The New Deal

Introduction

It’s possible to interpret presidents Harding, Coolidge, and Hoover in very different ways.  Historians are even farther apart in their interpretations of our next president, Franklin D. Roosevelt.  FDR promised the American people a "new deal," and he gave them just that.  Roosevelt's presidency saw many fundamental changes in the American political system.  These changes made Roosevelt a hero to many, and Roosevelt is one of the most loved presidents in American history--with good reason.  But many would argue that Roosevelt's "New Deal" was a raw deal, and Roosevelt also has the distinction of being one of the most hated of American presidents--with good reason!  

1932 Campaign

In 1932, the country was in the midst of the worst depression it had ever experienced, and Hoover’s attempts to end that depression hadn’t helped.  Maybe they had made things worse!  Yet was there and alternative?  The Republicans didn’t seem to have much choice other than sticking with the “Wonder Boy,” “Hoo but Hoover.”

The depression and unhappiness with Hoover meant that FDR, the Democratic candidate, was going to have a relatively easy time winning the general election.  He made few promises other than the promise of a “new deal.”  Whatever it was, Americans were ready: let’s throw in this hand and try something else.

During the campaign, Roosevelt gave no hint of what he was actually going to do as president.  His slogans included “Out of the Red with Roosevelt” and “Throw the Spenders Out!”  Hardly an indication that he planned to get us to expand government programs: quite the reverse.

His campaign theme song, “Happy Days are Here Again” was upbeat but (obviously) unspecific.  

Repeal of Prohibition

Step number one in bringing back the happy days: the repeal of prohibition.  Roosevelt quickly got legislation legalizing the sale of wine and 3% beer, and, in surprisingly short order, a new Constitutional amendment repealed the 18th Amendment.  The great national experiment with prohibition was over: and many, probably a majority thought this a good thing.  But there is a turning point here that is easy to miss.  Up to this point, the push for reform in this country, especially among the Democrats, had been led by individuals motivated by religious values, people like William Jennings Bryan.  They had *thought* national prohibition had been a great victory, and the rejection of prohibition was a great disappointment: so great, that many of them began to withdraw from the political scene.  There is, then, a lasting change in the underlying philosophy of American reformers at this point: a move from Christian themes to secular themes.  

Banks/monetary policy

Roosevelt also moved quickly in the area of banking.  He declared a “bank holiday,” temporarily closing the banks.  He then had the banks carefully examined, reopening each bank when it was proven to be sound.  Roosevelt took to the airwaves with a series of “Fireside Chats.”  These radio talks, for really the first time, brought the President of the United States directly into the homes of millions of Americans, creating a personal connection to the president unlike anything before in history.  Roosevelt assured folk that no bank would be opened unless it was sound: no need to panic, no need for a run on the bank.

Roosevelt also took steps to make sure deposits *were* safe.  He pushed through Congress legislation creating the FDIC, the Federal Deposit Insurance Corporation.  This “bank insurance” plan guaranteed that the first $5000 of your account was protected absolutely by a federal agency.  Bank failures stopped for a long, long time—and, up to this point, no American has ever lost a penny in an FDIC insured account.

Roosevelt also set up the SEC, the Securities Exchange Commission, to oversee/regulate securities fraud.  The SEC was charged with making sure accurate information on stocks was readily available to stock holders and prospective buyers and to prevent “insider trading” and other corrupt practices.

Roosevelt also wanted to prevent individuals from hoarding gold and the panicky conversion of dollars to gold.  He did this by taking away the guarantee that paper dollars could be exchanged for gold.  Further, individuals weren’t allowed to hold gold at all (except as jewelry, etc.).  Gold dollars *had* to be turned in for paper.  This seemed to solve an immediate problem, but only at the cost of creating a very difficult set of long-term problems.  What backs our currency today?  Nothing at all.  As Dr. Neumann noted, our paper money says, “In God We Trust.”  I think what he was driving at is that “God” we are trusting here is the government: a very fallible god indeed!

Unemployment

When Roosevelt took office, more than ¼ of all Americans were out of work, and the thing they wanted most was a job.  Roosevelt stole some pages from the Hoover book and started massive public works programs, programs like the TVA.  Many, of course, were grateful for the jobs this provided, but private companies weren’t happy.  Roosevelt’s Policy here drove Wendell Willkie into the Republican Party where (eventually) he was Roosevelt’s opponent in the 1940 Presidential election.  Willkie thought the TVA was an inefficient enterprise carrying on work much better left to the private sector—which would have created just as many jobs but in a more effective way.

Roosevelt also started the CCC, the Civilian Conservation Corps, a jobs program aimed particular at unemployed young men.  These men were put to work on reforestation projects, fire-fighting projects, swamp drainage, etc.  Again: a program that might make one love the president.  Young men *want* a job, a job that makes them feel like they are doing something worthwhile, and, if they don’t have that, they can become angry and dangerous.

Another Roosevelt jobs program: the WPA (Works Progress Administration).  This agency provided jobs working on all sorts of projects, bridges, dams, public buildings, etc.  It also provided work for unemployed intellectual types.  WPA money put unemployed historians to work investigating and writing up all sorts of things.  Other unemployed intellectual types also got WPA jobs, and many credit Roosevelt’s WPA with preventing the radicalization of the unemployed intellectuals.  Certainly, many of these formerly unemployed academic types were lastingly grateful to Roosevelt.

