Ryan's Question #1...

I want to make every effort to present my understanding and belief that the New Deal DID achieve its stated goals more often than it failed, but I want to say here and now that certain aspects of the New Deal DID NOT WORK, either as they were intended or not. The NRA was an unmitigated mistake in legislation, and the SCotUS was right in judging it unconstitutional and striking it down, for example. I simply feel that much of what was accomplished by FDR was exactly what the nation needed, at that time in history. To make this point, I'll address each of Ryan's questions in a separate post, to keep them clearly separate from each other and to (hopefully) avoid confusion.

So, here goes...

Ryan asks: "If the accumulative effect of all the programs and their inadequacies, and all the spending wasn't a restraining affect on natural business cycles then why weren't businesses able to sustain hiring, expanding?" (sic)

A fair question. I am forced to assume, however, that the question is based on unadjusted employment figures that have been taken directly from the government books and census records from the period, which means that this high unemployment figures ignore the facts that farms who received assistance or subsidies from the Feds and anyone working for the WPA, CCC, ICC, and the CWA were actually WORKING and were not, technically, unemployed. They were earning a wage, and paying income taxes, or (in the case of the farmers) working more than full time and not able to do more than simply survive.

Below is a graph representing the Darby curve, which is the name of the economist who, in 1976, discovered that ALL US Federal unemployment numbers ignored both farmers and New Deal employees as "employed" and instead left them on the unemployment rolls. The graph illustrates the "traditional" unemployment numbers 9including government "workfare" employees and farmers as the solid line, and adjusted numbers once those people are considered employed.



From an unadjusted low of just less than 15% to an adjusted low of 9%... single digit unemployment from a national high of more than 25% in 1932. THAT is the difference I have been referring to in the past, one that I think Ryan and the other critics of New Deal ignore (intentionally or otherwise).

Now, let's look at what brought about the reduction in unemployment beginning in 1933.

The various "workfare" (a frequently used term to describe government sponsored job creation through the agencies like CCC, ICC, WPA, etc... a spin on "welfare" I guess) agencies employed as many as 3.9 million people at the height of the effort, but the average annual employment roll for the years 1936 through 1941 (when the last of the workfare programs faded into oblivion through the expiration of their funding) was 3.1 million people working in the "alphabet soup" programs (source HERE). As near as I can tell, that 3.1 million man average constitutes a full 10% of the national labor force (source HERE), which in my eyes is a very large percentage of American workers benefiting from New Deal policies, even if it was only temporarily.

By 1937, "New Deal" initiatives were about finished, with only three getting signed into law after Sept of 1937, and those were specifically to combat the effect of the '37 recession. In fact, if you Google the 1936 Presidential election, FDR ran on the promise of reduced government spending, which I feel is reflected in the following table:



When comparing outlays to receipts, we can see a 30% reduction in government spending from '37 to the end of '38, and the subsequent increase in spending once the expansion of the military and Lend/Lease comes into full effect. I feel that this is a good, historical example of why high government spending when the economy is bad (or still bad, in this case) and less focus on balanced budgets and increased taxes allows the economy time to reset itself. Forcing the issue only makes the problem worse, which I feel is seen in the example of reduced spending and higher taxes in 1937 led to the "Roosevelt Recession" and the loss of ground gained.

So, this begs the question of "Why was the economy still bad after four years of New Deal?"

I really think too many of us (and I include myself in this group) really don't grasp the scope of the disaster that started on Tuesday, October 29th, 1929, so let's look at just how bad things were when FDR took office, and what the common man was remembering when he thought about the "bad times".

When FDR gave his first Inaugural Address on March 4, 1933, there were machine gun emplacements on the roof of the Capitol Building, the White House, and all other major governmental centers. Both the NYSE and the Chicago Commodities Exchange buildings were closed indefinitely... with the doors chained shut. In 38 States, there wasn't a single bank or lending institution open for business, and in the 10 States that did have functioning banks, you could withdraw only $10 dollars per week to keep them solvent. 44% of ALL farm loans held in the US prior to 1930 had failed, but the US government didn't have the manpower or ability to remove the 670,000 farmers and their families out of the foreclosed farms. One out of every four men between the age of 15 and 60 was looking for work, but couldn't find any. $6 out of every $10 that had been invested in the NYSE had disappeared without so much as a whisper, and wouldn't be recouped until after 1937 when the NYSE got back to the 1929 average. It was the single greatest loss of national wealth in the last 500 years, and our nation's economy had come to a complete, grinding halt leaving those most desperate with no where to turn for help.

I am utterly convinced that when the average Joe on the street saw that FDR and the government were trying to put things back onto a more "normal" footing (which is what FDR ran on in 1936), "normal" meant pre-Crash... and if I had been forced to live through those "bad years", then the thought that they might return would scare me, too. Maybe I'd pull what money I had out of the bank and stuff a mattress with it. Maybe I'd cut back the number of boys I had delivering my papers/groceries/milk/etc so that I would be forced to fire them when the next "crash" came. Maybe I'd fix the old car, rather than buy a new one... just in case. We have all lived through "timid" markets... the early 90s, again after the tech-bubble burst in 2000... but how can we hope to imagine the fear that living through such a period must have instilled? I know for a fact that my Grandparents maintained some very strange (to me, anyway) household habits because they lived through the Depression. Grandpa saved EVERYTHING... used motor oil, bacon grease, each and every spare nut and bolt, no matter how oddly sized, old, broken tools, newspapers... the list is long and rather disturbing (they reused tinfoil... can you imagine washing and reusing tinfoil?)... but I know it is because they always thought that "things might turn sour, and then we'll be glad we have that stuff".

As I said before, every single economic indicator I can think of says that things started to get better beginning with the New Deal, and when the New Deal was being "turned off", things got worse again. I feel I have shown that even the one indicator that didn't show the same level of improvement was better than history has led us to believe, and that there are other reasons for the slow and sluggish manner in which the "confidence" of the economy came back that don't automatically mean New Deal was "bad" or a failure.

In that regard, Ryan's argument that the "era" ended with WWII is correct. The confidence that we (as a nation) had lost during the Depression we "won back" with the successful completion of the War and the knowledge that we had achieved something great, and there wasn't anything under the Sun we couldn't do if our minds were focused on a clear objective.

Finally, I wanted to make this point... it is difficult to argue something that can't be proven, and that is where we are with the New Deal debate. We can argue subtleties till the cows come home, but in the end we know the New Deal wasn't a failure because the Great Depression ended and it hasn't repeated since.