[edit] Prolonged/worsened the Depression
According to Gene Smiley, writing on a Web site of an organization that promotes "a society of free and responsible individuals,"[56], "a number of economists" believe the New Deal delayed economic recovery.[57] A 1995 survey of economic historians asked whether "Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression." Of those in economics departments 27% agreed, 22% agreed 'with provisos' (what provisos the survey does not state) and 51% disagreed. Of those in history departments, only 27% agreed and 73% disagreed.[58]
UCLA economists Harold L. Cole and Lee E. Ohanian are among those who believe the New Deal caused the Depression to persist longer than it would otherwise have, concluding in a study that the "New Deal labor and industrial policies did not lift the economy out of the Depression as President Roosevelt and his economic planners had hoped," but that the "New Deal policies are an important contributing factor to the persistence of the Great Depression." They claim that the New Deal "cartelization policies are a key factor behind the weak recovery." They say that the "abandonment of these policies coincided with the strong economic recovery of the 1940s."[59] Cole and Ohanian claimed that FDR's policies prolonged the Depression by 7 years. [60]
Lowell E. Gallaway and Richard K. Vedder argue that the "Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs." They suggest that without Social Security, work relief, unemployment insurance, mandatory minimum wages, and without special government-granted privileges for labor unions, business would have hired more workers and the unemployment rate during the New Deal years would have been 6.7% instead of 17.2%.[61]
Contemporary public and business views about the economic effects of the New Deal were mixed and varied. In The Gallup Organization's May 1936 and March 1939 American Institute of Public Opinion (AIPO) polls, more than half of Americans reported that they felt the administration's policies were aiding recovery overall. 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 polarzied 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.[62]
[edit] Keynesian and monetarist interpretations
The New Deal tried public works, farm subsidies, and other devices to reduce unemployment, but Roosevelt never completely gave up trying to balance the budget. Unemployment remained high throughout the New Deal years though greatly reduced from the much higher rates before the New Deal; business simply would not hire more people, especially the low skilled and supposedly "untrainable" men who had been unemployed for years and lost any job skill they once had. Keynesians later argued that by spending vastly more money–using fiscal policy–the government could provide the needed stimulus through the "multiplier" effect. Critics of Keynesian economic theories said that would just take money out of the private sector, causing a negative multiplier effect there.[citation needed]However, no economist has written a full-scale Keynesian analysis of the depression, so it is difficult to evaluate how that model would work.
In recent years more influential among economists has been the monetarist interpretation of Milton Friedman, which did include a full-scale monetary history of what he calls the "Great Contraction." Friedman concentrated on the failures before 1933, and in his memoirs said the relief programs were an appropriate response. From 1935 to 1943, Friedman was a Keynesian who was (1941-43) an official spokesman for the New Deal before Congress; he did not at that time criticize any New Deal or Federal Reserve policies.
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."[63]
Keynes visited the White House in 1934 to urge President Roosevelt to increase deficit spending. Roosevelt afterwards complained that, "he left a whole rigmarole of figures — he must be a mathematician rather than a political economist."[64]
[edit] Fiscal conservatism
Fiscal conservatism was a key component of the New Deal, as Zelizer (2000) proves. It was supported by Wall Street and local investors and most of the business community; mainstream academic economists believed in it, as apparently did the majority of the public. Conservative southern Democrats, who favored balanced budgets and opposed new taxes, controlled Congress and its major committees. Even liberal Democrats at the time regarded balanced budgets as essential to economic stability in the long run, although they were more willing to accept short-term deficits. Public opinion polls consistently showed public opposition to deficits and debt. Throughout his terms, Roosevelt recruited fiscal conservatives to serve in his Administration, most notably Lewis Douglas the Director of Budget from 1933 to 1934, and Henry Morgenthau Jr., Secretary of the Treasury from 1934 to 1945. They defined policy in terms of budgetary cost and tax burdens rather than needs, rights, obligations, or political benefits. Personally the President embraced their fiscal conservatism. Politically, he realized that fiscal conservatism enjoyed a strong wide base of support among voters, leading Democrats, and businessmen. On the other hand there was enormous pressure to act – and spending money on high visibility programs attracted Roosevelt, especially if it tied millions of voters to him, as did the WPA.
