New Deal

The New Deal was a series of domestic programs enacted in the United States between 1933 and 1938, and a few that came later. They included both laws passed by Congress as well as presidential executive orders during the first term (1933â€"37) of President Franklin D. Roosevelt. The programs were in response to the Great Depression, and focused on what historians call the "3 Rs": Relief, Recovery, and Reform. That is Relief for the unemployed and poor; Recovery of the economy to normal levels; and Reform of the financial system to prevent a repeat depression.

The New Deal produced a political realignment, making the Democratic Party the majority (as well as the party that held the White House for seven out of nine Presidential terms from 1933 to 1969), with its base in liberal ideas, the white South, traditional Democrats, big city machines, and the newly empowered labor unions and ethnic minorities. The Republicans were split, with conservatives opposing the entire New Deal as an enemy of business and growth, and liberals accepting some of it and promising to make it more efficient. The realignment crystallized into the New Deal Coalition that dominated most presidential elections into the 1960s, while the opposition Conservative Coalition largely controlled Congress from 1937 to 1963. By 1936 the term "liberal" typically was used for supporters of the New Deal, and "conservative" for its opponents. As noted by Alexander Hicks, "Roosevelt, backed by rare, non-Southern Democrat majoritiesâ€"270 non-Southern Democrat representatives and 71 non-Southern Democrat senatorsâ€"spelled Second New Deal reform."

Many historians distinguish between a "First New Deal" (1933â€"34) and a "Second New Deal" (1935â€"38), with the second one more liberal and more controversial. The "First New Deal" (1933â€"34) dealt with diverse groups, from banking and railroads to industry and farming, all of which demanded help for economic survival. The Federal Emergency Relief Administration, for instance, provided $500 million for relief operations by states and cities, while the short-lived CWA (Civil Works Administration) gave localities money to operate make-work projects in 1933â€"34.

The "Second New Deal" in 1935â€"38 included the Wagner Act to promote labor unions, the Works Progress Administration (WPA) relief program (which made the federal government by far the largest single employer in the nation), the Social Security Act, and new programs to aid tenant farmers and migrant workers. The final major items of New Deal legislation were the creation of the United States Housing Authority and Farm Security Administration, both in 1937, and the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for most categories of workers.

The economic downturn of 1937â€"38, and the bitter split between the AFL and CIO labor unions led to major Republican gains in Congress in 1938. Conservative Republicans and Democrats in Congress joined in the informal Conservative Coalition. By 1942â€"43 they shut down relief programs such as the WPA and CCC and blocked major liberal proposals. Roosevelt himself turned his attention to the war effort, and won reelection in 1940 and 1944. The Supreme Court declared the National Recovery Administration (NRA) and the first version of the Agricultural Adjustment Act (AAA) unconstitutional, however the AAA was rewritten and then upheld. As the first Republican president elected after FDR, Dwight D. Eisenhower (1953â€"61) left the New Deal largely intact, even expanding it in some areas. In the 1960s, Lyndon B. Johnson's Great Society used the New Deal as inspiration for a dramatic expansion of liberal programs, which Republican Richard M. Nixon generally retained. After 1974, however, the call for deregulation of the economy gained bipartisan support. The New Deal regulation of banking (Glassâ€"Steagall Act) was suspended in the 1990s. Many New Deal programs remain active, with some still operating under the original names, including the Federal Deposit Insurance Corporation (FDIC), the Federal Crop Insurance Corporation (FCIC), the Federal Housing Administration (FHA), and the Tennessee Valley Authority (TVA). The largest programs still in existence today are the Social Security System and the Securities and Exchange Commission (SEC).

Origins

Economic collapse (1929â€"1933)

From 1929 to 1933 manufacturing output decreased by one third. Prices fell by 20%, causing deflation that made repaying debts much harder. Unemployment in the U.S. increased from 4% to 25%. Additionally, one-third of all employed persons were downgraded to working part-time on much smaller paychecks. In the aggregate, almost 50% of the nation's human work-power was going unused.

Before the New Deal, there was no insurance on deposits at banks. When thousands of banks closed, depositors lost their savings. At that time there was no national safety net, no public unemployment insurance, and no Social Security. Relief for the poor was the responsibility of families, private charity, and local governments, but as conditions worsened year by year, demand skyrocketed and their combined resources increasingly fell far short of demand.

The depression had devastated the nation. As Roosevelt took the oath of office at noon on March 4, 1933, the state governors had closed every bank in the nation; no one could cash a check or get at their savings. The unemployment rate was about 25% and higher in major industrial and mining centers. Farm income had fallen by over 50% since 1929. 844,000 nonfarm mortgages had been foreclosed, 1930â€"33, out of five million in all. Political and business leaders feared revolution and anarchy. Joseph P. Kennedy, Sr., who remained wealthy during the Depression, stated years later that "in those days I felt and said I would be willing to part with half of what I had if I could be sure of keeping, under law and order, the other half".

New Deal (1933â€"1938)

Upon accepting the 1932 Democratic nomination for president, Franklin Roosevelt promised "a new deal for the American people".

Roosevelt entered office without a specific set of plans for dealing with the Great Depression; so he improvised as Congress listened to a very wide variety of voices. Among Roosevelt's more famous advisers was an informal "Brain Trust": a group that tended to view pragmatic government intervention in the economy positively. His choice for Secretary of Labor, Frances Perkins, greatly influenced his initiatives. Her list of what her priorities would be if she took the job illustrates: "a forty-hour workweek, a minimum wage, worker's compensation, unemployment compensation, a federal law banning child labor, direct federal aid for unemployment relief, Social Security, a revitalized public employment service and health insurance."

