By Nina Wright Yamauchi – United Kingdom and Japan
In 1929, the US stock market crashed on an event known as Black Tuesday. There were many reasons for the crash of the US stock market: speculation of stock market investors, overproduction post WWI, and bank failures. However,the long-lasting question for how effective the New Deal was during the Great Depression was a constantly debated question that has been taken to the present day. The New Deal was a two part plan enforced by FDR to try and boost the sinking US economy, following the hit of the Great Depression. The New Deal consisted of heavy government intervention policies in order to create new jobs to reduce the large unemployment rate and boost GDP following the Great Depression.
President Hoover rose to president in 1928, running as the Republican candidate. Being a Republican, his values centred around laissez faire economics- ‘laissez faire’ meaning hands off, meaning minimal government intervention in the economy as well as rugged individualism, which was the idea of self-reliance on individuals themselves with minimal government help. These main ideas were reflected in Hoover’s governing at the start of the Great Depression, one year after Hoover was elected. Protectionism, which was the restriction of international trade to help promote domestic trade, also became an influential principle in his governing. The issue of the overproduction of goods within the US post-WWI worsened when the Smoot-Hawley Tariff Act was passed in 1930, essentially raising tariffs on goods exported from the US to protect US farmers and producers. However, this was met with retaliation from other countries who also increased tariffs on exported goods. This resulted in a worsened effect on the US economy than before the tariff was initiated. Soon evidence began to spring up that Hoover's ‘laissez faire’ policy was not enough to help the fast-falling economy with shanty towns, nicknamed ‘Hoovervilles’ and joblessness becoming rampant. Many took to the streets to strike and were in a desperate state for new governance.
In the summer of 1933, the citizen’s plea came to fruition. On March 4th , Franklin Delano Roosevelt was elected into the presidency through his persuasion and campaigning, known as fireside chats, where he put people’s worries of the Great Depression to rest as well as pledging the 3R of the New Deal: relief, reform, recovery. After successfully being elected in March, FDR quickly instituted the New Deal, an initiative dedicated to recovering and reallocating jobs to bolster the economy following the Great Depression. This was done by reversing the ‘laissez faire’ plan by his predecessor, President Hoover, and instituting large government intervention and spending to make the plan work. The New Deal consisted of many job schemes, such as the Civilian Corporation Corps to give young men jobs or the National Recovery Act (NRA), which was set to boost wages and guarantee workers’ unions and rights. Despite the many measures taken, unemployment stood at a horrific rate of 25%, and the industrial output was only half of what it had been three years ago. Clearly, the economy was still in decline, and FDR had to add a new section to the New Deal. This was known as the Second New Deal which was focused on workers’ protections and financial security. Some of the legislation included the Social Security Act which took payroll tax and put it towards the elderly or the disabled. Another notable legislation was the Fair Labour Standards Act which capped the maximum working hours per week and reflected a part of the Second New Deal’s pledge for worker’s rights.
Although FDR’s New Deal was often seen as a great achievement that “saved’’ the US from the further catastrophe of the Great Depression, many events that occured before and after the Great Depression shed a different light on FDR’s New Deal and can recontextualize it. Leading up to the Great Depression, there were patterns in economies worldwide known as trade cycles. Trade cycles or business cycles are naturally recurring patterns in the economy, which peak at a boom -where an economy is at its highest and dip in a recession-when an economy is at its lowest, a typical cycle lasting 7-11 years (Achuthan). The Great Depression shows a crucial turning point from the boom of the US economy in the Roaring 20s -during 1920-1928,to a slowdown and recession when the stock market crashed. This suggests that although there was a large recession, according to the trade cycle, the US economy would have slowly recovered without government intervention from FDR’S New Deal. Another factor separate from the New Deal, which helped the economy, was the mobilisation of the US for WWII. Soon after the second New Deal, the US officially joined the war in 1939, siding with the Allies. This meant the need for contribution of resources and troops from the US, which, in turn, allowed the stimulation of production from large factories, which boosted the country’s GDP by 72% between the years of 1940 and 1945 (“World War II in America: Spending, Deficits, Multipliers, and Sacrifice”). With this statistic alone, WWII played a significant role in stabilising the US economy. Seeing the New deal contextualised with trade cycles and WWII being either side of it, it can be assumed that the New Deal was responsible for some upturn in the economy before WWII. However, as trade cycles go, the US economy most likely would have recovered without the New Deal as World War II was around the corner, ready to mobilise American industries and therefore, the economy.
It can be concluded that although FDR’s New Deal plan was partially significant in lowering the high unemployment rates, due to the larger context WWII on the horizon and the forced mobilisation of the US economy in order to take part, it is logical to assume that it was not so much the New Deal but, the lucky circumstance of mobilisation in which FDR oversaw an upturn in the economy.
Bibliography
Achuthan, Lakshman. “Business Cycle: What It Is, How to Measure It, the 4 Phases.” Investopedia, 15 June 2022, www.investopedia.com/terms/b/businesscycle.asp.
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“World War II in America: Spending, Deficits, Multipliers, and Sacrifice.” CEPR, 12 Nov. 2019, cepr.org/voxeu/columns/world-war-ii-america-spending-deficits-multipliers-and-sacrifice.
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