Roosevelt’s New Deal

When Franklin D.Roosevelt (FDR) took office in March 1933 he was at the helm of a country gripped by fear and on the verge of revolution. Nationally, unemployment had risen to 25%. In cities like Detroit it was more like 50%. The Great Depression had reduced a once proud people to a nation of beggars. Massive labor strikes paralyzed the country. Membership in the American Communist Party was on the rise. On the East Coast wealthy businessmen were making plans to leave town in anticipation of a full blown revolution. Rumors ran wild that this might be the end of the United States and capitalism as we know it. In some cities, municipal employees hadn’t been paid in over a year!  The Great Depression was entering its fourth year and Americans were in no mood for stalling or passive action. A friend remarked to Roosevelt that if he succeeded he would go down as one of the greatest presidents ever. Roosevelt replied, “if I fail I shall be the last one.” Unlike Hoover, who had tried and failed with the limited government approach, Roosevelt planned to take aggressive action to turn the nation’s economy around before it completely collapsed.

 

In his first inaugural address on March 4, 1933, Roosevelt talked about a ‘New Deal’ between the government and the American people. The nation’s economy was hopelessly stalled because employers were too scared to hire and consumers were too scared to spend. People were scared that the depression had gone on so long that it might go on forever. Maybe this was the new dark future for America? But Roosevelt was one of those smooth types who have a way of inspiring people with his words and calm demeanor and bluntly told Americans that the only thing that they had to fear was fear itself. The nation would recover. His inaugural speech injected a renewed sense of hope in the American people that perhaps now they had a leader who understood their problems. Something that Hoover had utterly failed to do.

 

The First New Deal: Stop the Bleeding

Within days of taking office Roosevelt began focusing on the banks which were shutting down faster than Milli Vanilli’s  musical career. Who? Exactly. With hundreds of banks failing or closed already one of the first actions of the New Deal was to order the temporary closure of all banks for a eight-day holiday. Hundreds of small banks across the country had already failed because customers had surged through the doors demanding to withdraw all of their savings. Many more were on the verge of doing the same. A few days later, Congress passed the Emergency Banking Act which investigated every bank in the country, closing the insolvent ones and reorganizing the ones that were allowed to reopen. Within days of this action, Roosevelt and Congress had saved the American banking system from total collapse. By the end of March, nearly 75% of the banks had been reopened, stabilizing the banking industry. One of Roosevelt’s aides remarked that “capitalism had been saved in eight days”. This act was just the first of 15 major pieces of legislation introduced by the FDR administration during his first 100 days in office. His first major message to the American people was concerning the Federal Deposit Insurance Corporation, or FDIC. This was implemented to ensure that the money that Americans deposited into their bank accounts would be backed up by the federal government for up to $5,000 (today, accounts are insured for up to $250,000). People were no longer afraid to deposit money into banks knowing that it was insured and they couldn’t lose it, so Grandma could take her money out of her mattress and put it safely back in the bank.

 

But solving the banking crisis was like shoveling snow in a blizzard. There were so many different areas of the economy that were collapsing all at once that it became necessary for the government to get involved in almost every sector of the economy from banking to agriculture. Which was the next place that Roosevelt turned his attention. A decade before the Great Depression hit the rest of America, farmers in the midwest were struggling to survive. World War I had ruined Europe and American farmers, using new machines, produced huge quantities of food to meet the demand. The problem was so did other countries and soon the market was flooded with an abundance of food that caused prices to crash. Farmers lost their land as the banks came knocking to collect on debts. The value of crops was so low that farmers chose to burn corn rather than coal to heat their homes. As if things weren’t bad enough. nature added to the disaster with the Dust Bowl that began in 1930 that turned America’s heartland into a wasteland. To solve the farming crisis Congress passed the Agricultural Adjustment Act which paid farmers to halt their growing so there would be less of a surplus and more of a demand, which resulted in boosting prices. Farm prices rose by 50% and debt dropped dramatically. But rising food prices also had the weird side effect where farmers were destroying their crops while people in the cities went hungry. One group had been saved and another doomed by the AAA.  Just think Grapes of Wrath.  