The New Deal policies drew from many different ideas proposed earlier in the 20th century. Assistant Attorney General Thurman Arnold led efforts that hearkened back to an anti-monopoly tradition rooted in American politics by figures such as Andrew Jackson and Thomas Jefferson. Supreme Court Justice Louis Brandeis, an influential adviser to many New Dealers, argued that "bigness" (referring, presumably, to corporations) was a negative economic force, producing waste and inefficiency. However, the anti-monopoly group never had a major impact on New Deal policy. Other leaders such as Hugh S. Johnson of the NRA took ideas from the Woodrow Wilson Administration, advocating techniques used to mobilize the economy for World War I. They brought ideas and experience from the government controls and spending of 1917â€"18. Other New Deal planners revived experiments suggested in the 1920s, such as the TVA.

The "First New Deal" (1933â€"34) encompassed the proposals offered by a wide spectrum of groups. (Not included was the Socialist Party, whose influence was all but destroyed.) This first phase of the New Deal was also characterized by fiscal conservatism (see Economy Act, below) and experimentation with several different, sometimes contradictory, cures for economic ills. The consequences were uneven. Some programs, especially the National Recovery Administration (NRA) and the silver program, have been widely seen as failures. Other programs lasted about a decade; some became permanent. The economy shot upward, with FDR's first term marking one of the fastest periods of GDP growth in history. Though a downturn in 1937â€"38 raised questions about just how successful the policies were, the great majority of economists and historians agree that they were an overall benefit.

The New Deal faced some vocal conservative opposition. The first organized opposition in 1934 came from the American Liberty League led by conservative Democrats such as 1924 and 1928 presidential candidates John W. Davis and Al Smith. There was also a large but loosely affiliated group of New Deal opponents, who are commonly called the Old Right. This group included politicians, intellectuals, writers, and newspaper editors of various philosophical persuasions including classical liberals and conservatives, both Democrats and Republicans.

The New Deal represented a significant shift in politics and domestic policy. It especially led to greatly increased federal regulation of the economy. It also marked the beginning of complex social programs and growing power of labor unions. The effects of the New Deal remain a source of controversy and debate among economists and historians.

First New Deal (1933â€"1934)

The First Hundred Days (1933)

The American people were generally extremely dissatisfied with the crumbling economy, mass unemployment, declining wages and profits and especially Hoover's policies such as the Smootâ€"Hawley Tariff Act and the Revenue Act of 1932. Roosevelt entered office with enormous political capital. Americans of all political persuasions were demanding immediate action, and Roosevelt responded with a remarkable series of new programs in the "first hundred days" of the administration, in which he met with Congress for 100 days. During those 100 days of lawmaking, Congress granted every request Roosevelt asked, and passed a few programs (such as the FDIC to insure bank accounts) that he opposed. Ever since, presidents have been judged against FDR for what they accomplished in their first 100 days. Walter Lippmann famously noted:

At the end of February we were a congeries of disorderly panic-stricken mobs and factions. In the hundred days from March to June we became again an organized nation confident of our power to provide for our own security and to control our own destiny.

The economy had hit bottom in March 1933 and then started to expand. Economic indicators show the economy reached nadir in the first days of March, then began a steady, sharp upward recovery. Thus the Federal Reserve Index of Industrial Production sank to its lowest point of 52.8 in July 1932 (with 1935â€"39 = 100) and was practically unchanged at 54.3 in March 1933; however by July 1933, it reached 85.5, a dramatic rebound of 57% in four months. Recovery was steady and strong until 1937. Except for employment, the economy by 1937 surpassed the levels of the late 1920s. The Recession of 1937 was a temporary downturn. Private sector employment, especially in manufacturing, recovered to the level of the 1920s but failed to advance further until the war. Chart 2 shows the growth in employment without adjusting for population growth. The U.S. population was 124,840,471 in 1932 and 128,824,829 in 1937, an increase of 3,984,468. The ratio of these numbers, times the number of jobs in 1932, means there was a need for 938,000 more 1937 jobs to maintain the same employment level.

Fiscal policy

The Economy Act, drafted by Budget Director Lewis Williams Douglas, was passed on March 14, 1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by fifteen percent. It saved $500 million per year and reassured deficit hawks, such as Douglas, that the new President was fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget, which he balanced, and the emergency budget, which was needed to defeat the depression. It was imbalanced on a temporary basis.

Roosevelt initially favored balancing the budget, but soon found himself running spending deficits to fund his numerous programs. Douglas, howeverâ€"rejecting the distinction between a regular and emergency budgetâ€"resigned in 1934 and became an outspoken critic of the New Deal. Roosevelt strenuously opposed the Bonus Bill that would give World War I veterans a cash bonus. Congress finally passed it over his veto in 1936, and the Treasury distributed $1.5 billion in cash as bonus welfare benefits to 4 million veterans just before the 1936 election.

New Dealers never accepted the Keynesian argument for government spending as a vehicle for recovery. Most economists of the era, along with Henry Morgenthau of the Treasury Department, rejected Keynesian solutions and favored balanced budgets.

Banking reform

At the beginning of the Great Depression the economy was destabilized by bank failures followed by credit crunches. The initial reasons were substantial losses in investment banking, followed by bank runs. Bank runs occurred when a large number of customers withdrew their deposits because they believed the bank might become insolvent. As the bank run progressed, it generated a self-fulfilling prophecy: as more people withdraw their deposits, the likelihood of default increased, and this encouraged further withdrawals. It destabilized many banks to the point where they faced bankruptcy. Between 1929 and 1933 40% of all banks (9.490 out of 23.697 banks) went bankrupt. Much of the Great Depression's economic damage was caused directly by bank runs.

Herbert Hoover had already considered a bank holiday to prevent further bank runs, but rejected the idea because he was afraid to trip a panic. Roosevelt, however, gave a radio address, held in the atmosphere of a Fireside Chat, and explained to the public in simple terms the causes of the banking crisis, what the government will do and how the population could help. He closed all the banks in the country and kept them all closed until he could pass new legislation.

