The New Deal

Franklin Delano Roosevelt’s New Deal was two things: a series of federal programs, projects and reforms enacted in the 1930s and the signature policies that became the core ideas of a U.S. liberal Democratic Party coalition. They combined relief for the unemployed and poor, overall economic recovery and a thorough set of financial reforms to prevent a depression from ever happening again.

When FDR took office on March 4, 1933, he stated his “firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” Unemployment stood at about 25%, farm income nationally had fallen by half since 1929 and close to a million nonfarm mortgages had been foreclosed. There was no protection other than what little families, private charity and local governments could offer; when, to top things off, runs on banks occurred, the institutions closed and people lost all their savings.

For relief, FDR got Congress to approve the Social Security Act of 1935, which established a basic right to an old age pension, insurance against unemployment and aid to poor families with children. In 1939, the Administration added the first Food Stamp Program, which fed 20 million people, in addition to boosting the prices of farm products.

Recovery was a vast set of programs, including a public works program to building government offices, airports, hospitals, schools, roads, bridges, and dams in some 34,599 projects, rural electrification, the Forest Service, Civilian Conservation Corps and the Tennessee Valley Authority. In effect, for a time the government became the largest investor and employer in the United States.

Reforms of the financial sector included the Banking Act of 1933, which established the Federal Deposit Insurance Corporation that still protects average checking and savings accounts, and the companion Glass-Steagall Act, which set up firewalls between the banking, insurance and investment industries. The Securities Exchange Act of 1934, set up the U.S. Securities and Exchange Commission to watch over stock investment activity to keep it transparent and fair.

The three legs of the New Deal stool were designed to interact with one another. Aid to elderly, poor and unemployed people, for example, also served to spur economic activity, as people in need spent out their aid, generating consumer demand and employment. The recovery eased the depth of poverty and unemployment while also generating production and profits. Controls over how profits were invested prevented speculation from wiping out the improvement.

The New Deal did not eliminate capitalism’s boom and bust economic cycles, but it greatly cushioned the effects. The delicate balance required to keep the economy on an even keel was shown in 1937.

The business-leaning Republicans argued that the New Deal was hostile to business growth and spurred strikes caused by the organizing activities of two competing federations that were growing thanks to workers’ fears that without unions they might starve. Buoyed by a return to healthier economic activity by 1936, the GOP in Congress applied the brakes on spending. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, while manufacturing output fell by 37% from the 1937 peak.

The worst effects of the second downturn in the Depression were technically over by 1939, but unemployment remained high until the U.S. entry into World War II that mobilized many unemployed workers into uniform. After the war, an unprecedented prosperity arose out of the unique historical circumstance that the United States was the only major industrial nation whose infrastructure had not been reduced to rubble.