The New Deal - Essay Example

A COMPARISON BETWEEN NEW DEAL'S FIRST AND SECOND ONE HUNDRED DAYS The New Deal: Combating the Great Depression The New Deal was the that US President Franklin D. Roosevelt for the programs and promises he pursued in 1933-1938. It aimed to give relief to the poor, reform the financial system, and recover from the economic degradation caused by the Great Depression. It represented a significant shift in both the political and domestic policy of the US, with results such as increased federal government control over the money supply and the economy as a whole (Chandler 1970). The New Deal was based on the three R's: relief for the unemployed, recovery for the economy, and reform to prevent another depression (Ashby 2005, p. 24). This period was also the start of complex social programs and signaled the wider acceptance of trade unions in the United States. The New Deal policy was triggered by the initial crash for the US stock market, which occurred on October 24, 1929 followed by October 29 "Black Tuesday" in which the stock market fell even more than it had the week before. These events catapulted into a worldwide economic depression (Chandler 1970). This economic depression was manifested in the US through a 4 percent to 25 percent increase in unemployment incidence, alongside reduction of manufacturing output by approximately a third. Due to deflation of currency values, prices fell, making the repayment of debts much harder. The drop in values of the mining, lumber, and agriculture industries caused these items to drop as well. The impact of the depression was however not as severe in white collar and service sectors. Franklin Roosevelt made a new deal for the American people upon accepting the 1932 Democratic nomination for president, in which he uttered the following words (Foner 1997): "Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms." Roosevelt formed the "Brain Trust," a group of academic advisers whose formation was aimed at assisting in his recovery efforts. Extensive government intervention in the economy was sought instead of allowing laissez faire to run its course (Chandler 1970). Some vocal conservative opposition attacks were faced by the New Deal, such as the American Liberty League led by democrats, particularly the 1924 and 1928 presidential candidates John W. Davis and Al Smith. There was also a large group of New Deal opponents called "Old Right," led by politicians, intellectuals, writers, and newspaper editors (Chandler 1970). This first New Deal of 1933 had goals of short-term recovery programs based on the assumption that the federal government headed by Roosevelt can solve the financial problems. Some of the policies promoted and implemented by the Roosevelt government are banking reform laws, emergency relief programs, agricultural programs, and work relief programs (Chandler 1970). Many organized liberal groups gained much of what they demanded, except the Socialist Party, which was practically destroyed. The First New Deal was described as a mixture of self-contradiction, experiment, and pragmatism (Chandler 1970). Eventually, the economy recovered form the low point of 1932, sustaining the improving until 1937 when the Recession of 1937 regained the 1934 levels of unemployment. Economists and historians disputed the concept of the New Deal being responsible for the economic recovery (Chandler 1970). The New Deal was critiqued by several historians and Barton Bernstein spoke of the so-called 'conservative achievements' of liberal reform due to its inadequacies. Howard Zinn also gave considerable emphasis to flaws, limits, and conservative stances but failed, among others, in providing theoretical framework for understanding the New Deal (Foner 1997, p. 143). Below is the GDP annual patterns and long-term trend, 1920-40, in billions of constant dollars (Carter, 2006). The First and Second One Hundred Days: A Comparison It is difficult to draw the line between the essence of the first 100 days of the New Deal and that of the second. Roosevelt's New Deal was described as expansionary and reflationist, a term that did not seem to have lasted beyond the Depression. It took over the economy in an unprecedented way given the widespread belief that the stock-market boom and the subsequent collapse of the financial system was the major cause of the Depression (Temin 1989, p. 121). As mentioned, the government adopted the high-wage approach and the New Deal turned the economy around but had not brought full employment (Temin 1989, p. 122). When the Second New Deal came into surface, Roosevelt's response to this challenge was turning from measures to revive the economy by extending the government's control over the economy to spread its output more evenly (Temin 1989, p. 122). The control of the economy was overseen by many regulatory