The New Deal
The New Deal was one of the most controversial and progressive actions taken by President Franklin Delano Roosevelt. It has been more than 80 years since the New Deal started. It had strengths and weakness. Reactionaries to this day abhor the New Deal. That is why we heard Republican candidates either wanting to cut or privatize the many parts of the New Deal. The New Deal has great parts to it. The weaknesses of the New Deal was that black people, women, immigrants, small farmers, agricultural workers, and some of the poor were discriminated against from getting involved in many of the programs of the New Deal. The New Deal didn’t address lynching and other forms of racial injustice. The task of the New Deal (as advanced by the Roosevelt administration) was to save capitalism not remake America into a social democracy beyond what we wanted. Therefore, despite what conservatives say, the weakness of the New Deal wasn’t that it was going too far. It was that the New Deal didn’t go far enough. Nevertheless, we all celebrate what the New Deal got correct and the lives that the New Deal has saved many from starvation and poverty. Yet, its core goal was legitimate. All Americans deserve employment, health care, and other legitimate freedoms that everyone else on Earth should have. To know about the New Deal, we must know about what happened during the 1920’s. During the 1920’s, there were the conservative Republican Presidents of Warren Harding, Calvin Coolidge, and Herbert Hoover. Each of these Presidents during the era of what people called “The Roaring Twenties.” These Presidents followed the economic philosophy of laissez faire capitalism. That meant that markets were going on with little to no government interference. Taxes and regulations were cut. Monopolies have grown and this caused the growth of wealth inequality. America was on the conservative’s preferred gold standard. The Federal Reserve didn’t change the money supply except promoting a pro-speculation policy.
On February 1928, the Federal Reserve began to raise the federal funds rate in an attempt to rein in the bull market. The U.S. and France increased significantly their gold reserves. The Great Depression existed in 1929 because of many factors. One factor was the stock market crash of 1929 which eliminated much liquidity for workers, stock brokers, and other people. Globally, economic downturns existed. Hundreds of banks were failing too. In 1930, the Smoot-Hawley Tariff passed on June 17. With imports forming only 6 percent of the GNP, the 40 percent tariffs work out to an effective tax of only 2.4 percent per citizen. Even this is compensated for by the fact that American businesses are no longer investing in Europe, but keeping their money stateside. The consensus of modern economists is that the tariff made only a minor contribution to the Great Depression in the U.S., but a major one in Europe. The unemployment rates increases from 3.2 to 8.7 percent. In 1931, there is no major legislation to address the Depression. There is a second banking panic that happened in the spring of 1931. By 1932, 10,000 more banks have failed since 1929. Herbert Hoover in 1932 created the Reconstruction Finance Corporation or the RFC. Hoover at the end of his term passed the Federal Home Loan Bank Act in July 22, 1932. This law tried to decrease cost of home ownership. Hoover has done too little too late, so most Americans vote for Franklin Delano Roosevelt in 1932.
Franklin Delano Roosevelt was inaugurated in 1933. Roosevelt didn’t use interest free money to fund his programs. He used debt obligations to many bankers to fund the programs. Government created money could have eliminated the national debt. Roosevelt did his historic 100 Days policies to help America economically. He passed 15 landmark, historic laws that set a standard in what to do when you have a massive Great Depression. He took office in March 4, 1933. People’s life savings were gone, jobs were lost, and revolution was in the air. So, on March 5, 1933, he declared a four day bank holiday. This means that all banking transactions stopped and an embargo existed on the exportation of gold, silver, and currency. From March 9 to June 16, 1933 represents FDR’s “Hundred Days” session. On March 9, he signed the Emergency Banking Act. This law closed insolvent banks, then reorganized and reopened viable ones under Treasury supervision with federal loans available if needed. The banking holiday ended in March 10 as banks reopen and confidence builds up days later. FDR’s first fireside chat comes about in March 12. By mid-March, one-half of all banks with 90% of deposits were judged solvent and reopened. Forty-five percent of the others were reorganized under “conservators.” The rest were shut down. On March 31, 1933, Congress passed the Reforestation Relief Act. This established the Civilian Conservation Corps or the CCC. The CCC provides work immediately for those between 18 and 25 in reforestation, road construction, and developing national parks. Work camps begin to spring up. By the time it eases in 1941, about two million people have worked on its projects. On April 19, FDR takes the nation off the gold standard. By mid-April, over 12,800 banks were operating, 4000 fewer by year end after closures and mergers, and by 1935 one-third were nationalized.