 

Appalachia has been one of the poorest and most backward regions in the country. Today the region might attract hipsters and fanny-pack-wearing tourists to quaint outdoorsy places like the Smoky Mountains and Dollywood but before the Depression it was an isolated place where most people lived in shacks and survived by hunting whatever was in the woods. To put it another way, this was Hillbilly country.  Even by depression standards the Tennessee Valley was pitiful. The people there were wracked by malaria and the average income hovered at $600 a year ($9,000 in today’s money). In May of 1933, Roosevelt established the Tennessee Valley Authority Act, or TVA. This gave the federal government the right to build dams to control flooding and generate hydroelectric power along the Tennessee River. 13,000 TVA workers were put to work constructing dams to control flooding and planting trees to combat erosion. An added bonus was that the dams generated hydroelectricity which was sold to locals at an affordable price bringing electricity to homes that were stuck in the pioneer age. Overall, the TVA continues today and is seen as one of the biggest success stories of the New Deal but helping one region wasn’t going to bring the country back from the brink of collapse.

 

One of the other things that the First New Deal would do is to put people to work.  The Civilian Conservation Corps was a massive ecological boost to the nation’s parks for the 3 million men employed from 1933- 1942 had planted over 2 billion trees across the nation, worked on erosion control, built bridges, and various other landscape improvements on the nation’s parks.  Men, ages 18-25, were put up in military-style barracks and paid $30 a month, $21 of which was sent home to their families.  This program was successful because it employed so many men and also pumped money into the economy.  The program ended with America’s entry into World War 2, soon after the bombing of Pearl Harbor.   

 

The Second New Deal: Tackling Poverty

What’s incredible about the New Deal is how quickly government sprung into action. I mean it takes me all day sitting at the DMV just to get my driver’s licence renewed but during the first 100 days of his administration Roosevelt and Congress had already passed dozens of pieces of legislation to get the economy moving again. Unfortunately it wasn’t enough. The economy continued to fumble along. Americans were still waiting in long bread lines looking for free food and millions were anxiously spending their days hoping that they would still have a job tomorrow. More aggressive action was needed. This led to a new series of reform programs that is often referred to as Roosevelt’s Second New Deal geared to fix glaring weaknesses in the American economy.

 

The federal programs in the Second New Deal began in the spring of 1935 marking a new era of Big Brother government involvement. Historically, most presidents just sat back and let economic downturns run their course (Herbert Hoover, anyone?). Roosevelt decided to get the federal government into the hiring business on a massive scale unknown in American history. We’re already struggling to not bore you with the long list of programs that were created but the biggest of these was Works Progress Administration, or WPA, which created 11 million jobs by the time the depression ended. Like Hoover, Roosevelt believed that welfare was a “destroyer of the human spirit” and the idea behind the WPA was to make people work for their pay. The type of work you did wasn’t important, it was about getting money in people’s pockets so people would start spending again. People were hired to construct bridges, tunnels, roads, plant trees, paint, write novels and screenplays. Many conservatives criticized the program calling it “We Piddle Around” claiming that the workers hired were lazy and didn’t do any actual work. The fact that 600,000 miles of roads were built, 3 billion trees planted, and 711 state parks created shows that the program wasn’t just handing out free money. Unemployment had dropped to 15%. But success came with a massive price tag totally, more than $5 billion (equal to $82 Billion today).

 

The Welfare State

With all of its good intentions the New Deal was like trying to put a bandaid on a bullet wound. It was groundbreaking, near revolutionary, to have the federal government provide money and jobs during the New Deal, given our vast history of small government and laissez faire approach. It was believed that the market would correct itself, so government programs never spent enough to get everyone back on solid ground. Five years into the Great Depression and millions were still unemployed and those lucky enough to keep their job were underpaid and underworked. Roosevelt hadn’t seriously considered the possibility of running for a third term and so he decided that he had nothing to lose by pushing for a  social policy that would bring permanent help to the unemployed, poor, disabled, elderly, and single mothers who struggled to make ends meet.  This is the beginning of what people call the welfare state. America was built on the spirit of “pull yourself up by your bootstraps” individualism. If you were poor it was because you just didn’t try hard enough or that there was something wrong with you. Because of these attitudes America had also lagged behind Europe when it came to social welfare programs. Think Canada: the socialist wonderland to our North with their maple glaze donuts and universal healthcare. During the Great Depression the U.S. was the only industrialized nation that didn’t have some sort of welfare system in place to help the poor and elderly. The Social Security Act of 1935 was about to change all that.