On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's top advisors. The act was passed and signed into law the same day. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system. By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks. Their deposits totalled $3.6 billion; depositors lost a total of $540 million, and eventually received on average 85 cents on the dollar of their deposits; it is a common myth that they received nothing back. The Glassâ€"Steagall Act limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations. It also established the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500, ending the risk of runs on banks.

This banking reform offered unprecedented stability: While throughout the 1920s more than five hundred banks failed per year; it was less than ten banks per year after 1933.

Monetary reform

Under the gold standard, the United States kept the Dollar convertible to gold. The FED would have had to execute an expansionary monetary policy to fight the deflation and to inject liquidity into the banking system to prevent it from crumblingâ€"but lower interest rates would have led to an gold outflow. Under the gold standards priceâ€"specie flow mechanism countries that lost gold but nevertheless wanted to maintain the gold standard had to permit their money supply to decrease and the domestic price level to decline (deflation). As long as the FED had to defend the gold parity of the Dollar it had to sit idle while the banking system crumbled.

In March and April in a series of laws and executive orders, the government suspended the gold standard. Roosevelt stopped the outflow of gold by forbidding the export of gold except under license from the Treasury. Anyone holding significant amounts of gold coinage was mandated to exchange it for the existing fixed price of US dollars. The Treasury no longer paid out gold in exchange for dollars, and gold would no longer be considered valid legal tender for debts in private and public contracts.

The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold. With the passage of the Gold Reserve Act in 1934 the nominal price of gold was changed from $20.67 per troy ounce to $35. These measures enabled the Fed to increase the amount of money in circulation to the level the economy needed. Markets immediately responded well to the suspension, in the hope that the decline in prices would finally end. In her work What ended the Great Depression? (1992) Christina Romer argued that this policy raised industrial production by 25% until 1937 and by 50% until 1942.

Securities regulation

Before the Wall Street Crash of 1929, there was no regulation of securities at the federal level. Even firms whose securities were publicly traded published no regular reports or even worse rather misleading reports based on arbitrarily selected data. To avoid another Wall Street Crash the Securities Act of 1933 was enacted. It required the disclosure of the balance sheet, profit and loss statement, the names and compensations of corporate officers, about firms whose securities were traded. Additionally those reports had to be verified by independent auditors. In 1934 the U.S. Securities and Exchange Commission was established to regulate the stock market and prevent corporate abuses relating to the sale of securities and corporate reporting.

Repeal of Prohibition

In a measure that garnered substantial popular support for his New Deal, Roosevelt moved to put to rest one of the most divisive cultural issues of the 1920s. He signed the bill to legalize the manufacture and sale of alcohol, an interim measure pending the repeal of Prohibition, for which a constitutional amendment of repeal (the 21st) was already in process. The repeal amendment was ratified later in 1933. States and cities gained additional new revenue, and Roosevelt secured his popularity especially in the cities and ethnic areas by helping the beer start flowing.

Relief

Relief was the immediate effort to help the one-third of the population that was hardest hit by the depression. Also, relief was aimed at providing temporary help to suffering and unemployed Americans.

Public works

To prime the pump and cut unemployment, the NIRA created the Public Works Administration (PWA), a major program of public works, which organized and provided funds for the building of useful works such as government buildings, airports, hospitals, schools, roads, bridges, and dams. From 1933 to 1935 PWA spent $3.3 billion with private companies to build 34,599 projects, many of them quite large.

Under Roosevelt, many unemployed persons were put to work on a wide range of government financed public works projects, building bridges, airports, dams, post offices, courthouses, and thousands of miles of road. Through reforestation and flood control, they reclaimed millions of hectares of soil from erosion and devastation. As noted by one authority, Roosevelt's New Deal "was literally stamped on the American landscape".

Farm and rural programs

Rural America was a high priority for Roosevelt and his energetic Secretary of Agriculture, Henry A. Wallace. FDR believed that full economic recovery depended upon the recovery of agriculture, and raising farm prices was a major tool, even though it meant higher food prices for the poor living in cities.

Many rural people lived in severe poverty, especially in the South. Major programs addressed to their needs included the Resettlement Administration (RA), the Rural Electrification Administration (REA), rural welfare projects sponsored by the WPA, National Youth Administration (NYA), Forest Service and Civilian Conservation Corps (CCC), including school lunches, building new schools, opening roads in remote areas, reforestation, and purchase of marginal lands to enlarge national forests. In 1933, the Administration launched the Tennessee Valley Authority, a project involving dam construction planning on an unprecedented scale to curb flooding, generate electricity, and modernize poor farms in the Tennessee Valley region of the Southern United States. Under the Farmers' Relief Act of 1933, the government paid compensation to farmers who reduced output, thereby rising prices. As a result of this legislation, the average income of farmers almost doubled by 1937.

In the 1920s farm production had increased dramatically thanks to mechanization, more potent insecticides and increased use of fertilizer. Due to an overproduction of agricultural products farmers faced a severe and chronic agricultural depression throughout the 1920s. The Depression even worsened the agricultural crises. At the beginning of 1933 agricultural markets nearly faced collapse. Farm prices were so low that for example in Montana wheat was rotting in the fields because it could not be profitably harvested. In Oregon sheep were slaughtered and left to the buzzards because meat prices were not sufficient to warrant transportation to markets.

Roosevelt was keenly interested in farm issues and believed that true prosperity would not return until farming was prosperous. Many different programs were directed at farmers. The first 100 days produced the Farm Security Act to raise farm incomes by raising the prices farmers received, which was achieved by reducing total farm output. The Agricultural Adjustment Act created the Agricultural Adjustment Administration (AAA) in May 1933. The act reflected the demands of leaders of major farm organizations, especially the Farm Bureau, and reflected debates among Roosevelt's farm advisers such as Secretary of Agriculture Henry A. Wallace, M.L. Wilson, Rexford Tugwell, and George Peek.