bodies, such as the National Labor Relations Board (NLRB). The three Rs that embodied the New Deal in both the first and the second one hundred days were geared towards Roosevelt's belief that his administration was doing something really different from the old time religion of economy and frugality that went on as the essence for solving depression. Rather, the New Deal believed that there was a group of men and women who are willing to give the benefit of the doubt and at least try new ideas. The New Deal constructed two policy phases. The first was the NIRA, which was implemented in 1933-1935, geared towards creating rents by limiting competition. This was congruent to Roosevelt's objective in both his First and Second 100 Days to limit competition since the severity of the Depression was caused by excessive business competition. It allowed labor to capture some rents by exempting industry from antitrust prosecution in the case that the industry raises wages and accepts collective bargaining with labor unions (Cole 2003). This first New Deal of 1933 had goals of short-term recovery programs based on the assumption that the federal government headed can solve the financial problems. Some of the policies promoted and implemented by the Roosevelt government are banking reform laws, emergency relief programs, agricultural programs, and work relief programs (Chandler 1970). Many organized liberal groups gained much of what they demanded, except the Socialist Party, which was practically destroyed. The First New Deal was described as a mixture of self-contradiction, experiment, and pragmatism (Chandler 1970). Eventually, the economy recovered form the low point of 1932, sustaining the improving until 1937 when the Recession of 1937 regained the 1934 levels of unemployment. Economists and historians disputed the concept of whether the New Deal was responsible for the economic recovery or whether it slowed such recovery (Chandler 1970). There was after all, only a matter of two years between the first and the second on hundred days of the New Deal. In many respects, it was more a matter of presentation than of substance, which spells the difference between the two Deals. There was a greater emphasis upon the need to police business and a likewise growing emphasis upon class-based appeals and attacks upon the so-called 'economic royalists' (Venn 1998, p. 58). The First 100 days of Roosevelt were characterised by decisive action and strong purpose in the face of the Great Depression. FDR entered office with neither clear sets of programs nor a definite government philosophy. Roosevelt said that he was aware that he might try some things and then, another, categorizing his governance as pragmatic and was lacking in a central philosophy. The first phase of the New Deal had Roosevelt believe that the severity of the Depression was caused by excessive business competition that reduced prices and wages, which in turn caused the lowering of demand and employment. It was also particularly argued that the economy expanded during World War I since the government ignored the antitrust laws. It was said to reduce industrial competition and conflict, raised wages and output, and facilitated cooperation between firms (Cole 2003). In one hundred days, the Roosevelt administration implemented a series of emergency relief bills for the unemployed sector, a bill on the banking structure called the Glass-Steagall Act or the Banking Act of 1933, an Agricultural Adjustment act for farmers, a Securities Act to form the Stock Exchange, and the National Industrial Recovery act aiming to legalise cartels in American industry. It was followed by the suspension of the convertibility of the dollar into gold, abandoning the gold standard, and enactment of legislation to promote American exports (Ferguson 1984). The Roosevelt administration began to tinker with the currency, set finance regulations, reinflate cop prices, and stabilise banks and businesses (O'Neill 2006). Roosevelt called for a bank holiday two days after his inauguration in which all banks in the United States were closed for eight days while the economic health was assessed. Congress passed the Emergency Banking Relief Act during this time, decreeing that only those banks with sufficient funds will be reopened after an examination. This was undertaken in order to rescue the banking system and secure depositor's money. With the thrust of the New Deal towards Relief, the Roosevelt government established the Civilian Conservation Cops (CCC), which paid unemployed young men to work in forests and parks, thus giving them employment. It was based on the armed forces model with officers in charge of workers and was designed to tackle the problem of unemployed young men between 18 to 25 years old. It was estimated that 2.5 million men served in the CCC between 1933 and 