Dumping Money Into The Economy With Crossed Fingers

Wall Street crashed in late October of 1929 in the incident known as Black Tuesday. A decade of speculation, over-optimism, and wasteful excess helped set the stage for ten years of good ol’ economic turmoil. The Great Depression lived up to its name, with national GDPs and per capita income falling just as fast as the rising unemployment and suicide rates. Public distaste for the status quo reached its peak with the run down slums of the time being gratefully named Hoovervilles after the laissez faire presidency of Herbert Hoover.

The 1932 elections swept the Democrats into office with Franklin Roosevelt at its head. With a new ambitious cabinet in the White House holding promises to fix a dysfunctional economy, policies were drawn up at the spot, and the ball of bureaucracy started to gain momentum. The New Deal, a collection of policies and executive actions made under the four terms of Roosevelt's presidency, is historically controversial in whether or not it was an effective means of countering the devastating effects of the Great Depression. Nowadays it is mostly used as a talking point to debate the legitimacy of government spending and the effectiveness of ‘big government’ in policy issues, even so there are valuable lessons to be learned from taking a look into history. The effectiveness of the multitude of New Deal policies (which included over 25 new programs and agencies) can be measured by how well they achieved their independent goals.

Roosevelt’s presidency was a direct contrast to Hoover’s trust in the free markets ability to fix itself. He made many experimental policies with the goal to help the low-income demographic, who were most threatened by The Great Depression. New Deal policies were especially noted for work-relief programs, or many short term public projects with the goal to fight the painful unemployment rate of 25% in 1933. One of the programs, the CCC, was alone responsible for employing three million young men in work relief. This represented the majority of FDR’s early presidency (the First New Deal), with attempted solutions being humanitarian aid for the poor and unemployed, federal investment in public works projects, the implementation of new regulations onto private industry, and reduced barriers for receiving loans. Given the “rushed job” aspect of these attempts to fix everything at once, several programs were contradictory and inefficient. Inflationary price fixing helped farmers stay afloat, while simultaneously hurting consumers with increased food prices. The New Deal programs failed to fix high unemployment rates, given their limited scope and temporary nature, but it did have the effect of assuring the American public of better times to come.

An important part of Roosevelt’s actions was the abandoning of the gold standard in 1933, where the US dollar no longer had to be backed by specie. This essentially meant that the federal government could combat deflation by printing money and restricting the exportation of gold. He also helped implement the FDIC in the same time which provided deposit insurance and restored some trusts in the banks with helped bring some liquidity back into the economy with people reinvesting in the newly regulated banks. Good macroeconomic monetary policy was instrumental in reducing the adverse effects of the depression, although they weren’t alone enough to fully eliminate it. Only the massive production and demand surge from entering WWII was enough to shock the economy back into a pre-depression status. Roosevelt’s policies weren’t entirely Keynesian given that he also raised taxes to compensate for increased spending, although it didn’t run on a perfectly balance sheet and there was a significant level of public investment to trigger inflation.

One of the most significant and defining aspects of Roosevelt's presidency was the Social Security Act of 1935, (SSA). With guaranteed support payments to elderly retirees, American social structure began to shift where having children wasn’t a necessary step for social support. Not all New Deal agencies and programs worked as intended. The NIRA was a short lived (1933-5, shot down by SCOTUS) law encouraging union activity as well as price fixing on monopolistic industries like petroleum and the railroads. It resulted in an inherently pro-monopoly and poorly administered act with several conflicting interests, with the mentality that producing less and paying more for it led to more money in the economy. Even still, the damages associated to it are largely overstated given its spotty and inconsistent implementation.

Whether he overstepped his authority or failed to do enough, FDR’s influence during the Great Depression changed America’s relationship to the government from a distant observer to a guiding regulator. It helped change the belief that poverty stemmed from personal failure, rather a result of poor circumstances. This shift in the individualistic views at the time was representative of hard times felt by Americans throughout the whole economic spectrum. The New Deal was not large enough in scope to ‘fix’ the Great Depression, although it did alleviate some of its problems and it lay the foundation for a better regulated private sector, as well as more humanitarian concern for the disabled, elderly, and destitute.