The AAA aimed to raise prices for commodities through artificial scarcity. The AAA used a system of domestic allotments, setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat. The farmers themselves had a voice in the process of using government to benefit their incomes. The AAA paid land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. To force up farm prices to the point of "parity" 10Â million acres (40,000Â km²) of growing cotton was plowed up, bountiful crops were left to rot, and six million piglets were killed and discarded.

The idea was to give farmers a "fair exchange value" for their products in relation to the general economy ("parity level"). Farm incomes and the income for the general population recovered fast since the Beginning of 1933. Still, food prices remained well below the 1929 peak.

The AAA established an important and long-lasting federal role in the planning on the entire agricultural sector of the economy and was the first program on such a scale on behalf of the troubled agricultural economy. The original AAA did not provide for any sharecroppers or tenants or farm laborers who might become unemployed, but there were other New Deal programs especially for them.

A Gallup Poll printed in the Washington Post revealed that a majority of the American public opposed the AAA. In 1936, the Supreme Court declared the AAA to be unconstitutional, stating that "a statutory plan to regulate and control agricultural production, [is] a matter beyond the powers delegated to the federal government". The AAA was replaced by a similar program that did win Court approval. Instead of paying farmers for letting fields lie barren, this program instead subsidized them for planting soil enriching crops such as alfalfa that would not be sold on the market. Federal regulation of agricultural production has been modified many times since then, but together with large subsidies is still in effect in 2012.

The Farm Tenancy Act in 1937 was the last major New Deal legislation that concerned farming. It, in turn, created the Farm Security Administration (FSA), which replaced the Resettlement Administration.

The Food Stamp Planâ€"a major new welfare program for urban poorâ€"was established in 1939 to provide stamps to poor people who could use them to purchase food at retail outlets. The program ended during wartime prosperity in 1943, but was restored in 1961. It survived into the 21st century with little controversy because it was seen to benefit the urban poor, food producers, grocers and wholesalers, as well as farmers. Thus it gained support from both liberal and conservative Congressmen. In 2013, however, Tea Party activists in the House tried to end the program, now known as the Supplemental Nutrition Assistance Program, while the Senate fought to preserve it.

Recovery

Recovery was the effort in numerous programs to restore the economy to normal health. By most economic indicators this was achieved by 1937â€"except for unemployment, which remained stubbornly high until World War II began. Recovery was designed to help the economy bounce back from depression.

NRA "Blue Eagle" campaign

Roosevelt's advisers believed, that excessive competition and technical progress had led to overproduction and lowered wages and prices, which they believed lowered demand and employment (Deflation). He argued that government economic planning was necessary to remedy this:

...A mere builder of more industrial plants, a creator of more railroad systems, an organizer of more corporations, is as likely to be a danger as a help. Our task is not ... necessarily producing more goods. It is the soberer, less dramatic business of administering resources and plants already in hand.

From 1929 to 1933, the industrial economy had been suffering from a vicious cycle of deflation. Since 1931, the U.S. Chamber of Commerce, the voice of the nation's organized business, promoted an anti-deflationary scheme that would permit trade associations to cooperate in government-instigated cartels to stabilize prices within their industries. While existing antitrust laws clearly forbade such practices, organized business found a receptive ear in the Roosevelt Administration.

New Deal economists argued that cut-throat competition had hurt many businesses and that with prices having fallen 20% and more, "deflation" exacerbated the burden of debt and would delay recovery. They rejected a strong move in Congress to limit the workweek to 30 hours. Instead their remedy, designed in cooperation with big business, was the NIRA. It included stimulus funds for the WPA to spend, and sought to raise prices, give more bargaining power for unions (so the workers could purchase more) and reduce harmful competition. At the center of the NIRA was the National Recovery Administration (NRA), headed by former General Hugh S. Johnson, who had been a senior economic official in World War I. Johnson called on every business establishment in the nation to accept a stopgap "blanket code": a minimum wage of between 20 and 45 cents per hour, a maximum workweek of 35â€"45 hours, and the abolition of child labor. Johnson and Roosevelt contended that the "blanket code" would raise consumer purchasing power and increase employment.

To mobilize political support for the NRA, Johnson launched the "NRA Blue Eagle" publicity campaign to boost what he called "industrial self-government". The NRA brought together leaders in each industry to design specific sets of codes for that industry; the most important provisions were anti-deflationary floors below which no company would lower prices or wages, and agreements on maintaining employment and production. In a remarkably short time, the NRA announced agreements from almost every major industry in the nation. By March 1934, industrial production was 45% higher than in March 1933. Donald Richberg, who soon replaced Johnson as the head of the NRA, said:

There is no choice presented to American business between intelligently planned and uncontrolled industrial operations and a return to the gold-plated anarchy that masqueraded as "rugged individualism" ... Unless industry is sufficiently socialized by its private owners and managers so that great essential industries are operated under public obligation appropriate to the public interest in them, the advance of political control over private industry is inevitable.

By the time NRA ended in May 1935, industrial production was 55% higher than in May 1933. In addition, well over 2 million employers accepted the new standards laid down by the NRA, which had introduced a minimum wage and an eight-hour workday, together with abolishing child labor. On May 27, 1935, the NRA was found to be unconstitutional by a unanimous decision of the U.S. Supreme Court in the case of Schechter v. United States. On that same day, the Court unanimously struck down the Frazier-Lemke Act portion of the New Deal as unconstitutional. After the end of the NRA quotas in the oil industry were fixed by the Railroad Commission of Texas with Tom Connally's federal Hot Oil Act of 1935, which guaranteed that illegal "hot oil" would not be sold.

