By Tristam Pratorius
Franklin Delano Roosevelt was probably one of our best presidents, but conservatives, as they were 80 years ago, are still fanatical about tarnishing his presidency and what he stood for.
Among the most common claims is that the New Deal program failed to bring the Great Depression to an end, and that rather, government intervention harmed more than it helped.
Unfortunately, you have to be quite resistant to facts or unaware of them in order to draw this conclusion.
So, the question remains, how successful was Franklin Roosevelt?
Unemployment
One of the most common claims from New Deal critics is that emergency relief programs and fiscal stimulus failed to reduce unemployment and made the economic situation worse. This claim does not stand up to scrutiny. Using the original unemployment estimates first published, this may seem like the case (even those show dramatic reductions in unemployment), but new and revised estimates; made by BLS, data collectors and economists, show that the economy was looking up more than originally thought. The current sampling methods were not developed until the 1940s, and that some changes were made to definitions of ‘’employment,’’ which is the crux of the issue.
Corrected estimates from the NBER demonstrate that unemployment had reached 9.3% by 1937, risen back to 12.5% by 1938, and had come back down again to 9.6% in 1940. Additionally, unemployment had fallen to 6.0% in 1941, by the time the United States had just declared war on Japan. These papers conclude a 60 — 62% reduction in unemployment between 1933 and 1940. There is no way to dispute that, that’s one hell of a turnaround!
Consumer Spending
This one is much more straightforward. This demonstrates, with solid numbers, that economic activity overall was boosted by programs like the WPA, CCC and unemployment insurance. The country had something to show for it. According to FRED, otherwise known as the Federal Reserve Bank of St. Louis, personal consumption expenditures (PECA) was 77 billion dollars in 1929, fell to 46 billion in 1933, and had risen back to 71 billion and 81 billion in 1940 and 1941 respectively.
Similarly, real personal consumption expenditures went from 730 billion in 1929, to 637 billion by 1933, and back up to 904 billion by 1940. Consumer spending had returned to pre-depression levels by 1936, using this statistic.
Once again, this economic turnaround in spending is impressive.
Business Investment
Business investment grew every single year of Franklin Roosevelt’s presidency, save for 1933, 1938 and 1942. (In the case of 1933, business investment actually contracted 33% slower than in 1932, so that is important to keep in mind) Real gross private domestic investment (nonresidential) grew 25.6% in 1934, 24.6% in 1935, 32.4% in 1936, 18.4% in 1937, 9.9% in 1939 and 21.6% in 1940.
If we measure this as total investment, rather than change over preceding period, business investment went from index value of 12.9 in 1929, to 10.1 in 1933, and shot back up to 11.7 by 1940.(index 100 = 2009)
GDP
Gross Domestic Product grew rapidly during Franklin Roosevelt’s administration, suggesting the economy was improving from the day he was inaugurated. GDP grew an average of 6.2%, while also expanding from $778 billion in 1933 to $1.2 trillion by 1940, blowing past pre-depression levels by 1936.
Price Levels
During the Great Depression, the country suffered massive deflation, a downward spiral in prices and wages. (negative effects include increased debt valuation, demand decreases etc.)
Thus, to get the economy moving again, it was identified by the Roosevelt administration as imperative that the federal government ‘’reflate’’ the economy. The way this was done was by using fiscal and monetary stimulus. Increasing consumer demand, reducing short-term and long-term interest rates and taking the country off the gold-standard. An important thing of note is that the Federal Reserve did not have as much power to conduct a large-scale monetary stimulus prior to FDR.
In response to this policy weakness, the Glass-Steagall Act centralized the monetary decisions of the Federal Reserve in Washington D.C. and ended the practice of differing monetary policies by region. Roosevelt also signed the 1935 Banking Act, which created the Federal Open Market Committee and permanently institutionalized the central bank’s ability carry out such operations. The FOMC is quite literally a New Deal ‘’program.’’
How successful was the New Deal’s expansion of monetary policy? Decently successful.
Price levels rose every year until 1937, approaching pre-depression levels.
Inflation rates also increased from lows of -6.4%, -9.3% and -10.3% to increasing 0.8%, 1.5%, 3.0%, 1.4%, 2.9%, —2.8%, 0.0% and 0.7%.
Exports
The Roosevelt administration may not seem to be connected to exports, but many of the administration’s policies such as the abandoning of the gold-standard in 1933, the creation of the Export-Import Bank in 1934 and the lifting of Smoot-Hawley under the RTAA allowed the United States to dramatically increase export capacity.
Real exports of goods and services increased 0.6% in 1933, 11.2% in 1934, 5.5% in 1935, 5.1% in 1936, 25.9% in 1937, -1.1% in 1938, 5.6% in 1939 and 13.8% in 1940. Prior to Roosevelt, exports were in a state of contraction.
Industry
The industrial production index rose well above pre-depression levels during the 1930s. In August of 1929, the index stood at 8.0. By March of 1933, it had plummeted to 3.9. Four years later, in March 1937, the index stood at 8.5. The index saw decreases during the recession, but previous trends continued and saw strong growth in 1939, 1940, 1941. Much of this strong industrial growth during the these years can be attributed to a potent combination of rapidly expanding consumer product and steel production during the late 30s. For example, in 1938, Ford and Chevrolet produced 875,000 cars per year. By 1941, that number was 1,700,431. There was also a rearmament that began in September of 1940.
But what about the 1938 recession? Doesn’t that prove the New Deal failed?
Conservatives and New Deal critics cite this often, but if anything, it is proof that the right-wing economics they suggest would have helped more were not the correct solutions for the Great Depression. FDR began unwinding the fiscal and monetary stimulus due to pressure from conservatives in both parties.
In 1937, the Federal Reserve used contractionary monetary policy to tamp inflation fears. That same year, FDR made massive budget cuts to relief programs, some cuts up to 35%. As soon as the austerity ended the next year, the economy returned to health.
Conclusion
It is time to end these conservative myths about the New Deal and Franklin Roosevelt, once and for all. The right-wing has a problem with ‘’zombie talking points,’’ nonsense that they repeat over and over until people believe it. Anytime someone brings up these uniformed ‘’FDR made things worse’’ type talking points, please refer them to this article/diary. Thanks! :)
In the meantime, let FDR tackle the right-wing fake news (zombie talking points) of his era.