Great Depression and the New Deal

1932 Roosevelt win 57% of the vote and carried all but 6 states.

After the election, Roosevelt refused Hoover's requests for a meeting to come up with a joint program to stop the downward spiral, claiming it would tie his hands. The economy spiralled downward until the banking system began a complete nationwide shutdown as Hoover's term ended. In February 1933, Roosevelt escaped an assassination attempt (which killed Chicago Mayor, Anton Cermak sitting next to him. Roosevelt leaned heavily on his "Brain Trust" of academic advisors, especially Raymond Moley when designing his policies.

When Roosevelt was inaugurated in March 1933, the U.S. was at the nadir of the worst depression in its history. A quarter of the workforce was unemployed. Farmers were in deep trouble as prices fell by 60%. Industrial production had fallen by more than half since 1929. Two million were homeless. By the evening of March 4, 32 of the 48 states, as well as the District of Columbia had closed their banks. The New York Federal Reserve Bank was unable to open on the 5th, as huge sums had been withdrawn by panicky customers in previous days. Beginning with his inauguration address, Roosevelt began blaming the economic crisis on bankers and financiers, the quest for profit, and the self-interest basis of capitalism:

Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence....The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

THE REFORMS:

Roosevelt's "First 100 Days" concentrated on the first part of his strategy: immediate relief. From March 9 to June 16, 1933, he sent Congress a record number of bills, all of which passed easily.

DETALS OF THE REFORM:

· Reform of the economy was the goal of the National Industrial Recovery Act (NIRA) of 1933. It tried to end cutthroat competition by forcing industries to come up with codes that established the rules of operation for all firms within specific industries, such as minimum prices, agreements not to compete, and production restrictions. Industry leaders negotiated the codes which were then approved by NIRA officials. Industry needed to raise wages as a condition for approval. Provisions encouraged unions and suspended anti-trust laws. The NIRA was found to be unconstitutional by unanimous decision of the U.S. Supreme Court on May 27, 1935. Roosevelt opposed the decision, saying "The fundamental purposes and principles of the NIRA are sound. To abandon them is unthinkable. It would spell the return to industrial and labor chaos."^[42] In 1933, major new banking regulations were passed. In 1934, the Securities and Exchange Commission was created to regulate Wall Street, with 1932 campaign fundraiser Joseph P. Kennedy in charge.

· Recovery was pursued through "pump-priming" (that is, federal spending). The NIRA included $3.3 billion of spending through the Public Works Administration to stimulate the economy, which was to be handled by Interior Secretary Harold Ickes. Roosevelt worked with Republican Senator George Norris to create the largest government-owned industrial enterprise in American history, the Tennessee Valley Authority (TVA), which built dams and power stations, controlled floods, and modernized agriculture and home conditions in the poverty-stricken Tennessee Valley. The repeal of prohibition also brought in new tax revenues and helped him keep a major campaign promise.

· In a controversial move, Roosevelt gave Executive Order 6102 which made all privately held gold of American citizens property of the US Treasury. This gold confiscation by executive order was argued to be unconstitutional, but Roosevelt's executive order asserts authority to do so based on the "War Time Powers Act" of 1917. Gold bullion remained illegal for Americans to own until President Ford rescinded the order in 1974

Second New Deal, 1935–1936

After the 1934 Congressional elections, which gave Roosevelt large majorities in both houses, there was a fresh surge of New Deal legislation. These measures included the Works Progress Administration (WPA) which set up a national relief agency that employed two million family heads. However, even at the height of WPA employment in 1938, unemployment was still 12.5% according to figures from Michael Darby.^[47] The Social Security Act, established Social Security and promised economic security for the elderly, the poor and the sick. Senator Robert Wagner wrote the Wagner Act, which officially became the National Labor Relations Act. The act established the federal rights of workers to organize unions, to engage in collective bargaining, and to take part in strikes.

