigger and bigger monopolies, as is happening now among the banks. Do we really need more bubbles, which inevitably burst? Do we need bigger monopolies? And, oh yes, do we really need to give rich people more money so they can continue to buy our democracy?
If you tax excess profits and incomes to create jobs, the money eventually goes back to corporations as people spend it, but on the way it allows working people to thrive. And when top executives are taxed at a pre-Reagan rate, corporations find that it makes more sense to invest in hiring more lower salaried jobs. Everybody benefits, except those who need to buy a second yacht or a fourth house. (Senator McCain wasn't sure whether he had 7 or 8, remember?)
Another benefit from taxing the rich. You get to recycle funds to SOCIALLY USEFUL projects. Question. Do we need more cars, or more busses and trains? Where I live (Berkeley) "rush hour" means approaching the Bay Bridge at 10 miles an hour, and "rush hour" now extends past 11 AM. Busses and trains traditionally earn about 25% of their budget from fares; they require a government subsidy.
Conclusion? Taxes on the rich are necessary not only to save the economy, but the planet as well. Rule by kleptocrats created our various crises. Only restoration of money and power to We the People will pull us out.
LeeAnnG
They speculate with it, trade it back and forth among themselves, and invest it in stocks that don't do anything to stimulate the economy for the other 90% of us. In effect, yeah, they put it under their collective virtual mattresses where it stays in the holdings of the upper 10%.
Are you sure about that?:
Warren Buffett Invests In Harley-Davidson
"Harley-Davidson unveiled a three-part strategy in January to addressthe current economic environment with a focus on stimulating consumerdemand by investing in the brand, bringing down its cost structure, andsecuring additional funding for its financial services unit."
http://247wallst.com/2009/02/03/warren-buffet-1/
WVK February 19th, 2009 4:05 pm, read my post above. Buffett is one of the few rich people who are investing their money -- the rest are depositing it in foreign banks and waiting for the storm clouds to pass.
i wonna get on the record stating obama's economy will not work without turning 180 degree / most spending goes to china via stores and shopping malls / leaving corporations as the only market players reduces the cost of labor even more
edweg
All the very positive aspects of the New Deal are mentioned. The NRA (National Recovery Administration)is not. It was involved in price controls,invewstigated by Clarence Darrow and found to be "an instrument of monopoly". It was declared unconstitutional in 1935. Some argue it was one of the reasons we could not get out of the Depression--that it was not, in total, the effect of the war but that the government and business, together, kept trying to control prices a la Mussolini.
Araquin, 6:13pm, notes that the agricultural policies have been subverted to serve big business rather than small farmers. I would argue the same for Social Security which has been spent.
Also, in 1933 the US Government did not have the kind of debt it does now. In the 2007 fiscal year we paid $400 billion in interest on that debt. We added about 1.2 trillion last year alone and at least a trillion a year for the next 2 years. Sometimes the best choice is to bite the bullet because otherwise there will be a huge explosion. Things are so bad now because we've been borrowing our way out of problems for 50 years.
With one important exception.
The government under Clinton balanced the budget and started to pay down the debt.
Where would we be now if GWB had continued those policies and had chosen NOT to get us into unnecessary wars.
Face it, the finger really does point to the Repugs. They behaved as irresponsible thugs. The Dems might have been enablers, but I believe in prosecuting the murderer first.
(good information in the rest of your post though....it is important to remember that even those we support are far from perfect)
That's not true. There was a budgetary surplus on paper, but they used false accounting. I reccomend taking a look at the shadow stats website.
The reality is our debt can never be paid off because there isn't enough money in circulation to pay off our debts, private and public collectively. The way money is created is a huge scam. It's a bigger issue than any of the ones we squabble over because it keeps us in debt slavery.
If the author meant that the New Deal saved capitalism from a socialist revolution, he's probably correct. Fortunately, he doesn't suggest that the New Deal brought capialist out of the Great Depression, because it did not. Capitalism was forced to returned to the tried and true method of getting rid of overproduction - war.
-----------------------------------------
What Is Marxism? - a short primer on a subject the working class needs to know.
http://www.marxist.com/Theory/what_is_marxism.html
What I don't understand is why the big-shot republican money-mongering advocates of privatization don't "capitalize" on the current economic disaster they presided over by offering a "privatized" version of a stimulus plan?
HEY REPUGS, put your money where your month is! Fix the problem with your grand idea of privatization or step aside, shut up, and let the government fix your mess.
Grousefeather February 18th, 2009 7:18 pm, that's because the only one of the wealthy top 10 percent willing to put money into Bush's stinkbomb of an economy is Warren Buffett -- he invested $5 billion of his own money into saving the miscreants at Goldman Sachs. Of course, he negotiated a good return on his investment, unlike the idiots in Congress.
