Mitch McConnell Is Wrong – The New Deal DID Work, and it Still Does

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Thu Feb-12-09 09:00 PM
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Mitch McConnell Is Wrong – The New Deal DID Work, and it Still Does

In leading the efforts of Senate Republicans to block economic stimulus legislation, Senate Minority Leader Mitch McConnell recently said “We know for sure that the big spending programs of the New Deal did not work”. This is just an outgrowth of the latest stupid Republican talking point: “Massive government intervention actually prolonged the Great Depression”.

Hmmm. This is a very important issue, not just because Republicans are using this revisionist history to block our economic recovery, but because it was this kind of anti-government clap trap that brought us to this state of affairs, and that will keep us there for many years to come if the American people are na๏ve enough to continue to fall for it.

Franklin Delano Roosevelt was re-elected President in landslides three consecutive times, and he is widely regarded by Presidential scholars as the second greatest President in our nation’s history. Those are quite some accomplishments for a President whose signature programs “did not work” and “prolonged the Great Depression”. Let’s take a look at these claims:

Our GDP under FDR

Let’s first look at GDP during FDR’s tenure:

This graph begins at approximately the time of the Stock Market Crash of 1929. You can see that GDP plummeted steeply following the Crash, during a period when Herbert Hoover was President. Hoover was a noted practitioner of laissez-faire economics, which means that he was adamantly opposed to government intervention to end the Depression – and indeed, he steadfastly avoided government intervention, no matter how bad things got.

FDR took office in March 1933. You can see from the graph that the steep slide in GDP was arrested in 1933, and began a steady rise in 1934, so that by 1940 it had nearly reached pre-Crash levels. All of this happened before we entered World War II.

Unemployment rate and job creation under FDR

Unemployment rate closely paralleled GDP during this time period – inversely:

Unemployment rate stood at nearly 25% when FDR took office. It declined steadily during his presidency, so that by 1939 it was below 18% – not good, but quite an improvement.

Let’s consider how that translated into job creation. This chart looks at job creation during the 20 presidential terms beginning with that of Herbert Hoover. Hoover’s presidency was the only one during which jobs were actually lost – though George W. Bush’s two terms came mighty close to that record. Job growth during this 80 year period exceeded 4% during only two of the twenty presidential terms – FDR’s first term (5.3%) and his third term (5.1%). Job creation during his second term (2.6%) was tied for 7th of the 20 terms. He died very early in his fourth term. Overall, job creation during the FDR presidencies was the most impressive of all presidents we have had since.

World War II

So often we hear from the right wing spinmiesters that “FDR’s New Deal didn’t end the Great Depression, World War II did”. It is true that we didn’t fully recover from the Great Depression until World War II. But the above discussion and graphs certainly show that great strides were taken towards ending the Depression prior to World War II. And it should also be borne in mind that the New Deal didn’t end with the onset of World War II. It continued through World War II and ran strong until the onset of the Reagan Presidency in 1981.

But let’s acknowledge that World War II also made a strong contribution towards ending the Great Depression (though it also greatly increased our national debt as a percentage of GDP, as can be seen from this chart). We need to ask ourselves how it did that. What did FDR’s New Deal and World War II have in common? They both greatly stimulated job creation in an economy that was characterized first and foremost by a very high unemployment rate.

So, what does this mean with regard to lessons for the future? When many millions of Americans are without a job, should we stimulate the economy through job creation of the type proposed by FDR in the 1930s and more recently by President Obama? Or should we stimulate the economy by going to war?

Let me ask that question another way. What kind of society are we if the only thing we care to spend money on to “increase our production” and create jobs is war? Keep in mind that the death and destruction that occurs during wars are not subtracted in the calculation of GDP, though all the military hardware that is produced is added. The choice between war or other means of stimulating our economy boils down to whether we want to stimulate our economy in a destructive and immoral manner versus a constructive and moral manner.

The next three decades

The New Deal didn’t just fade away after FDR’s death. Instead, due to its stunning success, most of its components lasted for decades. Largely as a result of this, we experienced for the next three decades what Nobel Prize-winning economist Paul Krugman calls “the greatest sustained economic boom in U.S. history”.

As a result of the labor protection laws enacted during FDR’s presidency, the percent of non-agricultural U.S. workers who were members of labor unions rose from 10% to close to 30% during his presidency and remained at that level for many decades, until the anti-labor policies of the Reagan administration resulted in a precipitous decline in union membership. The labor protection laws and other New Deal innovations, such as Social Security and unemployment insurance, were instrumental in alleviating poverty in our country and producing a vibrant middle class.

Median family income is one of the best indicators of the economic health of a people. This chart shows median family income levels, beginning in 1947, when accurate statistics on this issue first became available. Family income rose steadily (in 2005 dollars) from $22,499 in 1947 to more than double that, $47,173 in 1980. Then, with the onset of the Reagan Revolution, it came to a virtual standstill. For the next 25 years, except for some moderate growth during the Clinton years, there was almost no growth in median income at all, which rose only to $56,194 by 2005 (85% of that growth accounted for during the Clinton years).

The American people who lived during the Great Depression, the New Deal, and the “greatest sustained economic boom in U.S. history” knew what the New Deal did for them. And so did the Republican Party, which gave up on trying to fight it, for reasons that are made clear in a letter that President Eisenhower wrote to his brother on the subject:

Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are…. a few Texas oil millionaires… Their number is negligible and they are stupid.

Where are we going from here?

Our current economic status is largely the result of the progressive dismantling of the New Deal, which began with the Reagan Revolution in 1981 and went on for much of 28 years, with a break during the Clinton administration. For only two of those 28 years (1993-95) did we simultaneously have both a Democratic Congress and President.

And while George W. Bush was president they tried to destroy Social Security as well. If you want to know what would have happened if they had been successful in that, just ask one of the many millions of Americans who depend on it to keep their heads above water.

Campaign for America’s Future sums up our current situation very well:

Sen. McConnell is doing everything he can to resuscitate the failed conservative strategies that got us into this mess in the first place – more top-end tax cuts and as little investment as possible in projects that’ll put Americans back to work.

He's distorting President Obama’s bold plan to invest in America's future by ranting on the Senate floor that "the big spending programs of the New Deal did not work" and the bill is just "wasteful projects that would have minimal or no impact on job creation."

When Mitch and his band of conservative obstructionists open their mouths, they show that they don't know anything about history or creating jobs. What do they think is so wasteful?

 Green jobs generating clean energy and energy-efficiency.
 Construction jobs building modern schools, high-speed rail, roads and bridges.
 Public service jobs, helping states keep their police, firefighters and teachers.
 High-tech jobs expanding broadband and healthcare technology.

We can expect this kind of obstructionist activity from Congressional Republicans for a long time to come. They want President Obama to fail and will do everything they can to see that happen.

Few Americans alive today lived through the Great Depression and the New Deal that did so much to alleviate it and put Americans back on the road to economic health. Those who didn’t live through those times need to know something about our history so that they aren’t fooled by Republican attempts to keep us in pre-New Deal, Gilded Age times.