The New Deal and the End of the Great Depression

When I’m on the stationary bicycle I enjoy reading my girlfriend’s New Yorker magazines. San Francisco Bay Area weather was beautiful this summer, so I’ve been running outside and spending less time on the stationary bike. Alas, now I’m three months behind on the magazines. Reading the May 24 issue, I was flabbergasted by lawyer and author Jeffrey Toobin’s article, Activism V. Restraint . Toobin writes about FDR’s failed court-packing initiative, but how he, in the end, made eight Supreme Court nominations. That “is what guaranteed that the federal government was able to address the economic crisis.” The author then relates this history to the problems facing Obama’s legislation.

FDR certainly addressed the economic crisis with New Deal legislation. Let us scrutinize how well these Keynesian programs worked. FDR was president from 1933 to part of 1945. I have collected below the unemployment rates of the years of the Great Depression—late 1929 to 1941 or so.

Year and Unemployment Rate

1923-29 3.3 %, 1930 8.9 %, 1931 15.9 %, 1932 23.6 %, 1933 24.9%, 1934 21.7%, 1935 20.1%, 1936 17.0%, 1937 14.3%, 1938 19.0%, 1939 17.2%, 1940 14.6%, 1941 9.9%, 1942 4.7%

(Source Bureau of Labor Statistics: http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm)

I think we can make three conclusions. First, the unemployment rate did go down, and the number of people employed rose (with the exception of the 1937-1938 period). Second, the unemployment rates were still very high throughout—the best unemployment numbers, eight years after FDR had taken over and twelve years after the depression had started, were approximately the same as what our country is experiencing now. Third, the United States enjoyed full employment only after we started equipping the Allies and mobilizing for WWII. That crisis had nothing to do with the New Deal or unfriendly Supreme Court Justices.

Did FDR’s prescription for unemployment work? We need to examine a control group, a group of Americans that did not receive the independent variable, the New Deal, and compare them with the rest of the country. Obviously, that experiment will not be undertaken.

Would the unemployment numbers have been even worse had FDR not passed New Deal legislation? It is hard to say. On the other hand, UCLA researchers show that the Great Depression would have passed quicker if the New Deal had not gone into effect. (See link )

Historians Kennedy, Cohen, and Bailey, hardly a right-wing bunch, write in the popular textbook, The American Pageant, 12^th ed. (P. 803), “The depression dragged on with only periodic improvement for nearly eight years under his [FDR’s] leadership, until the cataclysmic emergency of World War II finally banished unemployment from the land.” Similarly, New Left historian Barton Bernstein writes (in Towards a New Past: Dissenting Essays in American History, 1968, Random House)

the New Deal failed to solve the problem of the depression, it failed to raise the impoverished, it failed to redistribute income, it failed to extend equality and generally countenanced racial discrimination and segregation.

We can conclude that the New Deal transformed American society, but did not solve the unemployment problem of the Great Depression. Obama's Keynesian solution may not alleviate unemployment much either. See what the Congressional Budget Office (CBO) thought of Obama's stimulus package here.The CBO says that the stimulus may have sustained as few as 700,000 jobs and as many as 3.6 million (costing around $200,000 per job). That's a poor return for a $825 billion dollar stimulus and tax rebate package that must be paid back.