New Deal Summary, Programs, Policies, and Its Success
Four Surprising Ways the New Deal Affects You Today
The New Deal is an economic policy Franklin D. Roosevelt launched to end the Great Depression. Americans, battered by 25% unemployment, Dust Bowl droughts, and four waves of bank failures, welcomed the government's rescue.
FDR proposed the New Deal to reverse the downward economic spiral. The goal was relief, recovery, and reform for those who were hardest hit.
- The New Deal was a series of large-scale relief programs and reforms FDR implemented to counteract the economic effects of the Great Depression
- The New Deal advocated government spending as a key economic driver boosting consumer demand
- The New Deal played a significant role in countering the Great Depression and revitalizing the U.S. economy
- FDR’s plan revealed just how vital the government’s role is in the management of the nation’s economy
FDR launched the New Deal in three waves from 1933 to 1939. Congress passed dozens of programs to stabilize the U.S. financial system. They provided relief to farmers and jobs to the unemployed. They also built private-public partnerships to boost manufacturing.
FDR's New Deal policies introduced Keynesian economic theory. It said government spending could end the Depression by stimulating consumer demand. The New Deal was a far cry from President Herbert Hoover's "...hear-nothing, see-nothing, do-nothing Government," derided by FDR in his 1936 campaign speech.
Hoover believed a free market economy would self-correct. As the Depression wore on, government revenue fell, so Hoover cut spending. He signed the Smoot-Hawley tariff to protect U.S. industries. He believed business prosperity would trickle down to the average person. Instead, the Depression worsened.
First New Deal and Its Programs
Roosevelt was inaugurated on March 4, 1933. In his first 100 days in office, FDR pushed Congress to pass 15 new agencies and laws. Together, they created "capitalism with safety nets and subsidies," according to historian Lawrence Davidson.
- Emergency Banking Act - March 9: FDR closed all banks as soon as he was inaugurated to stop bank runs. It was enacted at great speed. A special session of Congress passed the bill in seven-and-a-half hours. This Act allowed banks to reopen once examiners found them to be financially secure. Five thousand banks reopened in the next three days.
- Government Economy Act - March 20: The Act cut the pay of government and military employees by 15%. It cut government spending by 25%. The $1 billion saved went to finance New Deal programs.
- Beer-Wine Revenue Act - March 22: It legalized the sale of beer and wine and taxed alcohol sales, raising federal revenue. The Beer-Wine Revenue Act was followed by the passage of the 21st Amendment, which effectively ended Prohibition.
- Civilian Conservation Corps - April 5: The program hired 3 million workers over nine years to conserve public land. They planted forests, built flood barriers, and maintained roads and trails.
- Abandonment of Gold Standard - April 20: FDR stopped a run on the precious metal. He ordered everyone to exchange all gold for dollars.
- Federal Emergency Relief Act - May 12: This program funded a wide variety of jobs in agriculture, the arts, construction, and education.
- Agricultural Adjustment Act - May 12: This legislation subsidized farmers to reduce crops. It doubled crop prices by 1937. It was overturned by Supreme Court in 1936 because it taxed processors but gave funds to farmers. That was remedied in 1938.
- Emergency Farm Mortgage Act - May 12: The act provided loans to save farms from foreclosure.
- Tennessee Valley Authority Act - May 18: The program established a federal corporation that built power stations in the Tennessee Valley, the poorest area in the nation.
- Securities Act - May 27: It required corporations to provide information to investors before issuing stock.
- Abrogation of Gold Payment Clause - June 5: The government no longer had to repay dollars with gold.
- Home Owners Refinancing Act - June 13: The act established the Home Owners Loan Corporation that refinanced mortgages to prevent foreclosures. It also provided additional capital to mortgage lenders. When it closed in 1935, it had refinanced 1 million homes, which was the equivalent of 20% of all urban mortgages.
- Glass-Steagall Banking Act - June 16: This law separated investment banking from retail banking. It prevented retail banks from using depositors' funds for risky investments. It gave the regulation of retail banks to the Federal Reserve, prohibited bank sales of securities, and created the Federal Deposit Insurance Corporation (FDIC). The act was repealed in 1999 by the Gramm-Leach-Bliley Act.