1941 (Ashby 2005). Employment was also pursued through the Men and Women of the Works Project Administration (WPA), which was hired to build bridges, airports, roads, and hospitals; as well as paint murals and put on displays; record folk tunes and slave narratives (Ashby 2005, p. 24). Roosevelt supported federal spending for flood control and discussed rivers in the context of integrated source development plans that featured reforestation of upstream watersheds. The great amount of infrastructure were justified for unemployment relief. Relief was also ensured through the Deal Emergency Relief Administration (FERA), which gave money to state and local agencies, which in turn distributed it to people in need. Roosevelt raised taxes on wealthy people and on corporations in order to pay for all the new programs. In his attempt to jumpstart economic growth, he also sent more than he took in through taxes (Ashby 2005, p. 24). Despite Roosevelt's attempts towards relief strategies, the increased expending for unemployment relief and public works as well as deep cuts in overall spending to balance the budget were viewed by historians and economists as seemingly contradictory to the needs of the time. It was inferred that these First New Deal policies bought some relief, but class conflict intensified as sustained recovery failed to arrive. Hence, Roosevelt abandoned the pledge to balance the budget. The Second 100 days took place in 1935 in which the President turned 'sharply left' alongside the implementation of the Social Security Act, the Wagner Act, the tax reform, increased spending, and other measures of the same philosophy. It revived the New Deal momentum at a cost. Its turn to the left, unlike the first 100 days, was prompted by the rise for much more protests, particularly insufficient re-employment, and other reform measures. The New Deal during this period was attacked by staunch resistance, such as the Wealth Tax, as did all American legislation that has sought to redistribute income (Lawson 2006). Roosevelt developed a flurry of renewed legislative vigor that in his second 100 days, and the lawmakers recoiled under a series of orders on certain bills that needed to be passed, such as the social security act, a new banking law, a public-utilities holding company act, Senator Wagner's labor relations, act, and a 'soak-the-rich tax bill (Morgan 1985, p. 70). Indeed, the foundation of American welfare state was constructed by Congress, which was already visible in the first 100 Days. However, some fears from the business sector included the facts of the labor bill on southern industry, the relief bill on the federal budget, and the tax bill on business. Some of the things that the Second Hundred Days accomplished are the redistribution of income through "soak-the-rich tax, federal control of reserve banks though the banking act, old-age pensions and unemployment insurance through social security act, a public-woks program through the work-relief bill, and wages and house regulation (Morgan 1985, p. 71). The Second Policy phase was adopted upon the Supreme Courts' ruling of the NIRA as unconstitutional. The court's decision prevented Roosevelt from tying collusion to paying high wages. Hence, the government largely ignored the antirust laws, and later passed the National Labor Relations Act (NIRA), which aimed at strengthening several of the earlier NIRA's provisions (Cole 2003). This Second New Deal, which was implemented in 1935-36, involved a more comprehensive redistribution of power and resources. It also involved union protection programs, the Social Security Act, and programs purporting to help migrant workers and tenant farmers. At present, several New Deal programs remain active, such as the Federal Deposit Insurance Corporation, the Federal Housing Administration, and the Tennessee Valley Authority. In addition, the largest programs still existing today are the Securities and Exchange Commission and the Social Security System (Chandler 1970). Some economists examine that President Franklin Roosevelt's "New Deal" policies kept the economy depressed after 1933, with its character of limited competition in product markets and increased labor bargaining power (Cole 2003). Some of these policies are the National Industrial Recovery Act (NIRA), which permitted collusion in some sectors and suspended anti-trust law. It was inferred that the New Deal cartelization polices are responsible factors behind the weak recovery, with a 60 percent of the difference between actual output and trend output (Cole 2003). The key depressing feature of the New Deal is said to be the policy linkage between paying high wages and being able to collude (Cole 2003). Roosevelt's strategy for economic recovery was raising wages and prices and in achieving these, Congress passed labor and industrial policies in