Senator Grassley says the New Deal didn’t work; historians have other ideas

Republished from HistoryChecked with permission of Allen Mikaelian

Sen. Charles Grassley: “The New Deal in the 1930s didn’t work. It didn’t get us out of the Great Depression”

Charles GrassleyI would like to make a point about the so-called Green New Deal. It is very obvious it is a reference to Franklin Roosevelt’s New Deal in the 1930s. The implication is that what the New Deal did for the Depression should be a model for the environment. There is just one great big problem: The New Deal in the 1930s didn’t work. It didn’t get us out of the Great Depression. The Depression didn’t end until we entered World War II. Just like the original, the Green New Deal sounds like really bold action, but it is really a jumble of half-cocked policies that will dampen economic growth and will hurt jobs.

—Sen. Charles Grassley, The Green New Deal, Senate FloorMarch 5, 2019

Once the Democrats decided to reference FDR’s New Deal in their latest attempt to combat global warming, it was only a matter of time before their opponents resurfaced the charge that the wide-ranging response to the Great Depression didn’t work. As Robert S. McElvaine points out in The Great Depression: America, 1929-1941, the Great Depression has become akin to the Holy Grail among economists. The need to claim or disclaim the unprecedented set of policies that comprise the New Deal is similarly urgent among politicians for obvious reasons: If it worked, maybe we should think big about public programs. If it didn’t, maybe the government should stay far away from the economy.

Senator Grassley’s statement about the New Deal is stark and definitive. Quite simply, in his mind, it did not work. The historians who responded to our request for input disagreed strongly, as a glance at their ratings will show, but they were not hesitant to discuss how the New Deal occasionally fell short.

We received responses from six historians and ratings from four of them. Their full responses appear below the summary. We’ve also included below two additional comments from Senator Grassley regarding the New Deal in order to reveal more of his argument and his thinking.

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Steel Industry by Howard Cook, fresco, 1936, Pittsburgh US Post Office and Courthouse

 

Summary

There’s a history to this history. The New Deal has long been a battleground and the source of broad, ahistorical thinking. Robert McElvaine quotes Senator Mitch McConnell in 2009, who held forth on how he was “reading history” and learning that “for sure” the “big spending programs” of the 1930s “did not work.” Eric Rauchway details the history of the debate in “New Deal Denialism,” published in 2010. The idea that the New Deal was a failure is one of the most pervasive and persistent historical beliefs on the political right.

But instead of arguing directly from the data or focusing on particular failures, many critics of the New Deal very strangely pivot to the assertion that the depression ended because of the war, not because of FDR’s economic, monetary, and social policies. In other words, massive government spending didn’t end the depression; it was really, really, really massive government spending that did it. This is baffling in its self-defeating logic. Several historians who responded took this up.

Robert McElvaine: “What the fact that the Depression did not end until World War II shows is the exact opposite of what McConnell and Grassley argue.… It wasn’t that the policies of the New Deal didn’t work; it was that they were not taken far enough.”

Eric Rauchway: “An argument that war mobilization ended the Depression is an argument that the New Deal was an effective policy, and could have worked better only by being as big as mobilization for war. Senator Grassley is thus arguing for a much bigger New Deal, not for no New Deal. If he followed his own logic, he should wholeheartedly support an enormous investment in a Green New Deal.”

(Also suggestive of the idea that the New Deal didn’t spend enough is the recession-within-the-depression of 1937. Katheryn Olmsted notes that this followed a drawdown in spending by FDR that year: “The recession of 1937 proved that the New Deal policies worked, and the president quickly returned to them.”)

Senator Grassley’s reference to the war ending the depression is a remarkable self-own. The only reason I can imagine for the pervasiveness of this idea among New Deal critics is that they often see military spending as appropriate federal spending, while spending to fix unemployment and provide relief is not. Maybe that’s the conversation they really want to have, but this is an odd way of getting there.

The historians who replied also brought the numbers. David M. Kennedy reminds us that this was not your average downturn, but “the greatest economic shock in modern history.” Nevertheless, during FDR’s administration the unemployment rate went from 25 percent to 14-15 percent. Still high, but trend lines pointed to a full recovery even if there had been no war. Meanwhile, as Rauchway and Olmsted point out, annual GDP growth was consistently around 8 or 9 percent (1937-1938 being an exception). Trump is ecstatic these days when he sees quarters with 3 percent growth (and of course he takes full credit while his colleagues in the Senate would deny such credit to Roosevelt). Despite these numbers there’s still room for criticism; not every part of the New Deal was a rousing success, or even well-considered. Robert F. Himmelberg points out that the National Recovery Administration of 1933-1935 was “to a great extent … a license to form cartels.” But the fundamental indicators were all moving in the right direction, or had made up almost all lost ground, by the time the United States went on a war footing.

