The New Deal

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Effectiveness of Franklin Roosevelt’s responses to the Great Depression in stimulating the economy

Summary:

Franklin Roosevelt's responses to the Great Depression, including the New Deal programs, were largely effective in stimulating the economy. His initiatives aimed at providing relief, recovery, and reform helped reduce unemployment, restored public confidence, and laid the groundwork for future economic stability. Although full economic recovery was not achieved until World War II, Roosevelt's measures significantly mitigated the Depression's worst effects.

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Did Franklin Delano Roosevelt's response to the Great Depression stimulate the economy?

Depressions are not uncommon. Previous to the Great Depression, there were depressions in 1819-20, 1839-43, 1857-60, 1873-78, 1893-97, and 1920-21. America recovered from the depression at the end of World War I in less than two years. Those depressions were caused by government policies that created easy money and credit. Business men took this easy money and credit and spent it on unwise developments and bad investments. When these began to collapse, depression ensued. As soon as depression weeded out the badly managed companies, prosperity returned.

The proper question is why was the Great Depression of long duration and not short like most or all others?

Some economists say the Great Depression was a series of four depressions, back to back, with different causes, but the first one started just like previous ones: government making money and credit too easy so that there was over investment. The subsequent ones were...

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caused by unwise government efforts to correct the first one.

In previous depressions, the Fed had raised interest rates so that poorly managed companies collapsed, leaving only well-run companies to carry on business in the U.S. But during the Great Depression, the Fed lowered interest rates so that poorly managed companies would survive. This only prolonged the agony. The eventual, inevitable correction took place, but only after a long time. The executive branch also intervened in a massive way that it never had before.

Both Herbert Hoover and Franklin D. Roosevelt were presidents during the Great Depression. They increased government spending without increasing taxes, thereby creating huge budget deficits. Many economists say their deficits made the Great Depression longer. Roosevelt called his big-spending, The New Deal.

The New Deal created a great many new government agencies.  The government became much bigger.  These new agencies regulated many aspects of Americans' lives.  These new agencies cost lots of tax dollars to run.  Had those tax dollars remained in peoples' pockets, the people would have spent them for things that they needed.  By taking those tax dollars from people, they were spent for the support of bureaucrats.  A lot of economists say this made the Great Depression longer instead of shorter.

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FDR was a fantastic politician who related well to the people of America in a difficult economic time.  But it's important to remember the New Deal was not his idea - the plan was actually devised by his brain trust, a group of economic advisers, businessmen, and industry leaders who knew how the economy worked.  FDR labeled the plan and sold it to Congress and the public.

The New Deal concentrated on three areas: Relief, which provided jobs and food aid to those most in need by 1933; Recovery, which preserved the major industries and economic sectors we would need to survive the Depression and rebuild the economy later (banking, agriculture, housing, etc.); and Reform, to change the laws and regulate the economy so that future Depressions could be prevented.

Spending government money to do these things is called "Keynesian economics" after George Maynard Keynes, a member of the Brain Trust.  It worked, but it was short term, and only helped the economy as long as the government kept spending.

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Were Franklin Roosevelt’s responses to the Great Depression effective?

The Great Depression was a worldwide phenomenon that lasted as long as two decades in some areas. Although its beginning in the United States is usually marked with the 1929 stock market crash, many regard that event as a symptom of an economic downturn that was already underway. Similarly, the economic reversal for the United States is often tied to entry into World War II in December 1941; US involvement in military-industrial buildup that preceded declaration of war had already played a decisive role in rebuilding the economy. From 1929 to early 1933, Herbert Hoover was president, and Franklin D. Roosevelt inherited a number of policies from him. By that time, many have argued, the economy had bottomed out, which meant the worst was over.

One of Roosevelt’s first and most effective moves was his April 1933 executive order, which made it illegal for individuals to own gold certificates; this change helped stabilize credit and end the banking crisis. In addition, the change in leadership alone had helped to improve people’s expectations that the country was turning a corner, and increasing confidence contributed to investment.

The New Deal contained literally hundreds of individual programs, so its overall success and the specific hand of President Roosevelt is difficult to evaluate. The New Deal is often seen as synonymous with the Works Progress Administration (WPA), established in 1935. However, that was only one program within the larger Federal Emergency Relief Administration. Because the initial focus was on “emergency,” many of the first efforts were very successful in ameliorating the worst effects of the Great Depression. These included food and medical assistance for those who were most severely impacted. The WPA, which was concerned with job creation using the rationale that employment was preferable to welfare, provided employment to more than eight million Americans; it was finally disbanded in 1943.

The impact of the relief projects included many improvements to infrastructure. This includes the massive electrification of many US regions, including business and homes, through such initiatives as the Tennessee Valley Authority and the Hoover Dam. Providing power further enabled industrial expansion, such as California’s ship-building industry, that reinvigorated corporate America. In terms of the economic infrastructure intended to prevent future catastrophes of that magnitude, the National Labor Relations Board, the Federal Reserve system, and the Securities and Exchange Commission then established are still in operation.

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This is a matter of some controversy. Typically, people have said that President Franklin D. Roosevelt’s policies were effective responses to the Great Depression.  However, there are those who argue that the New Deal policies did not do much and that only WWII actually ended the Depression.

Clearly, the Great Depression became less severe after the institution of the New Deal programs.  Unemployment fell.  GDP rose. Things were much better in 1938 than they were in 1932.  We can argue, then, that FDR’s policies were effective responses because they improved the US economy.

However, it is also possible to argue that FDR’s policies were not effective responses.  His New Deal policies did not return the economy to its pre-1929 state. Instead, the economy only got back to pre-Depression levels when the buildup to WWII began in 1939 and 1940. In this view, the New Deal was too interventionist to really fix the economy.

Thus, this is a matter of some controversy, but most historians typically say that the New Deal was an effective response to the Great Depression.

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