While the First New Deal of 1933 had broad support from most sectors, the Second New Deal challenged the business community. Conservative Democrats, led by Al Smith, fought back with the American Liberty League, savagely attacking Roosevelt and equating him with Marx and Lenin.^[48] But Smith overplayed his hand, and his boisterous rhetoric let Roosevelt isolate his opponents and identify them with the wealthy vested interests that opposed the New Deal, setting Roosevelt up for the 1936 landslide.^[49] By contrast, the labor unions, energized by the Wagner Act, signed up millions of new members and became a major backer of Roosevelt's reelections in 1936, 1940 and 1944.^[50]

Landslide re-election, 1936

Roosevelt and Garner won 60.8% of the vote and carried every state except Maine and Vermont. The New Deal Democrats won even larger majorities in Congress. Roosevelt was backed by a coalition of voters which included traditional Democrats across the country

Second term, 1937–1941

In dramatic contrast to the first term, very little major legislation was passed in the second term. There was a United States Housing Authority (1937), a second Agricultural Adjustment Act and the Fair Labor Standards Act (FLSA) of 1938, which created the minimum wage. When the economy began to deteriorate again in late 1937, Roosevelt responded with an aggressive program of stimulation, asking Congress for $5 billion for WPA relief and public works. This managed to eventually create a peak of 3.3 million WPA jobs by 1938.

In the November 1938 election, Democrats lost six Senate seats and 71 House seats. [This loss follows the pattern that during economic down turns, the party in power looses. There was a sharp decline prior to the election—jk] Losses were concentrated among pro-New Deal Democrats. When Congress reconvened in 1939, Republicans under Senator Robert Taft formed a Conservative coalition with Southern Democrats, virtually ending Roosevelt's ability to get his domestic proposals enacted into law. The minimum wage law of 1938 was the last substantial New Deal reform act passed by Congress.

The military buildup spurred economic growth. By 1941, unemployment had fallen to under 1 million.

Last Days:

Roosevelt’s health deteriorated from the combination of lifelong chain smoking and polo, which cost him normal use of a leg. A polio victim commonly will experience a later deterioration. Smoking which causes atherosclerosis thus brings about high blood pressure, which he had along with emphysema, and angina pectoris. His death during his 4^th term was thus expected. By March 1 of 1945, he spoke seated to the House, an unprecedented concession to his physical incapacity. On March 30, 1945, Roosevelt went to Warm Springs to rest before his anticipated appearance at the founding conference of the United Nations. On the afternoon of April 12, Roosevelt said, "I have a terrific headache" and was carried into his bedroom. The doctor diagnosed that he had suffered a massive cerebral hemorrhage. Later that day, he died. Roosevelt's death was met with shock and grief across the U.S. and around the world. His declining health had not been known to the general public.

Crash

Farm prices dropped by 55 percent between 1929 and 1932 (this resulted in defaults on loans and reduced buying power). Foreclosures occurred for about 1/3^rd of the farms.
Manufacturing output fell by over one half between 1929 and 1932—the auto industry by over 3/4^th.
In industrial cities such as Detroit, Toledo, and Cleveland more than half of the blue-collar workers were unemployed.

Government responses:

“Hoover (Republicans) believed strongly that stimulation of businessmen’s confidence, together with his program for financial stability, held the key to recovery and strongly resisted proposals for large spending from the federal treasury for public works and unemployment relief despite their great popular appeal.” (Himmelberg 11). The Reconstruction Finance Corporation (RFC) a federal agency set up in 1932 was empowered to support financial institutions by lending them large sums, stemmed the banking crisis for a moment.” (Himmelberg 11) It was viewed as welfare for bankers.
Under Hoover 1932, “the Reconstruction Finance Corporation (RFC) a federal agency empowered to support financial institutions by lending them large sums, stemmed the banking crisis for a moment.” (Himmelberg 11).
In January of 1933 (Roosevelt took office in March) there was a run on the banks. Governor after governor declared bank holidays. With the banks closed, commerce and industry began to grind to a halt.
The first major act of Roosevelt and the Democratic Congress was the Emergency Banking Act, which reopened most of the banks.
The Emergency Farm Mortgage Act allowed farmers to refinance their mortgages at lower rates (passed May of 1933)
The Agricultural Adjustment Administration in an effort to restore fair pricing, they paid farmers not to plant. (Many landowners accepted payment, but then destroyed the crops of their tenant farmers, but failed to share the payment. Two and one half million tenant farmers and sharecroppers were evicted of the 8.5 million living in the south.)
The Federal Emergency Relief Act (signed May 1933) authorized $500 million in grants to the states.
The Civil works Administration in the winter of 1933-34 hired 4 million workers at $15/week.
The U.S. went off the gold standard. The Thomas Amendment empowered the President to inflate the currency.
The Tennessee Valley Authority provided flood control, electricity, and employment.
The Civilian Conservation Corps provided employment mostly for public works such as planting trees.
The National Industrial Recovery Act established National Recovery Administration (NRA) who pushed for better pay to workers. The government would allow business and industry to fix (stabilize) prices and in return raise wages of workers and recognize their right to organize and bargain collectively. It also called for a 35 to 40 hour workweek in exchange for $12 to $15 wage.
The NIRA also established the Public Works Administration (PWA) to replace the Civil Works Administration and put the unemployed to work on long-range government projects. Among its projects was the Causeway to Key West, the Boulder (now Hoover) Dam, and the building of thousands of hospitals and schools.
The NIRA also established the National Labor Board [predecessor of the National Labor Relations Board] was established to moderate labor-management disputes.
The Committee for Economic Security submitted in January 1935 a plan for a combined state and federal unemployment insurance program and a national old-age pension funded by employers, employees, and government. Congressed passed the Social Security Act in August of 1935.
The Wagner act of 1935 protected unions and workers who wished to join them. (With the social Security Act and the Wagner Act, the Democrats lured back to their party workers who might have been attracted by Huey Long, Socialist, and radical candidates in the 1936 election.)
Public Utility Holding Company Act better regulated utilities.
The Wage and Hour Law of 1938 established a federal minimum wage and the 40-hour workweek.