Employment in private sector factories recovered to the level of the late 1920s by 1937 but did not grow much bigger until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.

Housing Sector

The New Deal had an important impact in the housing field. The New Deal followed and increased President Hoover's lead and seek measures. The New Deal sought to stimulate the private home building industry and increase the number of individuals who owned homes. The New Deal implemented two new housing agencies; Home Owners' Loan Corporation (HOLC) and the Federal Housing Administration (FHA). HOLC set uniform national appraisal methods and simplified the mortgage process. The Federal Housing Administration (FHA) created national standards for home construction.

The New Deal helped increase the number of Americans who owned homes. Before the New Deal only four out of 10 Americans owned homes; this was because the standard mortgage lasted only five to 10 years and had interest as high as 8%. These conditions severely limited the accessibility to housing for most Americans. Under the New Deal, Americans had access to 30-year mortgages, the standardized appraisal and construction standards helped open up the housing market to more Americans.

Reform

Reform was based on the assumption that the depression was caused by the inherent instability of the market and that government intervention was necessary to rationalize and stabilize the economy, and to balance the interests of farmers, business and labor. Reforms targeted the causes of the depression and sought to prevent a crisis like it from happening again. In other words, financially rebuilding the U.S. while ensuring not to repeat history.

Trade liberalization

There is consensus amongst economic historians that protectionist policies, culminating in the Smoot-Hawley Act of 1930 worsened the Depression. Franklin D. Roosevelt already spoke against the act while campaigning for president during 1932. In 1934 the Reciprocal Tariff Act was drafted by Cordell Hull. It gave the president power to negotiate bilateral, reciprocal trade agreements with other countries. The act enabled Roosevelt to liberalize American trade policy around the globe. It is widely credited with ushering in the era of liberal trade policy that persists to this day.

Puerto Rico

A separate set of programs operated in Puerto Rico, headed by the Puerto Rico Reconstruction Administration. It promoted land reform and helped small farms; it set up farm cooperatives, promoted crop diversification, and helped local industry. The Puerto Rico Reconstruction Administration was directed by Juan Pablo Montoya Sr. from 1935 to 1937.

Second New Deal (1935â€"1938)

In the spring of 1935, responding to the setbacks in the Court, a new skepticism in Congress, and the growing popular clamour for more dramatic action, the Administration proposed or endorsed several important new initiatives. Historians refer to them as the "Second New Deal" and note that it was more liberal and more controversial than the "First New Deal" of 1933â€"34.

Social Security Act

Until 1935 there were just a dozen states that had old age insurance laws but these programs were woefully underfunded and therefore almost worthless. Just one state (Wisconsin) had an insurance program. The United States was the only modern industrial country, where people faced the Depression without any national system of social security. Even the work programs of the "First New Deal" were just meant as immediate relief, destined to run less than a decade.

The most important program of 1935, and perhaps the New Deal as a whole, was the Social Security Act, drafted by Frances Perkins. It established a permanent system of universal retirement pensions (Social Security), unemployment insurance, and welfare benefits for the handicapped and needy children in families without father present. It established the framework for the U.S. welfare system. Roosevelt insisted that it should be funded by payroll taxes rather than from the general fund; he said, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program."

Compared with the social security systems in western European countries, the Social Security Act of 1935 was rather conservative. But for the first time the federal government took responsibility for the economic security of the aged, the temporarily unemployed, dependent children and the handicapped.

Labor relations

The National Labor Relations Act of 1935, also known as the Wagner Act, finally guaranteed workers the rights to collective bargaining through unions of their own choice. The Act also established the National Labor Relations Board (NLRB) to facilitate wage agreements and to suppress the repeated labor disturbances. The Wagner Act did not compel employers to reach agreement with their employees, but it opened possibilities for American labor. The result was a tremendous growth of membership in the labor unions, especially in the mass-production sector, composing the American Federation of Labor. Labor thus became a major component of the New Deal political coalition.

The Fair Labor Standards Act of 1938 set maximum hours (44 per week) and minimum wages (25 cents per hour) for most categories of workers. Child labour of children under the age of 16 was forbidden, children under 18 years were forbidden to work in hazardous employment. As a result the wages of 300,000 people were increased and the hours of 1.3 million were reduced. It was the last major New Deal legislation that Roosevelt succeeded in enacting into law before the Conservative Coalition of Republicans and conservative Democrats won control of Congress that year. While he could usually use the veto to restrain Congress, it could block any Roosevelt legislation it disliked.

Works Progress Administration

Roosevelt nationalized unemployment relief through the Works Progress Administration (WPA), headed by close friend Harry Hopkins. Roosevelt had insisted that the projects had to be costly in terms of labor, long-term beneficial, and the WPA was forbidden to compete with private enterprises (therefore the workers had to be paid smaller wages). The Works Progress Administration (WPA) was created to return the unemployed to the work force. The WPA financed a variety of projects such as hospitals, schools, and roads, and employed more than 8.5 million workers who built 650,000 miles of highways and roads, 125,000 public buildings, as well as bridges, reservoirs, irrigation systems, parks, playgrounds and so on.

Prominent projects were the Lincoln Tunnel, the Triborough Bridge, the LaGuardia Airport, the Overseas Highway and the San Francisco â€" Oakland Bay Bridge. The Rural Electrification Administration used co-ops to bring electricity to rural areas, many of which still operate. The National Youth Administration was another the semi-autonomous WPA program for youth. Its Texas director, Lyndon Baines Johnson, later used the NYA as a model for some of his Great Society programs in the 1960s. The WPA was organized by states, but New York City had its own branch Federal One, which created jobs for writers, musicians, artists, and theater personnel. It became a hunting ground for conservatives searching for Communist employees.