But show such numbers to a critic like Grassley or McConnell and they will likely reply that things would have gone much faster if they’d been left to the market’s invisible hand. Such counterfactuals are hard to prove or disprove, but economist Christina Romer has developed models that suggest the New Deal’s intervention was decisive. Given the decimated financial sector and the lack of markets for goods, its hard to imagine laissez faire outperforming what actually took place. Especially when we have the example of 1929-1933, years in which the free and unfettered market continually failed to save the economy.

But Grassley has shown how logic doesn’t really figure into many of the political attacks on the New Deal. He might not even be swayed by the opinion of conservative economist and New Deal critic Milton Friedman. As quoted by Rauchway, Friedman, for all his extreme views, was not as extreme as today’s critics when he said, “Providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand … an expansive monetary policy. Those parts of the New Deal I did support.”

Those aspects are among the longest-lasting, and bring us to one other common thread among these historians. The New Deal should be measured not just on its gains against the depression. It had a much longer run, and created a much longer-term success:

“The system of business regulation, such as that under the Securities and Exchange Commission, and the system of security benefits that emerged from the New Deal, after all, was the environment in which the American economy thrived for nearly twenty years after World War II” (Robert Himmelberg)

“The policies implemented then, in particular those legislated by the Social Security Act of 1935 and the Fair Labor Standards Act of 1938, profoundly reshaped the American economy and U.S. society by creating federally-funded programs to provide essential aid to the young, the elderly, and the disabled as well as by establishing groundbreaking workplace regulations, including a federal prohibition on child labor and a national minimum wage.” (Anya Jabour)

“The longest and deepest legacy of the New Deal was not its record of anti-Depression initiatives, but its transformation of the social, economic, and political landscape—creating lasting institutions that have served the American people very well, including Social Security, the SEC, FHA, and enormous reclamation projects in the South and throughout the West.” (David M. Kennedy)

“Leaders of both parties understood that Keynesian economics worked; that’s why the Republican establishment adopted Keynesian economics after the war.” (Katheryn Olmsted)

These points I’ve quoted at length to underscore something else about this history: It helps to ask historians. We must listen to the economists, as do all the scholars quoted here, but in evaluating past policies historians are the ones who can help us see the greater legacies and wider impact. We should hope our policymakers would be interested in that broader view.

 

Robert F. Himmelberg, Professor of History, Emeritus, Fordham University

Senator Grassley wants to deflate the proponents of the “Green New Deal” who take advantage of the popular idea that the New Deal was a bold and effective counter to a grave national emergency. Both are generalizing too much, for the New deal was neither a complete failure or a roaring success.

The Senator is correct in saying heavy unemployment lingered until the war came, but neglects to note that GNP had returned to the 1929 level by early 1937. It is true that unemployment remained very high even at this peak and climbed again as a recession set in later that year and still lingered even as the country went to war late in 1941. But it is also clear that some New Deal steps probably promoted recovery, for example FDR’s decision to abandon the gold standard, (which some economists think changed expectations from deflationary to inflationary thereby, some say, promoting a propensity to spend rather than protect money).

Other steps may well however have retarded recovery, like the National Recovery Administration, of 1933-35, which to a great extent was a license to form cartels, and subsequent programs that limited competition in key industries such as trucking.

Above all such negative effects the greatest, if one accepts the rudiments of Keynesian ideas, was the New Deal’s failure, despite all the efforts like the WPA to create work, to spend enough money. Still others may have retarded or had a neutral effect on recovery during the 1930’s but, whether entirely through intention or not, had long term positive effects on economic growth and stability, such as the enhanced power of the Federal Reserve, or unemployment and retirement insurance. The system of business regulation, such as that under the Securities and Exchange Commission, and the system of security benefits that emerged from the New Deal, after all, was the environment in which the American economy thrived for nearly twenty years after World War II, until extravagant and misguided policies in the later sixties and challenging changes in world market conditions led to the disastrously inflationary era of the seventies.

Senator Grassley is right in saying, as he implies, that the New Deal did not achieve full recovery, and in implying that some of its policies were “half-baked.” It is also true that we do not know how long it would have taken the economy to recover full employment and achieve a steady growth rate unless the war had jump-started it. But it is clear that it is perilous to evaluate the New Deal in narrow terms. It is, however, equally misguided to fly a new political program’s name under the New Deal’s flag. The New Deal’s success was too ambivalent.