The Federal Emergency Relief Act was passed on May 12, 1933. This authorized grants to states for relief projects. Unemployment has reached 14 million people or over one quarter of the nation’s work force. In the same day, Roosevelt also signed the Agricultural Adjustment Act to provide immediate relief to farmers by setting prices for agricultural products and paying subsidies to farmers for curtailing production for certain crops that were in surplus. On May 18, 1933, Congress established the TVA or the Tennessee Valley Authority to construct dams and power plants along the Tennessee Valley. Electricity would go to residents, many of whom lack it previously (and fertilizer will be sold). On Mayor 27, Congress passed the Federal Securities Act to monitor and regulate stocks and bonds. June 16, 1933 was the final day of the Hundred Days session. Congress passed the National Industrial Recovery Act or the NIRA stablishing the Public Works Administration (PWA) and the National Recovery Administration (NRA). The PWA is authorized to supervise the construction of roads, public buildings and other projects while providing employment. Secretary of the Interior Harold Ickes is tapped to head the PWA.
The NRA's goal is to stimulate competition and benefit producers and consumers by implementing various codes to establish fair trade. Compliance was to be voluntary; those who cooperate received the blue eagle "seal of approval." NRA is to be directed by General Hugh Johnson. It will be declared unconstitutional by the Supreme Court in May 1935.
Congress also passes the Farm Credit Act. In June 16 as well. One of the greatest actions that FDR did was when he signed the June 16, Bank Act of 1933 or Glass Steagall. Glass-Steagall created the FDIC insuring bank deposits up to $5000. It also separated commercial from investment banks and insurance companies among other provisions to curb speculation. Senator Glass and Senator Henry Steagall worked in Congress to help get the law accomplished. Glass blamed the bankers for the 1929 crash, the subsequent bank failures, and the Great Depression that followed. In 1932, then Presidential Democratic candidate Franklin Delano Roosevelt went to Chicago from Albany to deliver his acceptance speech. He declares to the American people that, “I pledge you, I pledge myself, a new deal for the American people.” The Bank Act of 1933 was passed quickly to curb them. Under Hoover, it had $500 million in capital with authorization to borrow up to $1.5 billion more. In its first six months, it loaned banks over $800 million but didn’t halt the crisis. Like today, they retained their reserves, shunned lending, and, besides, public trust was lacking. Roosevelt’s New Deal changed things. Under the 1933 Emergency Banking Act, RFC could buy bank equity and within a year bought more than $1 billion, or about one-third of total banks’ capital. At the same time, government measures and oversight restored public confidence enough to attract hundreds of millions in deposits that pumped life into troubled banks if only for starters. Roosevelt used RFC funding for agencies like Home Owners’’ Loan Corporation Farm Credit Administration, Rural Electrification Administration, Public Works Administration, and others as well as emergency relief to loans to states. These are things that Hoover never died.
The 1933 Securities Act law (enacted May 27, 1933) required that offers and sales of securities be registered, pursuant to the Constitution’s interstate commerce clause. Previously, they were governed by state laws, known as “blue sky laws” to protect against fraud. The Securities and Exchange Act of 1934 regulates secondary trading of financial securities and established the SEC under Section 4 to enforce the new Act, then later the Trust Indenture Act of 1939, the 1940 Investment Company Act and Investment Advisers Act, Sarbanes-Oxley of 2002, and the 2006 Credit Rating Agency Reform Act. Overall, it’s to enforce federal securities laws, the securities industry, the nation’s financial and options exchanges, and other electronic securities markets unknown in the 1930s along with derivatives and other forms of speculation. Then and now, it’s charged with uncovering wrongdoing, assuring investors aren’t swindled, and keeping the nation’s financial markets free from fraud. At least that was the idea. Eventually, the fulfillment fell far short of the promise.
The HOLC or the Home Owners’ loan Corporation was established in 1933 under the Homeowners Refinancing Act to refinance homes and prevent foreclosures. The HOLC extended short and longer-term loans for up to 30 years and prevented the loss of over a million homes (about one-fifth of those owned with mortgages, the equivalent of 10 million today) at a time half were in default, and annual mortgage lending and residential construction was down 80%.