The Federal Writers' Project operated in every state, where it created a famous guide book; it also catalogued local archives and hired many writers, including Margaret Walker, Zora Neale Hurston, and Anzia Yezierska, to document folklore. Other writers interviewed elderly ex-slaves and recorded their stories. Under the Federal Theater Project, headed by charismatic Hallie Flanagan, actresses and actors, technicians, writers, and directors put on stage productions. The tickets were inexpensive or sometimes free, making theater available to audiences unaccustomed to attending plays. One Federal Art Project paid 162 trained woman artists on relief to paint murals or create statues for newly built post offices and courthouses. Many of these works of art can still be seen in public buildings around the country, along with murals sponsored by the Treasury Relief Art Project of the Treasury Department. During its existence, the Federal Theatre Project provided jobs for circus people, musicians, actors, artists, and playwrights, together with increasing public appreciation of the arts.

Tax policy

In 1935, Roosevelt called for a tax program called the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth. But there was more rhetoric than revenue in that proposal. The bill imposed an income tax of 79% on incomes over $5 million. Since that was an extraordinary high income in the 1930s, the highest tax rate actually covered just one individual â€" John D. Rockefeller. The bill was expected to raise only about $250 million in additional funds, so revenue was not the primary goal. Morgenthau called it "more or less a campaign document". In a private conversation with Raymond Moley, Roosevelt admitted that the purpose of the bill was "stealing Huey Long's thunder" by making Long's supporters his own. At the same time, it raised the bitterness of the rich who called Roosevelt "a traitor to his class" and the wealth tax act a "soak the rich tax".

A tax called the undistributed profits tax was enacted in 1936. This time the primary purpose was revenue, since Congress had enacted the Adjusted Compensation Payment Act, calling for payments of $2 billion to World War I veterans. The bill established the persisting principle that retained corporate earnings could be taxed. Paid dividends were tax deductible by corporations. Its proponents intended the bill to replace all other corporation taxesâ€"believing this would stimulate corporations to distribute earnings and thus put more cash and spending power in the hands of individuals. In the end, Congress watered down the bill, setting the tax rates at 7 to 27% and largely exempting small enterprises. Facing widespread and fierce criticism, the tax deduction of paid dividends was repealed in 1938.

Housing Act of 1937

One of the last New Deal agencies was the United States Housing Authority, created in 1937 with some Republican support to abolish slums.

Court-packing plan and jurisprudential shift

When Roosevelt took office a majority of the nine judges of the Supreme Court were appointed by Republican Party Presidents. Four especially conservative judges (nicknamed the Four Horsemen) often managed to convince the fifth judge Owen Roberts to strike down progressive legislation. Roosevelt increasingly saw the issue of the Supreme Court as one of unelected officials stifling the work of a democratically elected government. Early in the year 1937, he asked Congress to pass the Judiciary Reorganization Bill of 1937. That proposal would have given the president the power to appoint a new justice whenever an existing judge reached the age of 70 and failed to retire within six months. In that way Roosevelt hoped to preserve the New Deal legislation. But he had stirred up a hornet`s nest since many congressmen feared he might start to retire them at 70 next. Many congressmen considered the proposal unconstitutional. In the end the proposal failed.

In one sense, however, it succeeded: Justice Owen Roberts switched positions and began voting to uphold New Deal measures, effectively creating a liberal majority in West Coast Hotel Co. v. Parrish and National Labor Relations Board v. Jones & Laughlin Steel Corporation, thus departing from the Lochner v. New York era and giving the government more power in questions of economic policies. Journalists called this change "the switch in time that saved nine". Recent scholars have noted that since the vote in Parrish took place several months before the court-packing plan was announced, other factors, like evolving jurisprudence, must have contributed to the Court's swing. The opinions handed down in the spring of 1937, favorable to the government, also contributed to the downfall of the plan. In any case, the "court packing plan", as it was known, did lasting political damage to Roosevelt.

With the retirement of Justice Willis Van Devanter, the Court's composition began to move solidly in support of Roosevelt's legislative agenda. In the end Roosevelt had lost the battle for the Judiciary Reorganization Bill but won the war for control of the Supreme Court in a constitutional way. Since he managed to serve in office for more than twelve years he got the chance to appoint eight of the nine Justices of the Court. Former Supreme Court Chief Justice William Rehnquist noted that in this way the Constitution provides for ultimate responsibility of the Court to the political branches of government.

Recession of 1937 and recovery

The Roosevelt Administration was under assault during FDR's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued until most of 1938. Production and profits declined sharply. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The downturn was perhaps due to nothing more than the familiar rhythms of the business cycle. But until 1937 Roosevelt had claimed responsibility for the excellent economic performance. That backfired in the recession and the heated political atmosphere of 1937.

Business-oriented conservatives explained the recession by arguing that the New Deal had been very hostile to business expansion in 1935â€"37, had threatened massive anti-trust legal attacks on big corporations and by the huge strikes caused by the organizing activities of the Congress of Industrial Organizations (CIO) and the American Federation of Labor (AFL). The recovery was explained by the conservatives in terms of the diminishing of those threats sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.

"When The Gallup Organization's poll in 1939 asked, 'Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?' the American people responded 'yes' by a margin of more than two-to-one. The business community felt even more strongly so." Fortune's Roper poll found in May 1939 that 39% of Americans thought the administration had been delaying recovery by undermining business confidence, while 37% thought it had not. But it also found that opinions on the issue were highly polarized by economic status and occupation. In addition, AIPO found in the same time that 57% believed that business attitudes toward the administration were delaying recovery, while 26% thought they were not, emphasizing that fairly subtle differences in wording can evoke substantially different polling responses.

Keynesian economists stated that the recession of 1937 was a result of a premature effort to curb government spending and balance the budget.

