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Learning from the New Deal

Abstract

This paper argues that the direct job-creation strategy adopted by the New Deal administration of Franklin D. Roosevelt in programs like the WPA (the “New Deal strategy”) is best understood as an effort to secure what the New Dealers came to regard as a human rights entitlement—the right to work—rather than as an economic policy designed to promote the economy’s recovery from the Great Depression. The paper goes on to argue, though, that in fashioning a policy to secure the right to work, the New Dealers unknowingly developed a strategy for delivering a Keynesian fiscal stimulus that is markedly superior to other anti-recession strategies. Unfortunately, neither the New Dealers themselves nor the generation of progressive policy makers that followed them understood the multiple strengths of the New Deal strategy. Consequently, the strategy was permitted to languish, and its potential contribution to public policy in the post World War II era was lost. In an effort to rekindle interest in the New Deal strategy, the paper concludes by pointing out how much more effective the New Deal strategy would have been in combating the so-called Great Recession than the more conventional spending and tax-cut policies the Federal Government actually has deployed. For a fraction of the sum the Federal Government has allocated to stimulate the American economy since the fall of 2008, the New Deal strategy could have immediately reduced the nation’s unemployment rate to pre-recession levels while simultaneously promoting a more rapid recovery in private-sector hiring.

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Notes

  1. The New Dealers pursued a similar strategy in responding to other manifestations of the economic crisis. Instead of bailing out banks, the New Dealers responded to their own mortgage foreclosure crises by creating a government agency that purchased individual non-performing mortgages and refinanced them at a lower rate of interest so that stressed homeowners would not lose their homes. The same agency also made direct mortgage loans to people who couldn’t otherwise obtain credit. By coming to the rescue of ordinary home owners in this way economic benefits were created that trickled up to the financial services industry. Non-performing assets were removed from bank balance sheets and the banking industry was stabilized—but with a program designed to provide stressed families with help rather than the banks themselves. A similar story could be told about the New Deal strategy for saving family farms.

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Correspondence to Philip Harvey.

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Harvey, P. Learning from the New Deal. Rev Black Polit Econ 39, 87–105 (2012). https://doi.org/10.1007/s12114-011-9127-x

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  • DOI: https://doi.org/10.1007/s12114-011-9127-x

Keywords

  • Direct job creation
  • New deal
  • Unemployment
  • Right to work
  • Human rights