FDR used his executive order powers to create the Civil Works Administration (CWA) to provide work for some four million unemployed over the winter months. It ceases operation in March 1934. On December 5, the 21st Amendment goes into effect. This repeals the 18th Amendment and ends prohibition. On January 4, 1934, president Franklin Delano Roosevelt in his annual message to Congress, he asks for ten and a half billion dollars to advance recovery programs over the next 18 months. When 1934 comes about, Congress created the Federal Communications Commission, the National Mediation Board and the Securities and Exchange Commission. The economy turns around in 1934 with GNP rising to 7.7 percent and unemployment falls to 21.7 percent. A long road to recovery begins. In 1935, he Supreme Court declared the National Recovery Administration to be unconstitutional. In the same year, the Congress passes the Social Security Act, which forms Social Security. In 1935, the GNP grows another 8.1 percent and unemployment falls to 20.1 percent. In 1936, the Supreme Court declares part of the Agricultural Adjustment Act to be unconstitutional. In response, Congress passes the Soil Conservation and Domestic Allotment Act. The top tax rate is raised to 79 percent. Economic recovery continues: GNP grows a record 14.1 percent; unemployment falls to 16.9 percent in 1936. In 1937, the Supreme Court declared the National Labor Relations Board to be unconstitutional. Roosevelt tries to liberalize the Supreme Court, which his opponents called “court packing.” He fails and this outraged the public. Economists attribute economic growth so far to heavy government spending that is somewhat deficit. Roosevelt, however, fears an unbalanced budget and cuts spending for 1937. That summer, the nation plunges into another recession. Despite this, the yearly GNP rises 5.0 percent, and unemployment falls to 14.3 percent (in 1937). Congress passes the Agricultural Adjustment Act of 1938 and the Fair Labor Standards Act. No major New Deal legislation is passed after this date, due to Roosevelt's weakened political power. The year-long recession makes itself felt: the GNP falls 4.5 percent, and unemployment rises to 19.0 percent (in 1938). In 1939, the recession is over. The United States will begin emerging from the Depression as it borrows and spends $1 billion to build its armed forces. From 1939 to 1941, when the Japanese attack Pearl Harbor, U.S. manufacturing will have shot up a phenomenal 50 percent! In 1939, GNP rises 7.9 percent and unemployment falls to 17.2 percent.
So, the Great Depression had 2 severe recessions. One was from the summer of 1929 to March of 1933. From 1933 to 1937, there was a recovery. It was impressive enough for the Dow Industrials to rise from a July 1932 low of 43 to 187 in February 1937 for a near-335% gain; however, the rally followed an 89% decline so even the new top ended up 50% below the 1929 peak of 385, a level it took 25 years to regain. Then, from May 1937 to June 1938, there was a recession. This happened, because of reduced government spending before early war preparations produced recovery.
FDR’s New Deal was remarkable in what it accomplished. It helped people, put millions back to work, reinvigorated the national spirit, built or renovated 700,000 miles of roads, 7800 bridges, 45,000 schools, 2500 hospitals, 13,000 parks and playgrounds, 1000 airfields, and various other infrastructure, including much of Chicago’s lakefront. The New Deal cut unemployment from 25% in May 1933 to 11% in 1937, then it spiked before early war production revived economic growth and caused unemployment to decline even further.
Appendix A: Eleanor Roosevelt
Eleanor Roosevelt can never be underestimated for her contributions in American history. She would inspire the country to allow Henry Wallace to the Vice President during the early 1940’s. She promoted the rights of black people and for women. She held press conferences for women alone and she inspired Franklin Delano Roosevelt to appoint more women in government. She urged the creation of the National Youth Administration. She was a civil rights champion and pushed for including black Americans in government programs. She had flown with Tuskegee Airman Charles “Chief” Anderson in March of 1941. After her experience with Arthurdale and her inspections of New Deal programs in Southern states, she concluded that New Deal programs were discriminating against African-Americans, who received a disproportionately small share of relief moneys. Eleanor became one of the only voices in the Roosevelt White House insisting that benefits be equally extended to Americans of all races. At the same time, she grew so popular among African-Americans, previously a reliable Republican voting bloc that they became a consistent base of support for the Democratic Party. Following the Japanese attack on Pearl Harbor on December 7, 1941, Eleanor Roosevelt spoke out against anti-Japanese prejudice, warning against the "great hysteria against minority groups." She also privately opposed her husband's Executive Order 9066, which forced Japanese-Americans in many areas of the U.S. into internment camps (which was evil and wrong).