15 September 2009

The New Deal

 

The Social Security retirement pension system was part of President Franklin Roosevelt’s New Deal.

The Social Security retirement pension system was part of President Franklin Roosevelt’s New Deal.

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

The inability of President Herbert Hoover (1929–1933) to meet demands for economic relief set the stage for the 1932 election of Democrat Franklin D. Roosevelt as president and the enactment the following year of the first of his “New Deal” economic programs. The president, known by his initials, FDR, was a wealthy patrician from New York State with a gift for communicating his message to Americans in those hard times. He used the new medium of radio to do so directly. In his inaugural speech upon assuming the presidency, Roosevelt assured the country, “The only thing we have to fear is fear itself.”

Roosevelt then launched a tide of new laws and programs to halt the paralyzing banking crisis and create jobs. New agencies such as the Civilian Conservation Corps, the Works Progress Administration, and the Public Works Administration put millions of unemployed Americans to work on government projects. The Agricultural Adjustment Administration worked to support farm prices by reducing output, fining farmers in some cases for excess production. Overall, the programs marked “the return of hope,” said long-time Democratic congressman Emanuel Celler of New York.

FDR was far more an improviser than an ideologue, historians agree. His budget policies were inconsistent: Spending cuts in the middle of his presidency probably extended the Depression. Some New Deal measures proved contradictory or hugely controversial. The National Recovery Administration negotiated a series of industry-wide codes establishing minimum prices, wages, and other particulars. Many small businesses complained that the codes favored larger competitors. Others saw in the close NRA-engendered ties between government and big business a “corporatist” outlook fundamentally at odds with America’s traditionally looser, more free-wheeling economic arrangements. The Supreme Court agreed, declaring the law establishing the NRA unconstitutional, an exercise of Congress delegating power to the president beyond that granted by the Constitution’s commerce clause.

But other New Deal measures proved long lasting. The federal government tightened regulation of banking and securities, and it provided unemployment insurance and retirement, disability, and death benefits for American workers under a social security program funded by payroll taxes on employees and employers. The New Deal established a federal social safety net that has helped Americans through hardships, but whose costs today pose huge future financial challenges for the government.

Before Franklin Roosevelt’s administration, the federal government had taken a predominantly hands-off attitude toward business, except for its regulation of banking and the railroads, and the campaigns against the monopolistic trusts. FDR took the country far in the other direction, injecting the federal government into economic activities previously deemed the domain of the private sector. One notable example was his creation in 1933 of the Tennessee Valley Authority, a federally chartered corporation formed to control flooding and generate electric power in an impoverished region of the South.

Roosevelt and his supporters saw the government-run TVA as a way to set a benchmark for fair pricing of electricity that would show whether customers were being overcharged by electric power companies. The TVA stood for the New Deal’s confidence in government’s ability to define and solve society’s problems. David Lilienthal, whom Roosevelt appointed as a TVA director and later its chairman, once said, “There is almost nothing, however fantastic, that a team of engineers, scientists, and administrators cannot do.”

To its opponents, the TVA was socialism, violating the basic principles of free enterprise. Roosevelt’s Republican predecessor, Herbert Hoover, had opposed earlier proposals for government power projects and economic development programs in the Tennessee Valley, saying it would “break down the initiative and enterprise of the American people.… It is the negation of the ideals upon which our civilization has been based.”

Americans differed as well over more practical questions: How could any private power company compete with the virtually unlimited resources of the federal government? And once a federal agency determined to act, what would be the check on its authority? The same hand of government that built dams to produce power and limit floods also uprooted thousands of people from their farms. Although the TVA complex of dams was built and the TVA remains the largest U.S. public power producer, Roosevelt’s efforts to adopt the TVA model in other parts of the country were shelved by growing political opposition and by World War II.

American industry and offices mobilized to fight Germany, Japan, and the other World War II Axis powers. The last U.S.-made automobile of the war years left its factory in February 1942. In its place, industry produced 30,000 tanks in 1943 alone, nearly three per hour around the clock, more than Germany could build in the entire war. A piano manufacturer produced compasses, a tableware company tuned out automatic rifles, and a typewriter company delivered machine guns, author Rick Atkinson notes. The weight of U.S. industrial might was irresistible. American factories supplied armed forces in both the European and Pacific theaters, with more to spare for the British, the Soviets, and other Allied armies.

At the war’s end, much of Europe and Asia were in ruins, and America stood alone as the world’s economic superpower.