The New Deal refers to a series of economic, social, and political reforms in response to the Great Depression in the United States under the first and second administrations of President Franklin D. Roosevelt. Following a demand-side economic theory, Roosevelt sought to utilize the authority of the federal government to increase spending and introduce programs to spur growth and combat issues specific to the depression, such as unemployment, labor relations, financial reform, and social welfare.
Roosevelt introduced the phrase when accepting the Democratic Party presidential nomination in the 1932 United States presidential election, winning in a landslide over incumbent Herbert Hoover, whose administration was widely viewed as ineffective. Roosevelt attributed the Depression to inherent market instability and inadequate aggregate demand (based on the Keynesian economic model), and argued that stabilizing and rationalizing the economy required massive government intervention.
During Roosevelt's first hundred days in office in 1933 until 1935, Roosevelt introduced what historians refer to as the "First New Deal", which focused on the "3 R's": relief for the unemployed and for the poor, recovery of the economy back to normal levels, and reforms of the financial system to prevent a repeat depression. Roosevelt signed the Emergency Banking Act, which authorized the Federal Reserve to insure deposits to restore confidence, and the 1933 Banking Act made this permanent with the Federal Deposit Insurance Corporation (FDIC). Other laws created the National Recovery Administration (NRA), which allowed industries to create "codes of fair competition"; the Securities and Exchange Commission (SEC), which protected investors from abusive stock market practices; and the Agricultural Adjustment Administration (AAA), which raised rural incomes by controlling production. Public works were undertaken in order to find jobs for the unemployed (25 percent of the workforce when Roosevelt took office): the Civilian Conservation Corps (CCC) enlisted young men for manual labor on government land, and the Tennessee Valley Authority (TVA) promoted electricity generation and other forms of economic development in the drainage basin of the Tennessee River.
Although the First New Deal helped many find work and restored confidence in the financial system, by 1935 stock prices were still below pre-Depression levels and unemployment still exceeded 20 percent. From 1935 to 1938, the "Second New Deal" introduced further legislation and additional agencies which focused on job creation and on improving the conditions of the elderly, workers, and the poor. The Works Progress Administration (WPA) supervised the construction of bridges, libraries, parks, and other facilities, while also investing in the arts; the National Labor Relations Act guaranteed employees the right to organize trade unions; and the Social Security Act introduced pensions for senior citizens and benefits for the disabled, mothers with dependent children, and the unemployed. The Fair Labor Standards Act prohibited child labor, and enshrined a 40-hour work week and national minimum wage.
In 1938, the Republican Party gained seats in Congress and joined with conservative Democrats to block further New Deal legislation, and some of it was declared unconstitutional by the Supreme Court. The New Deal produced a political realignment, reorienting the Democratic Party's base to the New Deal coalition of labor unions, blue-collar workers, big city machines, racial minorities (most importantly African-Americans), white Southerners, and intellectuals. The realignment crystallized into a powerful liberal coalition which dominated presidential elections into the 1960s, as an opposing conservative coalition largely controlled Congress in domestic affairs from 1939 onwards.Harry S. Truman Versus the Medical Lobby The Genesis of Medicare By Monte M. Poen, 1996, P.23 Historians still debate the effectiveness of the New Deal programs, although most accept that full employment was not achieved until the United States' entry into World War II in 1941.
Origins Economic collapse (1929–1933)
From 1929 to 1933 manufacturing output decreased by one third, which economist Milton Friedman later called the Great Contraction. Prices fell by 20%, causing deflation that made repaying debts much harder. Unemployment in the United States 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, USA bank deposits were not "guaranteed" by government. When thousands of banks closed, depositors temporarily lost access to their money; most of the funds were eventually restored but there was gloom and panic. The United States had 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 psychologically devastated the nation. As Roosevelt took the oath of office at noon on March 4, 1933, all state governors had authorized bank holidays or restricted withdrawals—many Americans had little or no access to their bank accounts.Robert L. Fuller. Phantom of Fear: The Banking Panic of 1933. 2011. pp. 156–157.March 4 was a Saturday and banks were not open on weekends. On Monday Roosevelt officially closed all banks. Arthur Schlesinger Jr. The Coming of the New Deal (1959), p. 3; Brands, Traitor to his class (2008) p. 288. Farm income had fallen by over 50% since 1929. Between 1930 and 1933, an estimated 844,000 non-farm mortgages were foreclosed on, out of a total of five million.Jonathan Alter, The Defining Moment: FDR's Hundred Days and the Triumph of Hope, esp. ch. 31. (2007); Bureau of the Census, Historical Statistics of the United States (1977) series K220, N301. Political and business leaders feared revolution and anarchy. Joseph P. Kennedy Sr., who remained wealthy during the Depression, recalled 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."
Campaign
The phrase "New Deal" was coined by an adviser to Roosevelt, Stuart Chase, who used A New Deal as the title for an article published in the progressive magazine The New Republic a few days before Roosevelt's speech. Speechwriter Rosenman added it to his draft of FDR's presidential nomination acceptance speech at the last minute.. Upon accepting the 1932 Democratic nomination for president, Roosevelt promised "a new deal for the American people"."The Roosevelt Week". Time. New York. July 11, 1932. In campaign speeches, Roosevelt committed to carrying out, if elected, several elements of what would become the New Deal, such as unemployment relief and public works programs..
First New Deal (1933–1934)
Roosevelt entered office with clear ideas for policies to address the Great Depression, though he remained open to experimentation as his presidency began implementing them.. 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. 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 1917–1918. Other New Deal planners revived experiments suggested in the 1920s, such as the TVA. The "First New Deal" (1933–1934) 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.
Roosevelt created dozens of new agencies. They are traditionally and typically known to Americans by their alphabetical initials.
U.S. Vice President John Nance Garner would have a very prominent role in shaping the president's policies, with Roosevelt using Garner's knowledge and experience to pilot New Deal legislation through Congress. In 1933 alone, U.S. Senate Majority Leader Joseph T. Robinson would also propel legislation through the U.S. Senate.
The First 100 Days (1933)
The American people were generally extremely dissatisfied with the crumbling economy, mass unemployment, declining wages, and profits, and especially Herbert Hoover's policies such as the Smoot–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 Federal Deposit Insurance Corporation to insure bank accounts) that he opposed. Ever since, presidents have been judged against Roosevelt for what they accomplished in their first 100 days. Walter Lippmann famously noted:
The economy had hit bottom in March 1933 and then started to expand. Economic indicators show the economy reached its lowest point 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 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. 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 jobs in 1937, to maintain the same employment level.
Fiscal policy