Alan Brinkley: Learning from FDR's mistakes
[Alan Brinkley is provost and Allan Nevins Professor of History at Columbia.]
Does the New Deal provide a useful model for fixing our own troubled economy? In many respects, yes. The frenzy of activity and innovation that marked Franklin Roosevelt's initial months in office--a welcome contrast to the seeming paralysis of the discredited Hoover regime--helped first and foremost to lessen the panic that had gripped the nation. And, during the prewar years of his presidency, Roosevelt's actions produced an unprecedented array of tangible achievements as well. He moved quickly and effectively to address a wave of bank failures that threatened to shut down the financial system. He created the Securities and Exchange Commission, which helped make the beleaguered stock market more transparent and thus more trustworthy. He responded to out-of-control unemployment by launching the Civil Works Administration, the Public Works Administration, and the Works Progress Administration, which created jobs for millions of the unemployed. He passed the Social Security Act, which over time provided support to the jobless, the indigent, and the elderly--and the Wagner Act, which eventually raised wages by giving unions the right to bargain collectively with employers. He signed the Fair Labor Standards Act, which created the minimum wage and the 40-hour workweek.
Yet, despite these extraordinary achievements, Roosevelt's initiatives did not, in the end, lift the country out of the Great Depression. At no time in the first eight years of the New Deal did unemployment drop below 15 percent. At no time did economic activity reach levels comparable to those of a decade earlier; and, while there were periods when the economy seemed to be recovering, none of them lasted very long. And so this bold, active, and creative moment in our history proved to be a failure at its central task. Understanding what went wrong could help us avoid making the same mistakes today.
Some of the New Deal's most important initiatives were active obstacles to economic renewal. The National Recovery Administration (NRA), created in 1933 to help stabilize the volatile economy, was enormously popular for a time, mostly because it created the illusion of forceful action. The NRA sought to help corporations cooperate with one another in keeping production low and prices up, effectively creating cartels. This effort proved almost impossible to administer: No one in the federal government had any experience or expertise in managing an economic project of this magnitude; control quickly moved to the corporations themselves, with no better results. But the NRA was even worse when it worked as it was supposed to, because its goal was exactly the opposite of what the economy needed: Instead of expanding economic activity, the NRA worked to constrict it. At the same time, the Federal Reserve Board--operating under classical economic assumptions--saw the economic wreckage around it and responded by raising interest rates so as to protect the solvency of the Federal Reserve Bank itself. No one today would even consider high interest rates in a slumping economy, but the Fed of the early 1930s had not absorbed new economic ideas that would later become almost universally accepted. (In fairness, this catastrophic mistake was not a product of New Deal policy, but few New Dealers recognized the magnitude of the error for years.)...
Read entire article at New Republic
Does the New Deal provide a useful model for fixing our own troubled economy? In many respects, yes. The frenzy of activity and innovation that marked Franklin Roosevelt's initial months in office--a welcome contrast to the seeming paralysis of the discredited Hoover regime--helped first and foremost to lessen the panic that had gripped the nation. And, during the prewar years of his presidency, Roosevelt's actions produced an unprecedented array of tangible achievements as well. He moved quickly and effectively to address a wave of bank failures that threatened to shut down the financial system. He created the Securities and Exchange Commission, which helped make the beleaguered stock market more transparent and thus more trustworthy. He responded to out-of-control unemployment by launching the Civil Works Administration, the Public Works Administration, and the Works Progress Administration, which created jobs for millions of the unemployed. He passed the Social Security Act, which over time provided support to the jobless, the indigent, and the elderly--and the Wagner Act, which eventually raised wages by giving unions the right to bargain collectively with employers. He signed the Fair Labor Standards Act, which created the minimum wage and the 40-hour workweek.
Yet, despite these extraordinary achievements, Roosevelt's initiatives did not, in the end, lift the country out of the Great Depression. At no time in the first eight years of the New Deal did unemployment drop below 15 percent. At no time did economic activity reach levels comparable to those of a decade earlier; and, while there were periods when the economy seemed to be recovering, none of them lasted very long. And so this bold, active, and creative moment in our history proved to be a failure at its central task. Understanding what went wrong could help us avoid making the same mistakes today.
Some of the New Deal's most important initiatives were active obstacles to economic renewal. The National Recovery Administration (NRA), created in 1933 to help stabilize the volatile economy, was enormously popular for a time, mostly because it created the illusion of forceful action. The NRA sought to help corporations cooperate with one another in keeping production low and prices up, effectively creating cartels. This effort proved almost impossible to administer: No one in the federal government had any experience or expertise in managing an economic project of this magnitude; control quickly moved to the corporations themselves, with no better results. But the NRA was even worse when it worked as it was supposed to, because its goal was exactly the opposite of what the economy needed: Instead of expanding economic activity, the NRA worked to constrict it. At the same time, the Federal Reserve Board--operating under classical economic assumptions--saw the economic wreckage around it and responded by raising interest rates so as to protect the solvency of the Federal Reserve Bank itself. No one today would even consider high interest rates in a slumping economy, but the Fed of the early 1930s had not absorbed new economic ideas that would later become almost universally accepted. (In fairness, this catastrophic mistake was not a product of New Deal policy, but few New Dealers recognized the magnitude of the error for years.)...