- National Industrial Recovery Act - June 16: This labor and consumer law set up the Public Works Administration to create public works jobs, like San Francisco's Golden Gate Bridge and New York City's Triborough Bridge. This law also created the National Recovery Administration. It outlawed child labor, established a minimum wage of $1.25, and limited the workday to eight hours. It gave trade unions the legal right to bargain with employers. It was declared unconstitutional in 1935.
- Emergency Railroad Transportation Act - June 16: This piece of legislation attempted to coordinate the national railway systems.
- Civil Works Administration - Nov. 9: Created thousands of construction jobs to put people to work. Congress ended it on March 31, 1934.
In 1934, conservative businessmen criticized the New Deal for being too socialistic. Others, like Louisiana politician Huey Long, said it didn't do enough for the poor. Despite their criticisms, FDR pushed for these additional programs:
- Gold Reserve Act - January 30: FDR prohibited private gold ownership. He increased the price of gold to $35 per ounce, up from $20.67 per ounce where it had been for 100 years. That almost doubled the value of the gold held in Fort Knox from $4.033 billion to $7.348 billion, making the United States the world's largest owner of gold.
- National Housing Act - June 27: This law established the Federal Housing Administration, which provides federal insurance for mortgages.
- Securities Exchange Act – The law created the Securities and Exchange Commission, which regulates stocks and the stock market.
- Federal Communications Act – The Act consolidated all federal regulation of telephone, telegraph, and radio communications under the Federal Communications Commission.
Second New Deal Programs
In 1935, the Supreme Court struck down the National Industrial Recovery Act. Concerned that other programs would also be eliminated, FDR launched the second round of New Deal programs. These focused on providing more services for the poor, the unemployed, and farmers. FDR spoke about helping the "...millions who never had a chance -- men at starvation wages, women in sweatshops, children at looms."
- Soil Conservation & Domestic Allotment Act - February 29: This program paid farmers to plant soil-building crops, like beans and grasses, to counteract the Dust Bowl.
- Emergency Relief Appropriation - April 8: The program replaced FERA and funded the new Works Progress Administration with $5 million. It employed 8.5 million people to build bridges, roads, public buildings, public parks, and airports. It paid artists to create 2,566 murals and 17,744 pieces of sculpture to decorate the public works.
- Rural Electrification Act - May 20: The law provided loans to farming cooperatives to generate electricity for their rural areas.
- National Labor Relations Act /Wagner Act - July: This law protected the rights of employees to organize and address working conditions, with or without a union, and created the National Labor Relations Board.
- Resettlement Act - May: It created the Resettlement Administration that trained farmers and administered farm debt adjustment activities. It bought 10 million acres of submarginal farmland and paid farmers to convert it to pasture, preserves, or parks. It resettled farmers onto better land and taught them modern conservation and farming techniques.
- Social Security Act - August: This law created the Social Security Trust Fund and Administration to provide income to the elderly, the blind, the disabled, and children in low-income households.
Third New Deal Programs
In 1937, FDR rolled out the Third New Deal. Concerned about budget deficits, he did not fund it as much as the previous two.
- United States Housing Act: Also called the Wagner-Steagall Act, it funded state-run public housing projects.
- Bonneville Power Administration: Congress created a federal agency that delivered and sold power from the Bonneville Dam, which had been built by the PWA, near Portland Oregon.
- Farm Tenancy Act: Called the Bankhead-Jones Farm Tenant Act, it created Farmers’ Home Corporation to provide loans for tenant farmers to buy their farms.
- Farm Security Administration: This replaced the Resettlement Administration to provide loans and training for farmers.
The cutback in New Deal spending pushed the economy back into the Depression. FDR urged Congress to enact a $5 billion relief program, which consisted of:
- Federal National Mortgage Association: This organization resells mortgages on the secondary market to provide more funds for banks to lend.
- New Agricultural Adjustment Act: The law remedied the 1933 AAA.
