Following a decade of economic prosperity and boom in what came to be known as the ‘Roaring Twenties,’ America was hit by a massive economic disaster in 1929 which came to be known as the Great Depression (GD). After a stock market crash caused confidence in the economy to plummet, America needed a rekindling of people’s trust in the economy. President Roosevelt came to power in 1933 with his New Deal (ND) campaign, where he would fix the US economy. The New Deal was never planned outright but was rather a series of policies that FDR released in an experimental fashion.[1] Due to the sporadic and often contradictory nature of the New Deal, it cannot be said that the New Deal, as a whole, was successful in providing a solution to the GD. Some policies (specifically those classified as ‘Relief’) were highly successful in providing help for those hurt by the GD, but other reforms can be said to have rather alienated the very businesses that should have been aided.[2] In this regard, the ND as a whole cannot be considered to have been completely successful in combatting the GD. First, this essay will show how the few successful policies were outweighed by the negatives, then it will examine how the ND may have inspired popular confidence but failed to win over the private sector. To conclude, World War 2 will be shown to be the true factor to have overcome the GD.

The ND had many successful policies but these were often not enough or overshadowed by misconceived legislation. Through the creation of projects such as the Works Progress Administration (WPA), employment was provided to many families who had lost their livelihoods. These projects provided work to many families, easing the strain of unemployment.[3] Despite this, employment did not improve dramatically until 1943.[4] The Agricultural Adjustment Act aimed at stabilising plummeting food prices through regulations, dumping and providing relief to stricken farmers. This dumping of food to create artificial scarcity came at a time when many people were starving in the cities. FDR’s goal was clear – an effort to save the American farmer – but his method of throwing away food while his people starved is often seen as morally heinous. The regulations and taxation above the agricultural relief also meant that even with stabilised prices, farmers did not benefit.[5]

What FDR excelled at was the infectious nature of his confidence, but this was not enough to win over the private sector.[6] With FDR’s ‘Fireside Chats,’ the President was able to win over the hearts of the general populace. He ended prohibition, provided relief, instated legislation such as the Emergency Banking Act (a policy which renewed trust in the banking sector) and seemed to be there for the man on the street. A by-product of his relief and reform, however, was huge costs – costs that would have to be paid for through tax or debt. The biggest tax-base was a destitute middle class and a struggling private sector. With the creation of public sector employment, FDR had reached a dilemma. Taxes needed to be raised to pay these new workers and those taxes put strain on businesses, preventing them from hiring new employees. Public works stole from the private sector. This alienated businesses and FDR didn’t seem to care.[7] An economy needs people to trust it, but while the general population may have trusted in FDR, regulations and taxation caused businesses to not. In this regard, the New Deal may have slowed down recovery.

What truly stimulated the stagnant US economy was entering World War 2. The need for arms, troops and supplies led to the construction of industry which provided employment for almost all Americans. Additionally, demand for food became high enough that the government no longer needed to manufacture artificial scarcity. In this regard, WW2 can be accredited as the main factor in bringing the US out of the GD.[8]

The New Deal succeeded in creating a sense of confidence in the general population but, due to its experimental nature, failed to achieve overwhelming success in recovering from the Great Depression. Regulations, taxation and a generally anti-business rhetoric led to alienation of the private sector which halted economic growth. Employment and economic prosperity only really recovered by 1943, where America entered World War 2 and could stimulate growth through wartime manufacturing and employment. The New Deal is accurately credited as being the starting point for big intervention and big bureaucracy in the American economy. As Milton Friedman precisely stated, the relief actions of the New Deal were necessary, but the reforms may have actually been more destructive than helpful.[9] Even after the New Deal, many of these policies remain, even if no longer necessary.

Bibliography

Winkler, Allan M. The New Deal: Accomplishments and Failures, Testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs (March 31, 2009)

Walton, Gary M and Hugh Rockoff, History of the American Economy. New York: Dryden Press, 1994

PBS. Commanding Heights: Milton Friedman, accessed April 11, 2015. http://www.pbs.org/wgbh/commandingheights/shared/minitext/int_miltonfriedman.html#7.

Footnotes

[1] Allan M. Winkler, The New Deal: Accomplishments and Failures, Testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs (March 31, 2009), 1.

[2] Ibid., 5.

[3] Gary M. Walton and Hugh Rockoff, History of the American Economy (New York: The Dryden Press, 1994), 540.

[4] Winkler, The New Deal: Accomplishments and Failures, Testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs, 5.

[5] Ibid., 4.

[6] Ibid., 2.

[7] Ibid., 5.

[8] Ibid., 5.

[9] PBS, Commanding Heights: Milton Friedman, accessed April 11, 2015, http://www.pbs.org/wgbh/commandingheights/shared/minitext/int_miltonfriedman.html#7.