The Great Depression, FDR, and the New Deal

1. After the crash and the realization of the poor economic system of the late 1920s, the economy slumps with weak consumer demand, consumers make runs on bank deposits, massive layoffs, slowed production–unemployment up to 25-33% by 1933, personal toll and undermined male (primarily this refers to white men) belief in dominant breadwinner position
   1. Hoover (R) response: deeply committed ideologically to localism and private initiative, felt that the economy could weather the problems if given enough time and support
      1. encouraged businesses to maintain wages and keep full employment.
      2. Called on municipal governments to create jobs through public works projects
      3. Reconstruction Finance Corporation (RFC) (1932): attempt to loan money to banks, insurance companies, and railroads as well as other big businesses to stimulate economy which would trickle down to the people (one of largest federal efforts which worked very well yet was too late to save Hoover’s reputation and seat in office)
      4. As mentioned previously in the 1920s lecture, Hoover was blamed for his failure to alleviate the depression during his term in office. However, despite this negative image which was used against him in the 1932 election campaign, Hoover did start the recovery effort; his financial support initiative and public works ideas did spur the economy briefly. His greatest failure was that he underestimated the magnitude of the economic problems and the serious emotional/personal toll which needed to be addressed. Remember that in terms of what people knew at the time, the Great Depression was a “a little depression” from 1929-1932, much like had been experienced in previous decades, and no one new for sure just how bad things would get. On the other hand, those who had been dealing with the aftershock of the crash and the overall depressed economy were desperate for change and a new hope for recovery—they found it in FDR.
   2. With mass unemployment, fears and uncertainty, and discontent with Hoover’s seeming inability to “fix” the economy, the American people turned to the charismatic, forthright Democratic candidate Franklin Delano Roosevelt (D).
      1. FDR won the 1932 Election in a landslide victory:
         • 472 electoral votes (FDR) versus 59 for Hoover
         • 57.4% popular vote (FDR) versus 39.7% for Hoover
         • Note: This is with about 57% of the eligible voters participating.
      2. FDR was the man of the hour, the presidential savior come to rescue America with his charming optimism and strong support for recovery. In an environment of fear, he brought a sense of stability and comfort as well as plan of action which he hoped would stop America’s downward slide and provide the stimulus needed for the economy. He provided assurances that the US would see relief, recovery, and reform to solve the crisis of the Depression. On the whole, he would succeed most in changing America’s view of itself while altering the structure of the federal bureaucracy and its social welfare role forever.
      3. The Hundred Days (Mar 4-Jun 16, 1933)—this is the period from which this term and expectation of presidents derives, evaluation of new presidents often focus on the first hundred days as a kind of historical nod to FDR’s initiatives and to see what the president goals are.
         1. Banking Crisis:
            1. Building on the foundation of Hoover’s RFC (which had over a year in operation by that time), FDR declares bank holidays for 4 days, pushed for Emergency Banking Relief Act including creation of the Federal Deposit Insurance Corporation (FDIC)–a landmark decision which stabilized currency but also boosted confidence in the banking system and credit.
            2. Delivered the first “Fireside Chat” on the radio to boost confidence in American banking and says they are safe, soothes the fears of Americans and reassures them that the government will help them in their time of need (a major role reversal whereas this had been the responsibility of local and state governments or charities before). When banks opened the following Monday, lines of people were waiting to place deposits back into the banks and financial support started to turn banks around within one month (by March).
            3. By June 16, 1933, Congress passes the Glass-Steagall Banking Act which separated commercial and investment banking, included provisions to guarantee bank deposits
         2. Passes fifteen major measures in First New Deal (1933-1934), most important are:
            1. Civilian Conservation Corps (CCC)–provided work relief on reforestation projects and conservation efforts, restored Civil War battlefields, established the forest fire service, built roads, employed mostly young men to keep them out of trouble and to send family wages back home (a certain percentage of their income was automatically deducted from their pay and sent to spouses/children)
            2. Federal Emergency Relief Act (FERA)–established national system of relief, focused on basic necessities in times of disaster (equivalent organization today would be the Federal Emergency Management Agency (FEMA) which is a direct descendant of this original FERA)
            3. National Industrial Recovery Act (NIRA)–established national recovery program and authorized public works program, management of the NIRA was undertaken by the National Recovery Administration (NRA)–halted slide in prices, wages, and employment by suspending antitrust laws and authorizing industry and trade associations to draft codes setting production quotas, price policies, wages, and working conditions
            4. first Agricultural Adjustment Act (AAA)–combat depression in agriculture by subsidizing farmers who agreed to restrict production, attempt to get farm product price parity and give purchasing power to farmers
            5. Securities and Exchange Act (SEA), as administered by the Securities and Exchange Commission (SEC)–ensured full disclosure from stock exchange, prevented things like insider trading and so on, created rules for stock trading and brokers as well as business involved in the market and trade of shares
            6. Tennessee Valley Authority (TVA)–organized to build dams to bring hydro-electric power to rural America and to control catastrophic floods, operated across 7 states. Short term benefits included electricity, levee protection against floodwaters, new and fertile crop lands, and ready water supply for irrigation. However, in many ways, the TVA projects were long term ecological disasters as it changed the environment radically (drained some rivers, flooded some valleys, rerouted natural waterways, threatened or created new endangered species, destroyed natural fisheries)
         3. Second New Deal: mostly 1935 and after 1936 election, these three acts would prove to be some of the most long-term legislation from this period which still hold true today
            1. Revenue Act of 1935–tax reform that provided for progressive graduated income taxes (the more you make, the more taxes you pay), increased state and corporate taxes, had the largest impact on the wealthy in terms of total taxes paid and incomes taxed
            2. Wagner Act (also called the National Labor Relations Act–NLRA)–guaranteed workers the right to organize unions and forbid employers from adopting unfair labor practices, such as firing union activists
            3. Social Security Act–created old age pensions but originally included only small portion of Americans, those with more management and structured jobs benefited (day laborers, domestics, etc. did not qualify), not retroactive either. Created the precedent and, later, expectation of old age pensions—this was a radical idea for America which did not exist before and would signal a major change in the relationship between business and labor and created the concept of retirement, a heretofore alien concept.
         4. FDR’s largest mistakes: 1937-1938 (sometimes called the Third New Deal)
            1. Courtpacking Plan–Supreme Court had been declaring the new acts unconstitutional (which they were actually since they relied solely on the implied powers clause and overstepped the bounds of what the federal government’s role had traditionally been). To counteract their efforts to uphold the law (their job to do so even if many people disagreed with them and saw the benefits of the new acts), FDR tried to pack the court by adding additional appointees to raise the number to 15 justices (technically allowed to do so since the Constitution does not mandate the total number of justices to serve on the Supreme Court). Irony is that his plan and opposition to the court’s rulings failed politically but he gained anyway by garnering public support for his causes.
            2. Attempts to purge southern Democrats from the party, and the economy turns down in 1938
            3. New Deal policies did not truly cure the Depression, mainly alleviated the worst of it to allow the economy enough time to recover until war economy of 1939 and early 1940s boomed. FDR inaugurated the American welfare state and preserved basic capitalistic social-economic order which, in turn, placed America in the position to wage war in WWII and take over as one of the largest world leaders during the Cold War.
2. 1938 Onward: FDR, his legacy, and the fallout from the New Deal and Great Depression
   1. Changes Democratic party forever by 1940: membership now includes white south and border states (KY,MD, MO,OK,NM,AZ), big city machines, white ethnic groups (Irish), intellectuals and reformers, organized labor, African Americans
   2. Recharged and further redefined the American presidency: President became an active policymaker, popular opinion now required the President to have an agenda for legislation rather than enforcing Congressional edicts (the original role of the President), presidential goals helped determine economic policy as well as leading implementation of policy
   3. New American attitudes by 1940:
      1. New view that widespread government intervention in the economy and society was both necessary and desirable, independent responsibility should be guided by government oversight
      2. Government now required to ensure a basic minimum standard of living for its citizens
      3. Business cycle needs to be managed through government intervention and guidelines defining best practices and labor relations.
      4. Skeptical of business/management with new view that it needs strict regulation