European Crash

1) Great Britain survived the depression more easily than the other Western nations. Coal, shipbuilding, and the textile industry remained depressed, but production increased in mechanical, electrical, and chemical products. The British citizens did not experience the crushing poverty because unemployment insurance and welfare system had been in place for almost ten years. British labor unions were a powerful political force (unlike the US in the 1920s).

2) Because France lacked the social welfare safety net, they were harder hit by the depression than England. In 1936 following the national election the Socialist joined the Communists to from a coalition government led by Leon Blum. They were more moderate than socialist. Many New deal policies were adopted.

3) In Italy, Benito Mussolini, who had been given absolute power in 1933, adopted a state-controlled industrial system, called corporatism. Corporatism rather than nationalize industries, closely controlled them. He quickly achieved full employment and regulated surpluses.

4) Japan also adopted a highly controlled economy like that of Italy’s.

5) On January 30, 1933 Adolf Hitler became chancellor of Germany. Germany adopted corporatism. During the first 4-year plan, unemployment fell from 6 million in October 1933 to 1.5 million in February of 1937. It wasn’t until the second four-year plan that the focus shifted from domestic recovery to preparation for war.

Stats:

1930 unemployment 6 million, construction down 25%, 10 million 1931. There were food riots through out the country as mobs looted stores. (Farrell 24-5)

Over 180,000 impoverished families in New York received no relief at all because public and private charities had run out of funs. (Farrell 28)

A series of droughts started in 1933 produced dust storms that occurred from the Texas panhandle north to the Dakotas and east to the Allegheny Mountains.

The media income was below $1,500 per year, many skilled factory workers were making less than 25 cents per hour, and many cities declared bankruptcy and could not pay their teachers, firefighters, and police—Farrell 46-7

TWO MYTHS:

1). That the stock-market crash brought on the Great Depression. This is sold through the media with the blessing of the banking because the true cause would bring a popular cry for reform—as it did in during the Great Depression, to which the Democrats responded with banking regulations. The banking-financial system needs a total overhaul. Without it there will continue to be the cycles of expanding and contracting credit. For an account of the power of banking go to http://www.freedocumentaries.org/film.php?id=214

2). That the war brought an end to the Great Depression. Actually it ended in 1937 because of the New Deal applying Keynesian principles. When they went back to the balanced budget and ended the work program (which created 500,000 more unemployed) and other stimulus packages the economy crashed again. Keynesian principles were reapplied and the economy recovered.

MISC:

By 1936 the support for the Democratic Party shifted to what was called the “New Deal coalition, which comprised white southerners, minorities, and organized labor. Unfortunate many of the Democratic members of Congress had strong ties to the business community, and this caused significant dissention in the party over New Deal legislation.

1933 was the worst year of the depression, and the recovery was slow. Unemployment remained above 20% in 1935, and the GNP was 40% below the 1929 level. A strong recovery occurred in 1936-7 with the GDP returning to the 1929 lever; however, by the end of 1937 unemployment remained at about 15%. This rate was because of growth in the size of the labor force and increased productivity. High unemployment retarded wages and thus reduced consumer spending.

