There’s an insidious Mega Myth floating around the political scene and on the cable networks. In case, you haven’t heard it, here’s a direct quote: “President Franklin Delano Roosevelt’s massive government spending actually prolonged the Great Depression.” So spoke Monica Crowley , conservative pundit on Fox News. Okay. Did that get your attention? I’ll quote some historians and economists later to categorically refute that outrageous statement. But first, let’s take a look at the facts about FDR and The New Deal. What was it? How did it unfold? And what were the results?
By the time FDR was sworn in on March 4, 1933, the economy was in complete collapse. Starting with the stock market crash of October, l929, the downward spiral over more than three years had brought 30 % unemployment, high inflation and the Gross National Product off by 50%. Men in business suits sold apples on street corners. Lines were long at soup kitchens. ‘Hoover towns’ housed homeless people in tarpaulin shacks. There is no disagreement that FDR took office at a critical time in United States history. The most famous words of his inauguration speech are etched in memory, “We have nothing to fear but fear itself.” He then went on to say what he was going to do about the crisis —- “I have a New Deal for the American people.”
Roosevelt had first addressed the problems of The Depression in his acceptance speech as the presidential candidate for the Democratic Party in the summer of l932. At that time, he proclaimed, “I pledge you, I pledge myself, to a new deal for the American people.” In the election that followed, he won by a landslide. FDR was inaugurated on a Friday. On Monday, he ordered a four-day bank holiday and submitted his Emergency Banking Act to Congress. Four days later, the Act was passed into law by the House and Senate with strong Democratic majorities. Over the next several months, he succeeded in having 13 other important pieces of legislation enacted into law; emergency relief programs, work relief programs, banking reform laws and agricultural programs. The Works Progress Administration was known as the WPA, funding jobs in diverse areas. The Civilian Conservation Corps , CCC, created hundreds of thousands of jobs paving roads, building bridges and planting 3 billion trees. The blizzard of laws was based on the philosophy that strong action and spending by the federal government was needed to bring the country out of the Depression.
Many of the New Deal acts or agencies became known by their acronyms. The Federal Deposit Insurance Corporation, F.D.I.C. ,that most of us take for granted as protecting our bank holdings, was born during the New Deal. To protect stock holdings and market transactions, the Securities and Exchange Commission ,SEC, was established to make sure there would be no repeat of the October l929 Crash. The Tennessee Valley Authority, TVA, initiated the large scale infrastructure project that gave hydro-electric power , jobs and light to the people living in the dark rural hollows of a large part of Tennessee. In l935, the Social Security Act was passed and future generations of American workers would be able to look forward to a more secure old age. The town “poor house” that was the last resort for previous elderly men and women without resources became a relic of the past.
FDR was an experimenter and his vision was broad. His basic aim was to put people back to work by creating jobs in a myriad of ways. He drew on the economic theory that spending was the way to jolt the economy back to good health. He also made long-term changes to the structure of our economy and re-shaped the basic social contract between the government and its citizens. Social Security, which is labeled incorrectly as an “entitlement” .is based on workers and employers contributing to the Social Security trust fund. Younger workers thus are building the fund that they will draw upon when they retire at either 62 or 65. It has been working well since it was initiated and any president who has attempted to change it has hit what is called “the third rail” of politics.
During FDR’s first two terms in office — except for l937 to l938 when a short recession occurred– unemployment fell each year and the U.S. economy grew at an average rate of 9 to 10 percent. Eric Rauchway, historian at the University of California, writes, “To be sure, you can argue that the New Deal had its share of problems, But overall, the numbers prove it helped — rather than hurt — the macro-economy.” Paul Krugman, Nobel winning economist, writes that , in l937-38, “FDR was persuaded to balance the budget and cut spending and the economy went back down again.” Former Federal Reserve chairman, Ben Bernanke summed it up: “Only with the New Deal’s rehabilitation of the financial system in l933-35 did the economy begin its slow emergence from the Great Depression.”
What is the significance of the Mega Myth about FDR’s New Deal prolonging the Great Depression ? Is it a subject that only historians and political junkies should care about? Or is it timely —aimed directly at President Barack Obama and his policies that lifted the country out of the worst financial crisis since the Great Depression. President Obama followed the FDR model in many respects —- and it worked once more to strengthen all facets of our country’s economy from 2008 to 2015.