Douglas proved too inflexible, and he quit in 1934. Morgenthau made it his highest priority to stay close to Roosevelt, no matter what. Douglas's position, like many of the Old Right, was grounded in a basic distrust of politicians and the deeply ingrained fear that government spending always involved a degree of patronage and corruption that offended his Progressive sense of efficiency. The Economy Act of 1933, passed early in the Hundred Days, was Douglas' great achievement. It reduced federal expenditures by $500 million, to be achieved by reducing veterans’ payments and federal salaries. Douglas cut government spending through executive orders that cut the military budget by $125 million, $75 million from the Post Office, $12 million from Commerce, $75 million from government salaries, and $100 million from staff layoffs. As Freidel concludes, "The economy program was not a minor aberration of the spring of 1933, or a hypocritical concession to delighted conservatives. Rather it was an integral part of Roosevelt's overall New Deal."[65] Revenues were so low that borrowing was necessary (only the richest 3% paid any income tax between 1926 and 1940.[66]) Douglas therefore hated the relief programs, which he said reduced business confidence, threatened the government’s future credit, and had the "destructive psychological effects of making mendicants of self-respecting American citizens."[67] Roosevelt was pulled toward greater spending by Hopkins and Ickes, and as the 1936 election approached he decided to gain votes by attacking big business.
Morgenthau shifted with FDR, but at all times tried to inject fiscal responsibility; he deeply believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment . The Wagner Act met Morgenthau’s requirement because it strengthened the party’s political base and involved no new spending. In contrast to Douglas, Morgenthau accepted Roosevelt’s double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the WPA, PWA and CCC, that would be temporary until full recovery was at hand. He fought against the veterans’ bonus until Congress finally overrode Roosevelt’s veto and gave out $2.2 billion in 1936. His biggest success was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees. It was Morgenthau who insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.[68]
[edit] Left-wing criticism
Historians on the left have denounced the New Deal as a conservative phenomenon that let slip the opportunity to radically reform capitalism. Since the 1960s, "New Left" historians have been among the New Deal's harsh critics.[69] Barton J. Bernstein, in a 1968 essay, compiled a chronicle of missed opportunities and inadequate responses to problems. The New Deal may have saved capitalism from itself, Bernstein charged, but it had failed to help—and in many cases actually harmed—those groups most in need of assistance. Paul K. Conkin in The New Deal (1967) similarly chastised the government of the 1930s for its policies toward marginal farmers, for its failure to institute sufficiently progressive tax reform, and its excessive generosity toward select business interests. Howard Zinn, in 1966, criticized the New Deal for working actively to actually preserve the worst evils of capitalism.
Since the 1970s, research on the New Deal has been less interested in the question of whether the New Deal was a "conservative," "liberal", or "revolutionary" phenomenon than in the question of constraints within which it was operating. Political sociologist Theda Skocpol, in a series of articles, has emphasized the issue of "state capacity" as an often-crippling constraint. Ambitious reform ideas often failed, she argued, because of the absence of a government bureaucracy with significant strength and expertise to administer them. Other more recent works have stressed the political constraints that the New Deal encountered. Conservative skepticism about government remained strong both in Congress and among certain segments of the population. Thus some scholars have stressed that the New Deal was not just a product of its liberal backers, but also a product of the pressures of its conservative opponents.
[edit] Charges of communism
Certain critics have complained that the New Deal was infiltrated with communists. The most important group (in the Department of Agriculture) was fired in 1934, but Whittaker Chambers and Alger Hiss went deeper underground.[70] Outside government, the far-left was exerting considerable influence in the labor movement (it dominated the new Congress of Industrial Organizations) and was building a network of membership organizations. Thus the American League Against War and Fascism was formed in 1933 and, in 1937, became the American League for Peace and Democracy. There followed the America Youth Congress, 1934; League of American Writers, 1935; National Negro Congress, 1936; and the American Congress for Democracy and Intellectual Freedom, 1939. All had significant communist connections, and fought furious battles with the anti-communist left.[71]
[edit] Charges of fascism
The term "fascism" in the 21st century has connotations of mass murder and death camps. However, in the 1930s it meant the planned economy and corporativism exemplified by the economic plans of Benito Mussolini in Italy. Enemies of the New Deal sometimes called it "fascist," but meant very different things. Communists, for example, meant control of the New Deal by big business. Classical liberals and conservatives meant control of big business by bureaucrats. There is widespread agreement from all points of view that the New Deal greatly expanded the role of the federal government in the economy.