limiting competition and raising labor bargaining power (Cole 2003). The first phase of the New Deal had Roosevelt believe that the severity of the Depression was caused by excessive business competition that reduced prices and wages, which in turn caused the lowering of demand and employment (Cole 2003). It was argued by him that government planning was necessary of recovery, which was not a disputable claim. Several advisors of Roosevelt, who had worked as economic planners, agued that wartime economic planning, would certainly bring recovery. It was also particularly argued that the economy expanded during World War I since the government ignored the antitrust laws. It was said to reduce industrial competition and conflict, raises wages and output, and facilitated cooperation between firms (Cole 2003). This wartime policy became the model used for NIRA. The Code of Fair Competition became the cornerstone of the NIRA of each industry. These codes functioned as the operating rules for all firms in the industry. Under the guidance of the National recovery Administration (NRA), firms and workers negotiated these codes. The codes needed approval of the President, which was given only if the industry accepted collective bargaining agreement with an independent union and if it raised wages (Chandler 1970).In return, the act suspended antitrust law and industries were encouraged to adopt trade practices that raised prices and limited competitions. NRA codes covered over 500 industries by 1934, accounting for nearly 80 percent of private, non-agricultural employment (Chandler 1970). There are similarities in the first and second one hundred days of the existence of the New Deal. This may be seen in the character of limited competition in product markets and increased labor bargaining power. This policy direction is seen as one that jeopardizes the economy even more, especially during a time of Great Depression. The first 100 days of the New Deal had the increased labor bargaining power in the priority list of the government, which was also present in the second 100 days. In fact, the second 100 days had not at all departed from the policy priorities of the first, but is in effect a reinforcement of it. Roosevelt's strategy for economic recovery was raising wages and prices and was made to push through by limiting competition and raising labor bargaining power. This stance was due to Roosevelt's governance analysis that the severity of the Depression was caused by excessive business competition that reduced prices and wages and had in turn caused the lowering of demand and employment. However, the clamor for better policies had not surged up that high until the second 100 days, in which the business sector protested against the effects that the federal government was putting limitations on their activities and policies. Roosevelt resolved the budget imbalance caused by work-relief programs through the soak-the-rich tax that aimed to redistribute income by collecting higher taxes from the rich. Conclusion There are said to be two striking aspects of the recovery from the Great Depression in the United States in that such recovery was very weak and real wages rose significantly above trend. The weak recovery was said to be an outcome of the persistence of the Depression of New Deal cartelization policies to increase labour bargaining power and limit competition. The New Deal cartelization policies are considered an important factor in accounting for the failure of the economy towards recovery. Both the First and Second one Hundred Days manifest this government direction, which for some critiques, led to the furtherance of economic difficulties in the United States during the Great Depression. References Ashby, Ruth, 2005. Franklin and Eleanor Roosevelt. Byron Press Visual Publications, Inc. Carter, Susan (ed.), 2006. Historical statistics of the US: Millennial edition. Series Ca9. Chandler, Lester, 1970. America's greatest depression. New York: Harper. Cole, Harold L., 2003. New deal policies ad the persistence of the Great Depression: A general equilibrium analysis. Federal Reserve Bank of Minneapolis. Ferguson, Thomas, 1984. From normalcy to New Deal: Industrial structure, party competition, and American public policy in the Great Depression. International Organization. Vol. 38, No. 1, p. 41-94. Foner, Eric, 1997. The new American history. Philadelphia: Temple University Press. Lawson, Alan R., 2006. A commonwealth of hope. The Johns Hopkins University Press. Morgan, Chester M., 1985. Redneck liberal: Theodore G. Bilbo and the New Deal. Louisiana State University Press. O'Neill, Karen M., 2006. Rivers by design. Duke University Press. Temin, Peter, 1989. Lessons from the Great Depression. Massachusetts Institute of Technology. Venn, Fiona, 1998. The New Deal. Fitzroy Dearborn Publishers. Read More