Great Depression, Great Recession

By Roosevelt Institute |

fdr-we-need-you-200All the evidence points to one simple fact: the economy would have sunk without the New Deal.

In these troubled economic times, passionate discussions often center on the Great Depression, Franklin D. Roosevelt and his New Deal. Did FDR and his train of government agencies deal a good hand to millions of Americans?

They did. Roosevelt used the government to provide relief, recovery from the Depression and reform of the economic system. Americans’ quality of life improved.

The New Deal brought relief to most Americans. Voters responded by electing FDR to an unprecedented four terms in good part because of his popular programs to help “the Forgotten Man.” No amount of conservative spin or revisionist history can change this fact. In the 1936 election, FDR carried 46 of the 48 states. As conservatives cried “the economy will work itself out in the long run,” Harry Hopkins, a Roosevelt adviser, famously replied: “People don’t eat in the long run, they eat every day.” Sound familiar today?

FDR called for “bold, persistent experimentation” to help Americans. The gold standard was abandoned to stop deflation and stabilize farm and manufacturing prices. The FDIC was created to restore public confidence in the financial system and to protect small depositors. The Glass-Steagall Act required banks to divest themselves of securities operations, separating investment and commercial banking operations. (This was enacted to reduce commercial bank involvement in stock market investment. This act was repealed in 1999, unfortunately.)

The WPA employed about 8.5 million Americans over its seven-year history, in projects that were not to compete with private business. The REA provided loans to local cooperatives that took electricity to 90 percent of rural homes by 1939, up from about 10 percent in 1930. This prompted private business to extend service into the countryside and to lower rates. The TVA brought jobs and electric power to seven states.

The very popular CCC addressed the problem of jobless young men between the ages of 18 and 25. Conservation projects changed the landscape of America over the nine years of the program. The Social Security Act of 1935 assured retirees a pension and benefits for the unemployed.

In 1933, the civilian unemployment rate was nearly 25 percent. If we count people in work-relief jobs as employed, the jobless range was about 10 percent by 1940. During FDR’s first term, GDP grew at an annual rate of about 9 percent. The GDP grew about 11 percent annually after 1937-38.

The Great Depression did not end with conservative demands for cutting taxes and spending, or reducing government activity or decreasing the debt. The enormous fiscal stimulus — yes, government borrowing, taxing and spending — to finance World War II led the U.S. out of the Depression. The debt rose from $43 billion in 1940 to $258.7 billion in 1945. The unemployment rate fell to 1.2 percent in 1944. The national debt was fully 121 percent of GDP, compared with an estimated 95 percent today.

A cutback in New Deal spending in 1938 resulted in an economic contraction. The economy expanded again in 1939 as spending increased. Taxing, borrowing and spending — government stimulus — brought the United States out of the Great Depression.

After facing personal economic ruin and our capitalistic system gone awry, did millions of innocent, unfortunate victims appreciate the government help? Did the New Deal programs help get them back on track? You betcha!

E. Wayne Stewart is an adjunct professor of political science at Johnston Community College in Smithfield, NC. This article originally appeared in the News & Observer.

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