Parts of the New Deal Flashcards
What is the New Deal? (including the initial problem it was set out to solve)
In the 1932 election, FDR promised the American public “a new deal for America”. The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President FDR in the US between 1933-1939. The most comprehensive moment of national reform in US history.
The problem: falling aggregate demand (ability to shop goes down) –> more competition –> price-cutting (shopkeepers will cut their prices to make people buy more) –> lower profits –> wage reductions (because the surplus from products is reduced) –> falling aggregate demand (because people’s salaries are decreasing) … and so on (a vicious circle)
The solution: Stop the vicious circle! Put a floor under prices (reduces the need for businessmen to compete on prices) and wages (guarantee some kind of minimum aggregate demand) to cut competition and sustain aggregate demand.
What was the First New Deal?
1933-1934
CCCx2 + AAA + TVAA / TVA + NIRA / NRA + PWA + CWA
What? The First New Deal focused on regulating industrial production. The NRA was the centerpiece of the First New Deal promising higher wages. Likewise, the AAA was a premier program of the First New Deal. However, lack of results caused unrest. To respond to popular discontent, the Second New Deal was initiated.
Planning approach: ”The two premier programs of the First New Deal, the NRA and the Agricultural Adjustment Administration (AAA), were based on the supposition that the market economy had failed and was incapable of restoring prosperity to industry and agriculture. They represented, to some extent, experiments with a form of economic planning, the notion that economic stability and prosperity could be achieved by regulating production”.
Was it a success? “Whether these innovations of the First New Deal initiated recovery or it came despite them is a question long debated (…). In any case, the economy did begin to rebound during the later months of 1933, although that year was on the whole the worst in the depression era in terms of unemployment and national output”.
What was the Second New Deal?
1935-1936
RA / FSA + WPA + NRLA + SSA
The second new deal was more progressive and controversial than the first. It “had work relief and support for labor unions as its centerpieces”.
“The Second New Deal abandoned emphasis on regulation of industrial production and stressed instead direct improvement of the income and security of the unemployed, blue-collarworkers, the aged, and the dependent”. “The funds provided were more generous than before, but were still pitifully inadequate, though the relief payments they provided averted actual starvation for millions of unemployed workers”.
What were the achievements of the New Deal?
Restored hope for the American people (even though there were protests and critics)
Created jobs via job creation schemes such as PWA, WPA and CWA.
The SSA ensured old-age pensions and unemployment insurance.
The NRLA ensured that workers could organize in labour unions of their choice.
Positive things happened for the African Americans (not because they were black, but because they were poor), women (partly because of Eleanor Roosevelt) and artists (because of the Federal Project Number One).
The NRA made child labour less attractive as it put a floor under wages.
What were the shortcomings of the New Deal?
- Was seen as a form of socialism
- Its economic success was limited
- His reform programs were criticized as unconstitutional, illogical, inconsistent, immoral and ineffective
- Recovery: visible in some sectors but slow and patchy; unemployment endures
Shortcomings of the ‘First New Deal’:
– NRA: unpopular, clumsy, poorly-administered
– AAA: scarcity economics sacrifices the poorest
– PWA: overly cautious when speed mattered
– FERA: low levels of relief payments
Supreme Court invalidation of NRA (May 1935) and AAA (January 1936)
