U.S. Economic History

Posted: January 4th, 2023

U.S. Economic History

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U.S. Economic History

Describe the New Deal–strengths and weaknesses, and different aspects of it. Include discussion of the “Roosevelt Recession.”

The New Deal was a raft of programs implemented by President Roosevelt’s administration to halt the downwards spiral of the economy that culminated into the Great Depression of 1929. It comprised of two sets of programs and reforms that were implemented in a staggered manner between 1933 and 1939. These sets became known as the First and Second New Deals. With the country reeling from bank runs and closures, loan defaults, high unemployment rate, and low production, President Roosevelt decided to bail out banks, reform the banking system, incentivize production by stimulating expenditure and consumptions, implementing social programs to rescue the vulnerable Americans and expand the government’s role in managing the economy. Altogether, the new deal delivered contradictory outcomes, with the Second New Deal (1935-6) being more successful than the First (1933-4).  

The primary strength of the New Deal can be summarized as being the restoration of the American citizen’s confidence in the economic system through immediate and decisive action after enduring a harrowing economic disempowerment period. Notably, the First New Deal facilitated the employment of the many unemployed Americans through the enactment of the Wagner-Peyser Act, along with the launching of the Civil Works Administration, the Civilian Conservation Corps, and the Public Works Administration. In addition, through the Federal Emergency Relief Act and the Resettlement Administration, the vulnerable Americans were supported. The First New Deal also secured Americans’ bank deposits through insurance by setting up the Federal Deposit Insurance Corporation. Similarly, the Homeowners Loan Corporation helped Americans keep their homes by refinancing mortgages. Besides, the National Industry Recovery Act and the Agricultural Adjustment Act helped rescue troubled factories and farms. To promote investments and tame the high risk appetite of banks, the First New Deal saw the enactment of the Glass-Steagall Banking Act and the Securities Act.

Similarly, the Second New Deal increased the government’s investment in social projects to improve the resilience of Americans, and thus structured the welfare state. In this regard, the Tennessee Valley Authority and the National Recovery Administration increased the government’s involvement in social projects such as hydroelectric power generation and rural electrification, reforestation and flood control. Similarly, the Works Progress Administration extended employment to public projects such as roads and bridges construction, beautification projects and creative arts. Moreover, the Social Security Act created the foundation of the welfare state that exists today, while workers’ protection was reinforced through the Fair Labor Standards Act and the Wagner Labor Relations Act.

However, although the Second New Deal was successful compared to the First New Deal, both sets of programs had fundamental flaws. The New Deal was weakened by its exclusion of women and the perpetuation of a patriarchal society. In addition, it failed to deliver full economic recovery. Notably, it was unable to stimulate production by curtailing significant factors such as buying land to remove it from circulation. It also alienated the private sector by fixing prices and having the government invest in social projects, thus stifling private investments. Moreover, the fiscal policy reforms delivered suboptimal results because the employment rate did not drop below 14%.        

The 13 months between 1937 and 1938 is known as the Roosevelt Depression because the recovery process from the Great Depression slumped temporarily due to some actions that were undertaken under his watch. This period tested the sustainability of the New Deal and its fragmented and unstructured implementation. The rise in unemployment from and the fall in manufacturing productivity are some evidence of the suboptimal outcomes of the New Deal. The Roosevelt Depression demonstrated that the New Deal did not make the American economy robust enough to support itself and that the free market was sometimes unable to correct itself as well.   
What were reasons for the growth of the economy in the 1950s, 1960s, and 1970s?

The 1950s was an economic boom decade in the United States that saw the economy grow by 37%, despite the conservative approach. This economic growth was inspired by the baby boom that saw the rise in demand for homes, to reinforce the family structure. Besides, consumer spending rose significantly as the country came out of the ravages of the Great Depression, heralding the era of consumerism. In this regard, money circulated in the economy as the excessive production capacity during the Second World War was purposed for civilian manufacturing. The cheap local oil fueled the industries, while science and technological advancements bolstered productivity. Meanwhile, low interest rates and low inflation helped avail credit. Besides, the government expanded the social welfare, albeit in a few states, and invested in infrastructure development, such as the Interstate Highway System, circulating the money further. Moreover, military veterans gained management and engineering skills from colleges through the auspices of the GI Bill. Therefore, they could contribute to economic productivity using their highly sought-after competencies. Altogether, the President Eisenhower’s administration managed to strike an economy-boosting balance between budgets, public spending, and tax cuts.

In the 1960s, tax-cuts continued to expand the economy, while job creation continued to grow employment, increasing production, under President Johnson’s administration and his war on poverty. The minimum wage was increased from $1 to $2, per hour spurring consumption and expanding the middle-class. Besides, the Vietnam War attracted private investments to support the war effort, and the space exploration efforts after that, encouraged employment, while overseas investments escalated, creating revenue for the country. In this regard, this period was characterized by immense government expansion, with social spending exceeding that of the 50s due to the annulment of reclusive laws under the Equal Protection Clause in the constitution.

The 1970s ushered in the Nixon administration, which saw the government expand its role as a consumer and investor, despite the stagflation caused by the 1973 oil embargo and increasing inflation. Specifically, the government spent heavily on supporting scientific research, infrastructure development, military procurement, and competing against the Soviet Union. In addition, the government became a large employer of civilians and military personnel as it expanded its agencies and armed forces. In turn, the average income of Americans has increased steadily over the decade, increasing the disposable income and spurring consumerism further.

Altogether, the three decades spanning from the 50s to the 70s saw the American economy expand significantly due to increased production, consumptions, and government expenditure and participation in the economy. The 1950s and 60s are heralded for their astronomical economic growth rates, while the 1970s were characterized slower growth due to the external forces, like the oil embargo. Nonetheless, the robustness of the American economy during this period allowed the country to withstand the economic recessions of 1953, 1958, and 1960. Moreover, economic growth increased its capacity to support itself and self-correct.