I'm incensed every time I hear some Congresscreature throw up his hands and say there's nothing they can do to hold Wall Street accountable for the $350 billion they received in the waning days of King Junior's Reign. For God's sake -- they're lawmakers -- make laws holding them accountable retroactive to the receipt of the funding. If the former 'Masters of the Universe' don't cooperate, start indicting them and throwing them in jail.
Speaking of Goldman Sachs -- did you know they aptly owned the Home of the Whopper?
Goldman Sachs and Burger King (Robert Greenwald video)
http://www.youtube.com/watch?v=wABI2dwbQMQ
I love this!
I'm going to use this one next time I get into one of the typical 'big government' fights with the idiots back in the heartland.
The author mentions the planting of millions of trees. If not for the Soil Conservation Corp the Dustbowl of the 1930's would have turned Middle America into a desert. The republicans fought it until the dust clouds arrived all the way to Washington. Google Black Sunday and Dustbowl for the background
According to my book, see below, THAT part of the soil conservation wasn't a smashing success at all, though. They basically perished.
Other programs re the Dust Bowl were more successful.
Yes the planting wasn't a complete success but it raised awareness that help was needed. Ideas like crop rotation began to be understood better. The farm subsidies kept farmers from walking off their land and leaving it to ruin. All of these and other things combined to save Americas topsoil. If we hadn't begun to repair that when we did, we would not have been able to feed our army not to mention export any wheat to the world later.
I think we need to be careful as to what the truth is. There is a good case to be made that the New Deal did not end the Depression, World War II did, precisely because the government was not willing to spend more than a certain amount on non-military spending. The New Deal was good because it helped the working class, which only occurred when pressure was applied to the government. We need to start thinking not in terms of "what works" as Obama is fond of saying, but in terms of who it works for.
The author admits the New Deal didn't end the Depression. You rae quite correct to point out the interest aspect of all legislation--"in terms of who it works for."
As I wrote the author, "we" didn't dismantle the new deal; a bipartisan group of politicos did--both Democrats and Republicans--so that the entire political spectrum of the elite is now against the New Deal, not just reactionary Repblicans like Reagan and Bush.
Thank you for pointing this out. Everything Reagan et al did had full support of the Democratically controlled Congress. Together they even created the S&L debacle which transferred huge sums of taxpayer money to the top. Until folks understand that's the real name of the game, nothing will change. The Republicans were quite open about their intent to dismantle the New Deal but I never once heard a Dem charge them with that in an election campaign.
Yet another example of the failure of the federal government because its blueprint does not account for political parties and how they operate, although the Framers can be excused for not doing anything about them as they didn't exist yet. The next constitution must expand democracy--indeed, in reality initiate it for the very first time in the USA--by decreasing the representation ratio (the initial ratio was set at 1:30,000 but is now about 1:712,650), affirming universal suffrage (no exclusions other than lack of citizenship), proportional representation that eliminates the duopoly, a tri- or quadricameral legislature with differing mandates, a fourth branch of government--the Regulatory Branch--whose officers are directly elected nationally, a national referendum mechanism, exposure of all elected officials to recall votes at either the district or national level depending on the official involved, 100% public financing of all elections, and an end to term limits.
Now imagine getting all that adopted in one amendment. No way, most will say. And since there are more problems with constitution 1.0, we must have more than just the above additions, which is why I'm arguing for constitution 2.0.
The only New Deal invention that turned into a billion-dollar gravy train which defeated the original purpose were the farm subsidies, still ongoing, originally designed to help all those farmers who had been wiped out by the Dust Bowl, if I may add my newly acquired insights.
And excellent article. Professor Conn rightly points out that the REpubliccans have been seeking to discredit the New Deal since its inception. They were infuriated that it worked so well, working long and hard to insidiously undermine it. It was indeed the Reagan administration that successfully sowed the seeds of greed, grab, brag, and lie. Other names could be mentioned, but the main ones are Cconservative" and "REPUBLICAN."
“De-Republification of America has begun, but it shall be a generation until its violence is subdued. “
I've just finished Timothy Egan's excellent "The Worst Hard Time" about the Dust Bowl. When I read about everything FDR accomplished - even his opponent in 1936, who had denounced FDR' New Deal during the campaign, Kansas governor Alf Landon, later in life admitted that the New Deal had "saved our society" - I am simply amazed that the root of a lot of this mess, Ronald Reagan, is still revered and his legacy is never attacked the way it should be, while FDR is being smeared.
I don't know where the Democrats have hidden their guts. But they must be extremely well hidden.
The new deal worked and so will Obama's plan.