 

Social Security was designed to give guaranteed pensions to the disabled, elderly, and dependent children who otherwise would have no means of being financially supported. It gave financial support to those who were blind and handicapped and also provided help for the unemployed. But getting conservative business leaders, many of whom controlled Congress, to support the plan was bound to be a losing battle if it involved paying those benefits with government money. Instead, what Roosevelt got was a watered-down Social Security system that was 100% funded by employer and employee contributions. The biggest group that got left in the cold were African-Americans who were excluded because the Social Security Act didn’t cover farm help or domestic servants. And now you know who that FICA is that’s been taking so much money out of your paycheck every week.

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New Deal: Wins and Fails

Up to this point conservatives weren't pleased with all of these “Big Government” programs being pushed through Congress but they were willing to tolerate it because once the Depression was over the New Deal would be history. But when Roosevelt set out to change the nature of Big Business itself they were practically spitting fire. Until Roosevelt almost every president had sided with the interests of business over workers. Roosevelt saw the power and greed of corporations as an obstacle to economic recovery. He urged Congress to reform the tax codes which it did by creating a progressive tax system, meaning that the richer you were the more you paid. Some of the richest Americans were now paying 75% of their income to Uncle Sam. Congress also passed a corporate income tax which for the first time directly taxed the profits of businesses. The next target on Roosevelt’s list was workers themselves. In 1935, with the assistance of Senator Robert Wagner, Congress passed the Wagner Act, also known as the National Labor Relations Act.  With this act, labor unions were finally allowed to exist without owner interference.  Strikes were no longer deemed illegal, and collective bargaining for union members was allowed.  In 1938, Congress passed the Fair Labor Standards Act which outlawed child labor, created a 40 hour work week, and a minimum wage that workers could be paid. The corporate fat cats saw this as a direct attack on their interests and accused Roosevelt, himself one of the richest men in America, as being a traitor to his class. But Roosevelt saw this as a way of creating more jobs by eliminating the exploitation of workers that had been going unchecked since the beginning of the Industrial Revolution.

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The New Deal had delivered on its promise to bring aggressive action in dealing with the crisis. Never before in American history had the government become so involved in the lives of the people. The New Deal had limited success. It put millions of people back to work but at wages so low that people were still trapped in the cycle of poverty. But Roosevelt kept taking fire from both sides. Liberals claimed that the New Deal programs weren’t effective enough because the government wasn’t spending enough money to fully bring the country out of the Great Depression and benefits like social security and the minimum wage were too small to live on. They were right. The average social security check in 1937 was $10 a month which is the equivalent of $185 in today’s money. The very first minimum wage was .40 an hour and even in the age of “back when milk was a nickel” this boiled down to $4.50 an hour in 2017 dollars. But conservatives claimed that the government was spending itself into poverty. During the Depression the government had spent a total of $50 billion to keep the country afloat. Roosevelt for all his liberal ways believed in balancing the budget and in 1936 began to cut back on government programs. The result was that the economy immediately took a nosedive the next year when unemployment jumped from 13% to 17%. Roosevelt dropped the balanced budget plan and Congress started spending more money on New Deal programs.

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The Depression Comes to an End

How effective the New Deal was is seen as a mixed bag. Despite all of the aggressive government actions and monstrous spending the New Deal never brought the country out of the Great Depression. It just kept things afloat long enough until World War Two came along and industry began to boom again. In 1939, Hitler and his buddies were up to their world domination shenanigans and even though America was technically neutral it began selling war materials to the Allies. When the U.S. finally entered the war in 1941, the war machine was in full swing and unemployment had dropped to 4%. The Great Depression was officially over thanks to good ol’ fashioned war.