In many ways, America’s standards for equality and quality of life changed for the better after the 1930s yet the new approach to bureaucracy created a sense of dependency on the government for individual welfare which leaned more toward socialism than democracy; a factor for which America was criticized when lambasting communism and socialist governments during the Cold War. This reliance on government help in part reflects the Crisis of Confidence discussed at the end of the 1920s lecture. Many Americans of the 1930s and 1940s began to distrust their own judgment and felt that perhaps the issues of finance, commerce, and social welfare were better left to the experts. Though some of this self-defeatism would be lifted in the “triumph of democracy” during WWII, the underlying negativity and fear from the Great Depression would resurface throughout the remainder of the 20th century.

While socialists rejoiced over the new responsibility of federalism, the issue of “who can do the most for me” seriously colored the political waters for Americans after the 1930s. This dichotomy of personal accountability versus a culture of entitlement created serious breaches in the fabric of the American republic and the role of political activism. Politics became less about representing the best interests of the nation and more about “which party can get me what I want.” While politicians have always had their own agendas, the change is most apparent in the expectations of the population at large, in which voters began casting ballots based more on the “gimme attitude” rather than its political soundness for the national or even regional interest. Regardless of a person’s political affiliation, this failure of democratic principles threatened the entire American system.

As a result, the idealism of the founding fathers for federalism and republicanism has been wavering for the last 70+ years and faces a real challenge in the future to maintain its worth in the face of alternative democratic and socialist options. The possible saving grace for America, however, may lie in its ability to reinvent itself and question its standards; as long as that remains to debate the merits and limitations of democratic government of the American constitutional republic, there is hope for the longevity of the system. As you will see in the upcoming weeks, each generation and decade of the second half of the 20th century will form a new perspective on the definition of rights, responsibilities, and wrongs as well as the role of the American government, at home and abroad.