 

Anya Jabour, Regents Professor History, University of Montana, author of Sophonisba Breckinridge: Championing Women’s Activism in Modern America (University of Illinois Press, 2019)

The problem with Senator Grassley’s comment is that his view is short-sighted. While it is admittedly difficult to credit the New Deal with “ending” the Great Depression, it is equally undeniable that the policies implemented then, in particular those legislated by the Social Security Act of 1935 and the Fair Labor Standards Act of 1938, profoundly reshaped the American economy and U.S. society by creating federally-funded programs to provide essential aid to the young, the elderly, and the disabled as well as by establishing groundbreaking workplace regulations, including a federal prohibition on child labor and a national minimum wage.

Sources

Muncy, Robyn. Creating a Female Dominion in American Reform, 1890-1935. New York: Oxford University Press, 1991. CITE
Storrs, Landon R. Y. Civilizing Capitalism: The National Consumers’ League, Women’s Activism, and Labor Standards in the New Deal Era. Gender & American Culture. Chapel Hill: University of North Carolina Press, 2000. CITE
Ware, Susan. Beyond Suffrage, Women in the New Deal. Cambridge, Mass: Harvard University Press, 1981. CITE

 

David M. Kennedy, Donald J. McLachlan Professor of History Emeritus, Stanford University

Rating: 1.6

Three thoughts:

  1. The FDR administration managed to knock the unemployment rate down from 25% in 1932 to about 14% in 1936—a pretty impressive counter-punch to the greatest economic shock in modern history.
  2. Counter-cyclical policy was poorly understood in the 1930s; the New Deal faced the task of inventing policy tools to cope with what history still regards as an unprecedentedly huge “Black Swan,” the sources and dynamics of which were and still are something of a mystery.
  3. The longest and deepest legacy of the New Deal was not its record of anti-Depression initiatives, but its transformation of the social, economic, and political landscape—creating lasting institutions that have served the American people very well, including Social Security, the SEC, FHA, and enormous reclamation projects in the South and throughout the West.

Sources

Kennedy, David M. Freedom from Fear: The American People in Depression and War, 1929-1945. The Oxford History of the United States, v. 9. New York: Oxford University Press, 1999. CITE
McElvaine, Robert S. The Great Depression: America, 1929-1941. 25th anniversary ed. New York: Broadway Books, 2010. CITE

 

Robert S. McElvaine, Professor of History, Millsaps College, author or editor of five books on the era of the Great Depression and New Deal

Rating: 0.9

Senator Grassley’s statement is of a piece with other Republican distortions on the New Deal and its lessons for policy. When he says the New Deal “didn’t get us out of the Great Depression. The Depression didn’t end until we entered World War II,” he is echoing what Sen. Mitch McConnell said shortly after President Obama took office in 2009: “But one of the good things about reading history is you learn a good deal. And, we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still 15 percent. And, it’s widely agreed among economists, that what got us out of the doldrums that we were in during the Depression was the beginning of World War II.”

This, like Sen. Grassley’s comment, is a gross misreading of history. What the fact that the Depression did not end until World War II shows is the exact opposite of what McConnell and Grassley argue: It proved that big spending does work, but FDR was unwilling to spend enough, until forced to do so by the war, to stimulate the economy sufficiently to end the Depression. It wasn’t that the policies of the New Deal didn’t work; it was that they were not taken far enough. New Deal policies did not dampen economic growth or hurt jobs. Trickle-down economics does that.

The introduction to the 25th anniversary edition of my book “The Great Depression: America, 1929-1941” addresses McConnell’s distortion and provides a graph tracing GDP, federal spending, tax rates, and unemployment during the Great Depression and World War II that should be very helpful to policy makers in understanding the actual relationship among them.

Sources

McElvaine, Robert S. The Great Depression: America, 1929-1941. 25th anniversary ed. New York: Broadway Books, 2010. CITE
 
 

Kathryn Olmsted, University of California, Davis, author of Right Out of California: The 1930s and the Big Business Roots of Modern Conservatism

Rating: 0.3

The economic growth rates during the New Deal were phenomenal: about 9 percent a year, with the one exception of 1937. The reason 1937 is an exception is that Roosevelt cut back on spending that year. In other words, the recession of 1937 proved that the New Deal policies worked, and the president quickly returned to them. It’s true that unemployment rates did not return to pre-Depression levels until the war. But that’s only because the economy had shrunk so much under President Hoover. As a result, it took a long time, even with fantastic growth rates, to climb out of the hole. Leaders of both parties understood that Keynesian economics worked; that’s why the Republican establishment adopted Keynesian economics after the war.