The NRA administration’s symbol was the Blue Eagle. During the summer of 1933, the NRA program became a national preoccupation. Torchlight parades and other exhibitions of public support were organized in many cities, with hundreds of thousands of marching citizen participating. Theoretically, businesses men who failed to abide by the NRA program would be shorn of the right to display the Blue Eagle and shamed by consumers into compliance. (Himmelberg 13).

Wages however rose little at first, so strikes blossomed during 1934 making it the banner year in American history for labor unrest. (Himmelberg 14).

Industries controlled their worker’s lives in the 1930’s and before, especially those in the automotive, textile, steel, and mining industries. They often had to live in company housing and were required to shop in company –owned stores. The rent and cost of food was inflated to equal the amount of their wages. (Farrell 55).

Government policy in the industrial countries was for a balance budget; however, this changed given poverty and political radicalization of the working class. Richard Kahn, a British economist, wrote in 1931: “Employing the idle on public works would start a kind of chain reaction: those hired would spend their wages on goods, the producers of which would have to hire other unemployed workers, who would in turn spend their wages on other goods, and so on. The true cost of public works would be quite small because the government would no longer have to support so many unemployed people and because the new workers would be paying taxes on earnings.” Farrell 71-2

The Second New Deal (1935) abandoned emphasis on regulation of industrial production and stressed instead direct improvement of the income and security of the unemployed, blue-collar workers, the aged, and the dependent. The second New Deal had support for labor unions and had work relief measures as its centerpieces. (Himmelberg 15)

In August of 1937 a second slump began lasting through 1938. By early 1938 unemployment was 20%. The conservative Secretary of the Treasury, friend and advisor Henry Morgenthau pushed for a return to fiscal responsibility. Cuts in government spending, which reduced the number of people employed by 50% the government (the Public Works Administration almost ceased operation) and the new Social Security program which removed $2 billion of workers’ spendable income that year was the principle causes of the second economic crash.

With the European war starting in 1939, U.S. exports rapidly rose, that along with U.S. war preparations finally pushed the GNP well above its 1929 level.

The primary cause of the worldwide failure to admit Jews from Nazi Germany was related to unemployment. Nations adopted in general tight immigration policies.

TIBITS

While history as told by the U.S. makes Japan seem dastardly in their attack on Pear Harbor, there was the provocation of the oil cut off, and the U.S. preparation for war. In July 1941, after Japan occupied the remainder of Indo-China, he cut off the sales of oil. Japan thus lost more than 95% of its oil supply.

Post-polio syndrome (PPS) is a condition that affects survivors of poliomyelitis, a viral infection of the nervous system, after recovery from an initial paralytic attack. Typically the symptoms appear 20-40 years after the original infection, at an age of 35 to 60. Symptoms include new or increased muscular weakness, pain in the muscle, and fatigue. The mechanism of the physical and often intellectual decline at this date remains unknown. PPS along with cigarette smoking are the causes for the rapid decline in Roosevelt’s health during the war.

The Democratic Party under Obama has a window of opportunity, depending on the results for Congress for to undo the right-wing propaganda machine and to re-establish its links with working-class Americans. They must remove the power of the globalizers and this will require a re-establish the unions/labor movement, the re-establishing of the airwaves as a public trust, and pass campaign reform which will limit corporation donations to the political parties.

Commentary

The immediate cause of the cyclical depression is the failure of the government to manage the economy. Their inaction permitted economic cycles with shrinking GDP, of which over 20 have occurred since 1800. Sound management has been opposed by the business community which seeks ever increasing short-term profits. Stockholders review management’s performance based upon short-term (quarterly) returns.[i] Each sector of the economy (banking, pharmaceutical, steel, auto makers, retail merchants) uses their considerable influence to promote government policies that promote this goal[ii]. Until the voice of the masses both recognizes what policies ought to be in place and successfully organized to force government to adopt sound long-term economic policies, history will repeat itself.

Turned free, business and banking seeks ever increasing short-term profits. This has led to period of contractions where banks fail, businesses close, and the stock market crash. In the 1920s expansion of funds by the Federal Reserve resulted in a reduction of the credit requirements. This brought about various speculative bubbles, including those in housing and the stock market. With bank failures and tightening credit, losses in the stock market, reduced business and consumer confidence, rising unemployment, and the same collapse occurring in other industrial countries, the downward spiral was both longer and deeper than those that came before. The loss of surplus funds for investments coupled with the collapse of banking entailed that even at bargain prices, the business community could not respond to opportunities. This slowed the recovery. By 1937 the GDP equaled that of 1929. However, new taxes (social security and unemployment) plus the ending of work programs resulted in a second crash. It wasn’t until 1940 based upon war preparation rose again to the level of 1929. A new era was born based upon the demonstration at home and abroad that the government manipulation of the economy is desirable.