GOOBAMA!!!!!!!!!
JOEHOPE -- i am one of those that are both HOPEFUL and Still optimistic that Obama is president rather than McCain or any "conservative republican"....and of course, like others, i also have MY own misgivings about certain choices or decisions by obama (the "surge", seemingly embracing bush's terror war policies..a certain dependence or "faith" in the people whobrought the usa and the world the economic debacles..etc)......
BUT like you -- i TOO badly want to keep that wish and hope alive that SOMEHOW obama -- whatever deepest decency and conscience is in him -- will find a way to correct not just his own decisions that might turn out badly - as well as find the STRENGTH to lead, use his bully pulpit, his mandate, to push through SUCCESSFULY what we ALL know he was voted into office for -- the things that are DECENT and CIVILIZED - such as those explained about the "new deal".
do you know, abroad EVEN people in such "unpolitical" undertakings - such as sports for example - have SAT UP to his election because of what everyone in the world probably knows , deep down, is a chance, no matter how slim, to undo the DEVASTATING , HARMFUl CRUEL policies of these people who call themselves "conservatives" in america?
i read of even a remark by a VERY young champion -- he is today the "best tennis player" in the world ...a spaniard named Rafael Nadal -- who , only at age 21...is so accomplished with an already legendary reputation as a great fighter and a very dignified young man.....and of course like many in "non political" professions tends where they tend to be "neutral" in public comments...this "boy" actually said something such as :
"The American President...Mister obama ....i think it is wonderful -- for the chance for change...because the world is so full of suffering and wars.....I think the world right now really LOOKS at him as the President of the world....we are all hoping so much for him...but the problems he has to face ...they are so big, i think, maybe he can't do them all....but I think it is a long time since maybe the world saw a decent person to lead like him...i hope he can help put a stop to these wars and so much poverty and suffering".......
can you believe that?
this is proof -- the world may NOT be able to "vote" for an american president, even if the actions of the USA has unfathomable consequences everywhere for its power and influence -- BUT the world IS WATCHING...and would LIKE for someone like OBAMA to Succeed in the GOOD and BEST ways possible.
let us indeed hope CONSCIENCE and SINCERITY are president obama's greatest allies and strengths and that these will triumph over the EVIL influences that surround him in washington.
he NEEDS all the "push" help and shove FROM the best sides of
"the force"...including OUR best thoughts and wishes for his success as a good president.
Yes, I think this may have bee the first truly global election. I first realized that after seeing the rally in Germany. I also feel it's also of great importance to the world (with America's history of slavery and foreign intervention) that Obama is an African-American. It shows that America has already "changed" and we can change again.
I'm very glad you are supportive of Obama, but what do you feel the need to "push" him on?
I'm blown away by how many campaign promises he has already delivered.
I know you feel the stimulus bill is too loaded with tax cuts and not enough for the poor (I'm assuming you agree with MADHOOSIER). But although it may seem counter-intuitive, it probably is the only thing they can do at this point, there's not a lot of options left. Helping lower income people may seem like the moral thing to do, but that's not how you grow an economy. If the largest corporations go under then the working poor are the first to suffer. I'm no economist, but I've been listening to the Planet Money podcast on NPR and reading the blogs on the WSJ, and apparently Obama's plan will be the true test of Keynesian economics. It's all a bit over my head, but personally I have no reason to doubt Obama's "CONSCIENCE and SINCERITY". So I trust him.
We have started the stimulus part of the New Deal but the reform part to reign in corporate abuses and the social safety net parts of the New Deal are conspicuously absent so far. I don’t think we’ll see those until the people take to the streets.
Upon taking to the streets what are the odds that instead of calls for the rest of the New Deal to be implemented instead SWAT police violently stamp out the protests? 40/60 with the SWAT police having the higher odds.
Obama's plan devotes too much of the stimulus to tax cuts and too little to direct spending on infrastructure and direct aid to the unemployed-underemployed. Since only three republicans voted for the plan Obama should have said “screw’em” and cut the olive branches to the republicans from the bill.
because this is the PART of the AMERICAN people -- en masse in the majority ..to SHOW themselves beyond the "voting".
Franklin Delano Roosevelt said something:
i paraphrase:
"the new deal is a good plan ..yes...the american people, my fellow americans you have put me in the presidency to serve you --- NOW -- MAKE ME DO IT".
in other words -- obama CAN NOT DO IT ALONE ..he needs PRESSURE and REMINDERS from the american PEOPLE ...and a WARNING to those around him NOT TO INTERFERE with the best things he would like to do.
a LOT depends on the american people SHOWING their INSISTENCE for the things they voted him for to be DONE..nothing less.