Relief

For those who not even government work programs could help, Roosevelt started FERA, the Federal Emergency Relief Act.  This marked a major change in government policy.  Prior to this time Americans had worried that welfare programs would sap the American work ethic and create a class of people dependent on the government (like the proletariat of ancient Rome).  Roosevelt, to a certain extent, shared this concern: but, in an emergency, perhaps the government could make an exception.  And even here, the local communities that administered FERA funds could convert the program to a “workfare” program as much as possible, asking for things like leaf raking as a return for government handouts.

Business/Labor

The above programs were intended only as temporary remedies.  Long term, Roosevelt wanted to get private business on the right track.  But he thought that here, too, government action was a key.  He started the NRA, the National Recovery Administration.  This guaranteed certain provisions unions had long wanted: collective bargaining, minimum wage standards, the forbidding of “no union” contracts, etc.  In return, businesses were allowed to get together to set prices, to keep prices high so wages could be kept high.  

Most people at the time thought this particular program was a mistake.  NRA=National Run Around or NRA=Nuts run America.  But the NRA did strengthen the labor movement, securing Roosevelt’s place in the hearts of union members and their leaders.

Farm Policy

Here, too, Roosevelt thought government intervention key to recovery.  The most controversial of his programs was the AAA, the Agricultural Adjustment Act.  This act tried to prevent overproduction (and keep prices high) by paying farmers to hold acreage out of production. Since crops had already been planted when the legislation was passed, and since the government wanted an immediate jump in prices, during the first year of the program farmers were paid to plow their crops under or to slaughter animals without putting the meat on the market.  Such waste in a time of recession made lots of people unhappy.

Roosevelt’s Soil Conservation Act—paying farmers to shift to soybeans or let land lie fallow—was less controversial, but it was still a major step toward the situation we have today.  Those looking to the long-term point out that the ultimate result of government intervention was the growth of huge corporate farms and large agribusiness entities since such groups were better poised to take advantage of government subsidies.  Even in the short term, one could see problems.  In the south particularly, those who worked the land were tenant farmers: government subsidies to land owners weren’t going to help them any!

Housing

One of the longest lasting new deal programs was the FHA, the Federal Housing Administration.  FHA tried to ensure more home ownership and improve the quality of housing by providing loan guarantees to homes that passed FHA inspection.   For a long time, it seemed that there was little to really quarrel with about the FHA, but recent developments show that the idea of Federal intervention in the housing market is dangerous.  The recent housing boom and bust (and the subsequent ripples through the whole economy) were caused by federal government policy, the *attempt* of government to make housing affordable by requiring lending institutions to make loans that, as it turns out, were way to risky.

Social Security

In most of human history, the elderly are the group most likely to live in poverty.  Roosevelt tried to reverse this by making sure that all workers were covered by a mandatory Federal retirement program, Social Security.  Initially, this meant only a small payroll tax (1.5% matched by your employer). 

Eventually, though, politicians couldn’t resist the temptation to promise bigger and bigger benefits from the program.  And, as life expectancy began to rise, the program was more expensive than anyone had thought.  Not to worry: payroll taxes on the huge baby-boom generation created a substantial surplus in immediately available funds, and the huge IOUs down the road were—down the road.  Payroll tax rates climbed as a partial fix, but even with 15% of employee compensation going to payroll taxes, the bill was eventually going to come do.  Us boomers thought *you* guys were going to be the ones getting stuck—but social security is in the red already.  Maybe we can up your payroll taxes to 40% or 50%.  And, while you’re at it, why not take on a whole bunch of student loan debt so we don’t have to pay for your college education and can pay for things that are more important: like our medical care.

Reaction to Roosevelt

Now many at the time were outraged at the tremendous growth of government under Roosevelt.  One text I've used for this class notes that H.L. Mencken called Roosevelt, “the Fuhrer” and “the quack,” saying that the New Deal was “a political racket” and “a series of bogus miracles.”  That text notes other criticisms of Roosevelt.  Roosevelt was “a frustrated darling,” “a swollen-headed nitwit with a Messiah complex and the brain of a boy scout,” “a weak-minded Louis XIV,” “insane,” “a pledge-breaker,” “a communist,” “a tyrant,” “the Demoralizer,” “the Panderer,” etc.

But while many were furious with Roosevelt, the vast majority of Americans at the supported him. He won re-election in 1936 by an overwhelming 27 million to 16 million vote—and he went on to win re-election in 1940 and 1944 as well, the only man ever to win more than two terms in office.

Overall, it’s at first a bit hard to see why.  As many, many people then and now pointed out, Roosevelt’s policies didn’t at all end the depression.  Unemployment remained high and the national debt skyrocketed.  Only the outbreak of war in Europe (1939) got American industry going again.

But Roosevelt had done something important and lasting: he had created a new political coalition.  Since the Civil War, the Democrats had been for the most part the minority party.  Roosevelt turned them into the majority party.  The South had long been in Democrat hands, and immigrant populations likewise had tended Democratic. Now Roosevelt added labor to the mix and (for the first time) a substantial number of blacks.  But also he added a substantial number of people who benefited directly from government intervention.  “Nobody shoots at Santa Claus,” said Al Smith, and the people that benefited (or thought they benefited) from government programs—whether farmers, businessmen, welfare recipients, or federal workers themselves-- now in large numbers pledged their allegiance to the Democrats.