Did the New Deal effectively provide relief to Americans during the Great Depression?

1

DID THE NEW DEAL EFFECTIVELY PROVIDE RELIEF TO AMERICANS DURING THE GREAT DEPRESSION? On the 29th of October, 1929, the US economy went into shambles caused by the collapse of its stock market, leading to a severe economic crisis; the Great Depression. At the peak of the Depression, the economy was in a major crisis, with the GDP per capita down by almost 30% and the average unemployment rate up by almost 22%. A quarter of the American population was unemployed. The New Deal was a reactionary measure enacted by President Franklin Roosevelt with the aim of reversing the devastating effects of the Great Depression. Prior to the Great Depression, the involvement of the state in the economy was minimal. However, the upheaval caused by the depression introduced the need for the government to intervene. The New Deal was President Roosevelt’s strategy of intervening to resuscitate the economy from the effects of the Depression. It occurred in two stages; the First New Deal and the Second New Deal. The Great Depression ended in 1938, but historians have continued to debate whether the New Deal programs had a positive impact on the Great Depression (Folsom, and Powell).

Essentially, the New Deal did not accomplish its goal of easing the effects of the Great Depression.

Roosevelt took office in 1933 during the country’s worst economic crisis and he immediately went to work on creating policies that would help to reverse the Depression, hence the creation of the New Deal. While the economy recovered, it was too slow for the New Deal to have been deemed effective or as the single cause of the recovery. For instance in 1933, the improvement in GDP between 1933 and 1939 was only 6%, and the unemployment rate had not changed significantly either. (Potter)

2 There were many factors that eased the economic catastrophe caused by the Great Depression. One of the most significant ones was World War II, which revived industries and increased the employment rate through mass arms production. The notion that the New Deal contributed significantly to easing the effects of the Great Depression is reinforced by the fact that the economy began to improve in 1933, the year that the policies were implemented. Studies show that the US economy did not return to its pre-depression economic position until the late 1930s. The GNP returned to its pre-depression state in 1939, while the employment rate returned to normal in 1941. This shows that, the New Deal had very little impact, if any, on the state of the economy (Powell).

Part of the economic improvement can also be attributed to the economy’s inherent ability to correct itself in the long run. During an economic downturn, the economy is always trying to go back to its original state. Therefore, it is incorrect to attribute the end of the Depression to the New Deal since the economy is always seeking its equilibrium state.

Additionally, the New Deal emphasized increasing government spending as one of the ways of regulating the economy. However, this is to a large extent ineffective in ending an economic depression since real economic growth is caused by growth in investment and not only in government expenditure. The primary challenge that depressed economies face is low levels of investment. To resuscitate a depressed economy, it is crucial to increase investment in industries and machinery.

The New Deal was not a viable for ending the Depression because it transferred money from the efficient private sector to government programs that needed a boost. It failed because Roosevelt did not understand the real cause of the Depression, therefore he offered a solution to what he thought was the problem, as opposed to the real issue. He believed that the crash was

3 caused by poor investment decisions and the manipulation of market forces by wealthy people; he blamed it on the private not the public sector. The Depression, was in fact, caused by the government. These happened in three main ways firstly, the 1st World War increased the US’ debt almost ten-fold. It also issued loans to Europe to the tune of $10 billion (Daniels 28).

Secondly, very high tariffs were imposed on imports via the Smoot-Hawley Tariff Act. The US’ trade partners retaliated by imposing similar tariffs on its exports. As a result, between 1929 and 1932, the United States’ exports declined by almost 50% (Winkler). Thirdly, the Federal Reserve did not have a system of regulating the conduct of banks, eventually leading to bank failures.

One of the policies of the New Deal emphasized the fixing of prices. This is harmful to an economy because it stifles competition and reduces the motivation to innovate. There was also a significant increase in government bureaucracy which complicated the process of doing business, and made it extremely challenging for small businesses to compete with the moreestablished businesses. The New Deal also failed because of its introduction of price floors on agicultural products such as wheat and cotton. This led to the excessive production of wheat and cotton which the government later had to sell at a loss. The government, through its New Deal policies, caused the prices of food to increase. Therefore, less people were able to afford food, excabarting the effects of the crisis.

The New Deal also failed because it shifted funds from the efficient states to the less efficient states. This negatively affected the work ethic of the US, because it showed the private sector that the government could transfer funds to less deserving activities at its discretion.

Roosevelt, to a certain extent used his power to share the funds as a tool of political manipulation. This is evidenced by the fact that the Democrat Southern states received less funding than the Republican North (Winkler). The New Deal is also termed a failure because it

4 did not have lasting results and only benefited a small proportion of the population. The provision of subsidies stopped people from thinking beyond producing for themselves in their small farms. In the states where the government funding was low, the rate of industrialization was higher, and there was also higher rate of employment. To date the trusts hold more of the US wealth. It created a system where the rich became richer, while the poor became poorer.

The New Deal, despite its best efforts, did little to alleviate the effects of the Great Depression because it misdiagnosed the problem, therefore, offered an incorrect solution. The Depression ended as a result of the mass production of artillery for the Second World War.

Works Cited

5 Daniels, Roger. Franklin D. Roosevelt: Road To The New Deal, 1882-1939. University Of Illinois Press, 2018, pp. 28 - 35.

Folsom, Burton, and Jim Powell. "FDR's Folly: How Roosevelt And His New Deal Prolonged The Great Depression | Burton W. Folsom, Jim Powell". Fee.Org, 2020, https://fee.org/articles/fdrs-folly-how-roosevelt-and-his-new-deal-prolonged-the-greatdepression/.

Potter, Jim. The American Economy Between The World Wars. Macmillan Education, Limited, 2015.

Powell, Jim. "How FDR's New Deal Harmed Millions Of Poor People". Cato Institute, 2020, https://www.cato.org/publications/commentary/how-fdrs-new-deal-harmed-millionspoor-people.

Winkler, Allan. "THE NEW DEAL: ACCOMPLISHMENTS AND FAILURES".

Banking.Senate.Gov, 2018, https://www.banking.senate.gov/imo/media/doc/WinklerTestimony33109TheNewDealSe nateTestimony.pdf.