Roosevelt had been cautious not to run large deficits. In 1937 he actually achieved a balanced budget. Therefore he did not fully utilize deficit spending. Between 1933 and 1941 the average federal budget deficit was 3% per year.

In November 1937 Roosevelt decided that big business were trying to ruin the New Deal by causing another depression that voters would react against by voting Republican. It was a "capital strike" said Roosevelt, and he ordered the Federal Bureau of Investigation to look for a criminal conspiracy (they found none). Roosevelt moved left and unleashed a rhetorical campaign against monopoly power, which was cast as the cause of the new crisis. Ickes attacked automaker Henry Ford, steelmaker Tom Girdler, and the super rich "Sixty Families" who supposedly comprised "the living center of the modern industrial oligarchy which dominates the United States".

Left unchecked, Ickes warned, they would create "big-business Fascist Americaâ€"an enslaved America". The President appointed Robert Jackson as the aggressive new director of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II began and big business was urgently needed to produce war supplies. But the Administration's other response to the 1937 dip that stalled recovery from the Great Depression had more tangible results.

Ignoring the requests of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his Administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. Roosevelt explained his program in a fireside chat in which he told the American people that it was up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation".

World War II and full employment

The U.S. reached full employment after entering World War II in December 1941. Under the special circumstances of war mobilization, massive war spending doubled the GNP (Gross National Product). Military Keynesianism brought full employment. Federal contracts were cost-plus. Instead of competitive bidding to get lower prices, the government gave out contracts that promised to pay all the expenses plus a modest profit. Factories hired everyone they could find regardless of their lack of skills; they simplified work tasks and trained the workers, with the federal government paying all the costs. Millions of farmers left marginal operations, students quit school, and housewives joined the labor force.

The emphasis was for war supplies as soon as possible, regardless of cost and inefficiencies. Industry quickly absorbed the slack in the labor force, and the tables turned such that employers needed to actively and aggressively recruit workers. As the military grew, new labor sources were needed to replace the 12 million men serving in the military. Propaganda campaigns pleading for people to work in the war factories. The barriers for married women, the old, the unskilledâ€"and (in the North and West) the barriers for racial minoritiesâ€"were lowered.

In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, but the national debt as percent of GNP hardly changed. However, spending on the New Deal was far smaller than spending on the war effort, which passed 40% of GNP in 1944. The war economy grew so fast after deemphasizing free enterprise and imposing strict controls on prices and wages, as a result of government/business cooperation, with government subsidizing business, directly and indirectly.

Despite conservative domination of Congress during the early 1940s, a number of progressive measures supported by business in the name of efficiency and safety were legislated. The Coal Mines Inspection and Investigation Act of 1941 significantly reduced fatality rates in the coal-mining industry, while the Servicemen's Dependents Allowance Act of 1942 provided family allowances for dependents of enlisted men of the Army, Navy, Marine Corps, and the Coast Guard, while emergency grants to States were authorized that same year for programs for day care for children of working mothers. In 1944, pensions were authorized for all physically or mentally helpless children of deceased veterans regardless of the age of the child at the date the claim was filed or at the time of the veteran's death, provided the child was disabled at the age of sixteen and that the disability continued to the date of the claim. The Public Health Service Act, which was passed that same year, expanded Federal-State public health programs, and increased the annual amount for grants for public health services. In response to the March on Washington Movement led by A. Philip Randolph, Roosevelt promulgated Executive Order 8802 in June 1941, which established the President's Committee on Fair Employment Practices (FEPC) "to receive and investigate complaints of discrimination" so that "there shall be no discrimination in the employment of workers in defense industries or government because of race, creed, color, or national origin." The Community Facilities Act of 1941 (the Lanham Act) provided federal funds to defense-impacted communities for the building of recreational facilities, water and sanitation plants, hospitals, day care centers, schools, and houses, while the Emergency Maternity and Infant Care Program, introduced in March 1943, provided free maternity care and medical treatment during an infantâ€™s first year â€œfor the wives and children of military personnel in the four lowest enlisted pay grades.â€

The New Dealers wanted benefits for everyone according to need. Conservatives, however, proposed benefits based on national service, and their approach won out. The "G.I. Bill" (Servicemen's Readjustment Act of 1944) was a landmark piece of legislation, providing 16 million returning veterans with benefits such as housing, educational, and unemployment assistance, and played a major role in the postwar expansion of the American middle class.

A major result of the full employment at high wages was a sharp, long lasting decrease in the level of income inequality (Great Compression). The gap between rich and poor narrowed dramatically in the area of nutrition, because food rationing and price controls provided a reasonably priced diet to everyone. White collar workers did not typically receive overtime and therefore the gap between white collar and blue collar income narrowed. Large families that had been poor during the 1930s had four or more wage earners, and these families shot to the top one-third income bracket. Overtime provided large paychecks in war industries, and average living standards rose steadily, with real wages rising by 44% in the four years of war, while the percentage of families with an annual income of less than $2,000 fell from 75% to 25% of the population.

In 1941, 40% of all American families lived on less than the $1,500 per year defined as necessary by the Works Progress Administration for a modest standard of living. The median income stood at $2,000 a year, while 8 million workers eared below the legal minimum. From 1939 to 1944, however, wages and salaries more than doubled, with overtime pay and the expansion of jobs leading to a 70% rise in average weekly earnings during the course of the war. Membership in organized labor increased by 50% between 1941 and 1945, and because the War Labor Board sought labor-management peace, new workers were encouraged to participate in the existing labor organizations, thereby receiving all the benefits of union membership such as improved working conditions, better fringe benefits, and higher wages. As noted by William H. Chafe

"with full employment, higher wages and social welfare benefits provided under government regulations, American workers experienced a level of well-being that, for many, had never occurred before."