Sources

Rauchway, Eric. “New Deal Denialism.” Dissent, Winter 2010. https://www.dissentmagazine.org/article/new-deal-denialismCITE

 

Eric Rauchway, Professor of History, University of California, Davis; author of Winter War: Hoover, Rosevelt, and the First Clash over the New Deal (Basic Books, 2018)

Rating: 0.1

This statement combines one near-truth (while there’s no official way of marking an end to the Depression, unemployment did not return to pre-1929 lows until the U.S. entered World War II) with a number of major untruths.

The New Deal did work; economic recovery was rapid and effective by the measures we ordinarily use. During Franklin Roosevelt’s first two terms in office (excluding the recession of 1937-1938) GDP growth averaged around 8 or 9 percent per year, rates that are (the economist Christina Romer says) “spectacular, even for an economy pulling out of a severe depression.” Unemployment dropped from around 23.5 percent at the time Roosevelt took office to around 9.5 percent.

The best recovery policies of the New Deal were probably bank stabilization, monetary expansion, and public works. To quote the economist Milton Friedman, “providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand … an expansive monetary policy. Those parts of the New Deal I did support.”

I gave a rating on the true/untrue scale, but I do so with hesitation because completely aside from its component untruths, the senator’s basic argument has no relationship to the truth, either supportive or antagonistic. To be specific: the argument here is that the war ended the depression while the New Deal did not. The only reason that could be true is that in readying for the fight, Washington provided massive stimulus to the economy by hiring Americans to produce war materiel. If that is true, then it is also true that Washington could have provided similarly massive stimulus to the economy before the war, hiring Americans to produce public works: dams, bridges, roads, schools, and so forth.

In other words, an argument that war mobilization ended the Depression is an argument that the New Deal was an effective policy, and could have worked better only by being as big as mobilization for war. Senator Grassley is thus arguing for a much bigger New Deal, not for no New Deal. If he followed his own logic, he should wholeheartedly support an enormous investment in a Green New Deal.

Sources

Eggertsson, Gauti B. “Was the New Deal Contractionary?” American Economic Review 102, no. 1 (2012): 524–55. https://www.jstor.org/stable/41408783CITE
Hannsgen, Greg, and Dimitri Papadimitriou. “Did the New Deal Prolong or Worsen the Great Depression?” Challenge 53, no. 1 (January 1, 2010): 63–86. https://doi.org/10.2753/0577-5132530103CITE
Rauchway, Eric. “New Deal Denialism.” Dissent, Winter 2010. https://www.dissentmagazine.org/article/new-deal-denialismCITE
Romer, Christina D. “What Ended the Great Depression?” Journal of Economic History 52, no. 4 (1992): 757–84. https://www.jstor.org/stable/2123226CITE
 
 

Sen. Charles Grassley: The National Recovery Administration of the 1930s shows “when big business and big government get together to write regulations, hard-working Americans suffer”

The New Deal of the 1930s is not something that we ought to be emulating. The National Recovery Administration of the 1930s was a key feature of that New Deal. It was designed to eliminate competition, with industry, government, and labor all working together. The National Recovery Administration turned out hundreds of codes, regulating every aspect of business. Small businesses struggled to comply, job creation stalled, and prices stayed high. When big business and big government get together to write regulations, hard-working Americans suffer. You don’t create jobs. So I hope you will take a look at how complicated the Green New Deal is, besides costing $93 trillion in the future.

—Sen. Charles Grassley, The Green New Deal, Senate FloorMarch 6, 2019

 

Sen. Charles Grassley: The New Deal was not a cohesive plan; it was a collection of disconnected policies

I have compared it to the New Deal of the Franklin Delano Roosevelt administration and its attempt to get us out of the Depression with the New Deal then. In his 1932 campaign for President, Franklin Delano Roosevelt called for what he called a “bold persistent experimentation.” That is a pretty good description of the New Deal. It wasn’t a very cohesive plan, but it was a collection of disconnected policies. In that sense, the Green New Deal emulates its namesake. It, too, is kind of a collection of disconnected policies. The New Deal of the 1930s failed to pull the economy out of the Depression that actually ended at the beginning of World War II. It is not surprising, however, that it didn’t pull us out of the Depression because it didn’t create economic growth. Economic growth needs predictable and sensible tax and regulatory policies.

—Sen. Charles Grassley, The Green New Deal, Senate FloorMarch 11, 2019

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