The lessons of the New Deal, however, were not learnt by the business community which is, as it was, driven by short-term performance goals. Following WWII, they used their considerable influence to undo the changes and return again to the robber baron era. A key factor has been corporate media which has been their control of the very process of learning about economics and social justice. The road to an informed electorate lies at the start of the path to sound fiscal policy. Until the media is removed from corporate control, there will be never be an effective, enlightened voice for the masses.

At about 1970 the ever expanding in size financial sector resulted in their absorbing the gains in increased productivity in manufacturing and farming. This resulted in stagnation and then decline in the standard of living of the masses. In particular it was the financial group (banks, brokerages, insurance companies, and like) that became an ever-increasing largest burden, which by the 90s was joined by the medical-pharmaceutical industry that first brought about stagnation and then decline in the standard of living of the masses. Growth during the post WWII era was also contributed to by the spread of U.S. corporations though the non-socialist world and the resulting flow of funds and employment into the U.S. By the 1970s U.S. global manufacturing and finance took decidedly un-American turn—for the sake of profits of course. The outsourcing of jobs, the off shoring of corporate head quarters and division of corporations, the breaking of unions, and the flood of illegal workers all contributed to the stagnation and decline of purchasing power for the masses. Further decline came through Reaganomics that reduced the tax burden on corporations and the top 5% by increasing the burden carried by the masses. Failure to manage banking and other industries (principle health care) took an ever large chunk of the worker’s pay (such as through interest and insurance payments). Economic prosperity is built not upon the purchasing power of the wealthy, but of the masses. Finally, the portion of the federal budget squandered on the military is another burden born by the masses. Finally, after the entitlement programs, the second biggest item in the budget is interest payments on the federal debt. This flow of tax funds does little to stimulate the economy. It is not the expansion of dollars (and thus debt) , the size of our military, but the changes in the standard of living of the masses that is the best measure of the performance of a government and economy,

Switching the blame: The corporate media rather than face the socialist analysis on the weakness of the capitalist marketing & banking systems and expose in a way to promote corrective action these problems, the corporate media essentially ignores these problems are gives mislead and false commentaries. They blame irresponsible homeowners for the housing bubble, and are repeatedly telling us of the greedy CEOs, thereby making it seem as though the system is sound, and the fault is a moral one. Alternative they blame the Democrats and their interference in the free market. They miss the fundamental cause of the depression the financial bubble created by the Federal Reserve’s 10% fractional borrowing policy and the declining purchasing power of the working class through falling wages, trade imbalance, and out sourcing of employment. The corporate media is a tool of those who brought about the depression. They are the main source of misinformation thereon—jk.

More on the Great Depression, a continuation, at http://skeptically.org/crash/id27.html

Sources:

The Great Depression, Jacqueline Farrell, Lucent Books, San Diego, CA, 1996

The Great Depression: An inquiry into the causes, course, and consequences of the world-wide depression of the nineteen-thirties, as seen by contemporaries and in the light of history; John Garraty, Harcourt Brace Jovanovich, 1986

The Great Depression and the New Deal, Robert F. Himmelberg, Greenwood Press, Westport Connecticut, 2001

The Great Depression: America in the 1930s, T. H. Watkins, Little Brown and Company, New York, 1993

Wikipedia.org: articles on FDR, Great Depression, immigration, and Federal Reserve.

[i] No CEO has lost his job when there is ever increasing returns, but they have when they have adopted conservative long-term policies. There is a classic case of a highly respected manager of a mutual fund in England who recognized the upcoming collapse of the stock market due to the tech bubble, and adopted an appropriate strategy which enclosed a large uninvested reserve. To defend his position he wrote of the impending collapse, which was published in various financial news publications. Soon he got the nickname of “Mr. Doom.” Unfortunately his actions were in 1997. In 2000 his mutual fund was rated 66 of 67. In 2001, just months before the bubble broke, he was forced into early retirement. The tech bubble broke in 2001.

[ii] Adam Smith saw that the actions of special interest always had a net effect of driving up prices of the commodity which thus resulted on a greater burden upon the improvised masses. Based upon this then political reality, he recommended lassie fare capitalism.