As a result of the new prosperity, consumer expenditures rose by nearly 50%, from $61.7 billion at the start of the war to $98.5 billion by 1944. Individual savings accounts climbed almost sevenfold during the course of the war. The share of total income held by the top 5% of wage earners fell from 22% to 17%, while the bottom 40% increased their share of the economic pie. In addition, during the course of the war, the proportion of the American population earning less than $3,000 (in 1968 dollars) fell by half.

Legacy

Analysts agree the New Deal produced a new political coalition that sustained the Democratic Party as the majority party in national politics into the 1960s.

However there is disagreement about whether it marked a permanent change in values. Cowie and Salvatore in 2008 argued that it was a response to depression and did not mark a commitment to a welfare state because America has always been too individualistic. MacLean rejected the idea of a definitive political culture. She says they overemphasized individualism and ignored the enormous power of big capital wields, the Constitutional restraints on radicalism, and the role of racism, antifeminism, and homophobia. She warns that accepting Cowie and Salvatore's argument that conservatism's ascendancy is inevitable would dismay and discourage activists on the left. Klein responds that the New Deal did not die a natural death; it was killed off in the 1970s by a business coalition mobilized by such groups as the Business Roundtable, the Chamber of Commerce, trade organizations, conservative think tanks, and decades of sustained legal and political attacks.

Historians generally agree that during Roosevelt's 12 years in office, there was a dramatic increase in the power of the federal government as a whole. Roosevelt also established the presidency as the prominent center of authority within the federal government. Roosevelt created a large array of agencies protecting various groups of citizensâ€"workers, farmers, and othersâ€"who suffered from the crisis, and thus enabled them to challenge the powers of the corporations. In this way, the Roosevelt Administration generated a set of political ideasâ€"known as New Deal liberalismâ€"that remained a source of inspiration and controversy for decades. New Deal liberalism lay the foundation of a new consensus. Between 1940 and 1980 there was the liberal consensus about the prospects for the widespread distribution of prosperity within an expanding capitalist economy. Especially Harry S. Trumans Fair Deal and in the 1960s, Lyndon B. Johnson's Great Society used the New Deal as inspiration for a dramatic expansion of liberal programs.

The New Deal's enduring appeal on voters fostered its acceptance by moderate and liberal Republicans.

As the first Republican president elected after FDR, Dwight D. Eisenhower (1953â€"61) built on the New Deal in a manner that embodied his thoughts on efficiency and cost-effectiveness. He sanctioned a major expansion of Social Security by a self-financed program. He supported such New Deal programs as the minimum wage and public housing; he greatly expanded federal aid to education and built the Interstate Highway system primarily as defense programs (rather than jobs program). In a private letter Eisenhower wrote:

Should any party attempt to abolish social security and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group of course, that believes you can do these things ... Their number is negligible and they are stupid.

In 1964 Barry Goldwater, an unreconstructed anti-New Dealer, was the Republican presidential candidate on a platform that attacked the New Deal. The Democrats under Lyndon B. Johnson won a massive landslide and Johnson's Great Society programs extended the New Deal. However the supporters of Goldwater formed the New Right which helped to bring Ronald Reagan into the White House in the 1980 presidential election. Reagan, at the time an ardent New Dealer, had turned against the New Deal and moved the nation in new directions, with his emphasis on government as the problem, not the solution.

Historiography and evaluation of New Deal policies

Historians debating the New Deal have generally divided between liberals who support it, conservatives who oppose it, and some New Left historians who complain it was too favorable to capitalism and did too little for minorities. There is consensus on only a few points, with most commentators favorable toward the CCC and hostile toward the NRA.

Consensus historians of the 1950s, such as Richard Hofstadter, according to Lary May:

believed that the prosperity and apparent class harmony of the post-World War II era reflected a return to the true Americanism rooted in liberal capitalism and the pursuit of individual opportunity that had made fundamental conflicts over resources a thing of the past. They argued that the New Deal was a conservative movement that built a welfare state, guided by experts, that saved rather than transformed liberal capitalism.

Liberal historians argue that Roosevelt restored hope and self-respect to tens of millions of desperate people, built labor unions, upgraded the national infrastructure and saved capitalism in his first term when he could have destroyed it and easily nationalized the banks and the railroads. Historians generally agree that, apart from building up labor unions, the New Deal did not substantially alter the distribution of power within American capitalism. "The New Deal brought about limited change in the nation's power structure." The New Deal preserved democracy in the United States in a historic period of uncertainty and crises when in many other countries democracy failed.

The most common arguments can be summarized as follows:

Harmful:

The New Deal greatly increased the national debt (Billington and Ridge) while liberal Keynesians criticize that the federal deficit between 1933 and 1939 averaged only 3.7% which was not enough to offset the reduction in private sector spending during the Great Depression
caused a growth of class consciousness among farmers and manual workers (Billington and Ridge)
promoted bureaucracy and inefficiency (Billington and Ridge) and enlarged the powers of the federal government
slowed the merit system and civil service by adding many jobs outside the system (Billington and Ridge)
infringed on the rights of businessmen (Billington and Ridge)
raise the issue of how far economic regulation can be extended without sacrificing the liberties of the people (Billington and Ridge)
rescued capitalism when the opportunity was at hand to nationalize banking, railroads and other industries (New Left critique)

Beneficial:

the nation came through its greatest depression without undermining the capitalist system (Billington and Ridge)
making the capitalist system more beneficial by enacting banking and stock market regulations to avoid abuses and providing greater financial security through, for example the introduction of Social Security or the Federal Deposit Insurance Corporation (David M. Kennedy)
created a better balance among labor, agriculture and industry (Billington and Ridge)
produced a more equal distribution of wealth (Billington and Ridge)
help conserve natural resources (Billington and Ridge)
permanently established the principle that the national government should take action to rehabilitate and preserve America's human resources (Billington and Ridge)