Discontent with the economic downturn in the U.S. had stimulated interest in the fascist programs of Italy.[72] Benito Mussolini praised the New Deal as following his own economic program, saying in the New York Times, "Your plan for coordination of industry follows precisely our lines of cooperation."[73] Ronald Reagan, who had at the time been a strong supporter of the New Deal, later reversed positions and claimed in 1976, "Fascism was really the basis for the New Deal.[citation needed]" Journalist John T. Flynn, a former socialist, in his 1944 book As We Go Marching, said that "the New Dealers...began to flirt with the alluring pastime of reconstructing the capitalist system... and in the process of this new career they began to fashion doctrines that turned out to be the principles of fascism."
Former President Herbert Hoover argued that some (but not all) New Deal programs were "fascist," and that there was a presidential dictatorship. [Memoirs 3:420]
"Among the early Roosevelt fascist measures was the National Industry Recovery Act (NRA) of June 16, 1933 .... These ideas were first suggested by Gerald Swope (of the General Electric Company)... [and] the United States Chamber of Commerce. During the campaign of 1932, Henry I. Harriman, president of that body, urged that I agree to support these proposals, informing me that Mr. Roosevelt had agreed to do so. I tried to show him that this stuff was pure fascism; that it was a remaking of Mussolini's "corporate state" and refused to agree to any of it. He informed me that in view of my attitude, the business world would support Roosevelt with money and influence. That for the most part proved true."
In 1934, Roosevelt defended himself against his critics, and attacked them in his "fireside chat" radio audiences. Some people, he said:
will try to give you new and strange names for what we are doing. Sometimes they will call it 'Fascism,' sometimes 'Communism,' sometimes 'Regimentation,' sometimes 'Socialism.' But, in so doing, they are trying to make very complex and theoretical something that is really very simple and very practical.... Plausible self-seekers and theoretical die-hards will tell you of the loss of individual liberty. Answer this question out of the facts of your own life. Have you lost any of your rights or liberty or constitutional freedom of action and choice?[74]
In September 1934, Roosevelt defended a more powerful national government as he believed was necessary to control the economy, by quoting conservative Republican Elihu Root:
The tremendous power of organization [Root had said] has combined great aggregations of capital in enormous industrial establishments... so great in the mass that each individual concerned in them is quite helpless by himself.... The old reliance upon the free action of individual wills appears quite inadequate.... The intervention of that organized control we call government seems necessary.... Men may differ as to the particular form of governmental activity with respect to industry or business, but nearly all are agreed that private enterprise in times such as these cannot be left without assistance and without reasonable safeguards lest it destroy not only itself but also our process of civilization.[74]
Other scholars reject linking the New Deal to fascism as overly simplistic. As a leading historian of fascism explains, "What Fascist corporatism and the New Deal had in common was a certain amount of state intervention in the economy. Beyond that, the only figure who seemed to look on Fascist corporatism as a kind of model was Hugh Johnson, head of the National Recovery Administration."[75] Johnson had been distributing copies of a Fascist tract called "The Corporate State" by one of Mussolini's favorite economists, including giving one to Labor Secretary Francis Perkins and asking her give copies to her cabinet.[76] Johnson strenuously denied any association with Mussolini, saying the NRA "is being organized almost as you would organize a business. I want to avoid any Mussolini appearance—the President calls this Act industrial self-government."[77] Donald Richberg eventually replaced General Hugh Johnson as head of NRA and speaking before a Senate committee said "A nationally planned economy is the only salvation of our present situation and the only hope for the future."[13] Historians such as Hawley (1966) have examined the origins of the NRA in detail, showing the main inspiration came from Senators Hugo Black and Robert F. Wagner and from American business leaders such as the Chamber of Commerce. The main model was Woodrow Wilson's War Industries Board, in which Johnson had been involved.
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