- Fair Labor Standards Act: This labor law established U.S. minimum wage, overtime pay, record-keeping, and youth employment standards.
In 1938, FDR abolished mark to market accounting. Some experts believed it forced many banks out of business. The rule forced banks to write down their real estate as values fell. FDR's new rule allowed them to keep these assets on their books at historical prices.
In 1939, FDR launched the Federal Security Agency. It administered Social Security, federal education funding, and food and drug safety. Congress abolished it in 1953.
Why the New Deal Was a Success
The New Deal worked. After FDR had launched the first New Deal, the economy grew 10.8% in 1934. When the second New Deal rolled out, the economy increased by 8.9% in 1935 and 12.9% in 1936. After FDR cut government spending in 1937, the economy contracted 3.3%.
From 1932, the year before the New Deal, to 1941, when the United States entered the war, the debt only grew by around $3 billion a year. In 1942, defense spending added $23 billion to the debt. The amount added tripled to $64 billion in 1943. If that much had been spent in the first year of the New Deal, it would have ended the Depression right there and then.
Some say the New Deal didn't work because the Depression lasted for 10 years. They point out that defense spending on World War II was the only thing that ended the Depression. But if FDR had spent the same amount on the New Deal as he did on war, it would have ended the Depression.
New Deal programs softened the extremes of the business cycle. Before the New Deal (1797-1932), there were 33 major economic downturns, 22 recessions, four depressions, and seven bank runs and panics. They impacted 60 of the 132 years covered. Recessions were more severe than they are today because there weren't the New Deal federal agencies to control corruption, fraud, and exploitation.
Since WWII, there have been 11 recessions that impacted just 10 out of 60 years. They were milder than those before, thanks to the safety nets of the New Deal.
How the New Deal Could Have Prevented World War II
Consider this. FDR spent thirty times more in 1943 on the war than he did in 1933 on the New Deal. There was no resistance to war spending as there was to domestic spending. No one was concerned about the budget deficit when the world was worried about Hitler's military dominance.
But concerns about the budget deficit sabotaged the New Deal from ending the Depression's global economic catastrophe. Why do military threats engender so much more public support than economic ones?
If FDR had spent as much on the New Deal in 1933 as he did in the war in 1943, it would have ended the Depression by creating jobs, demand, and economic growth. The Depression's misery helped propel the German people to put the Nazis and Hitler in power.
If FDR and the New Deal had ended the Depression in the early 1930s, the United States could have turned its resources sooner to helping its allies, Great Britain, and France. It would have at least shortened, if not prevented, World War II.
New Deal Timeline
1929. Hoover became president. The stock market crash in October kicked off the Depression. There was a $1 billion surplus. Unemployment was at 3.2%.
1930. Congress passed the Smoot-Hawley tariff to protect jobs. Trading partners retaliated, driving world trade down 66%. The economy contracted 8.5%, and unemployment rose to 8.7%. Another $1 billion surplus.
1931. Fed raised rates to defend the gold standard, worsening the depression. The economy contracted 6.4%, unemployment rose to 15.9%, and debt increased by $1 billion.
1932. FDR campaigned on New Deal promises. The economy contracted 12.9%, and unemployment rose to 23.6%. Lower revenues added $3 billion to debt.
1933. FDR took office. He immediately launched 15 programs under the First New Deal. This added $3 billion to debt. Depression started to lift, as the economy only contracted 1.3%. Unemployment rose to 24.9%.
1934. The economy grew by 10.8%, and unemployment fell to 21.7%. Five billion dollars was added to the debt.
1935. FDR launched the Second New Deal, adding $2 billion to debt. The economy grew 8.9%, and unemployment fell to 20.1%.
1936. The economy grew 12.9%, reducing unemployment to 16.9%. Five billion dollars was added to the debt.
1937. FDR started his second term. Fearing a budget deficit, he cut spending, only adding $3 billion to debt, despite rolling out the Third New Deal. The economy grew 5.1%, and unemployment fell to 14.3%.
1938. No more New Deal legislation was passed. Spending was cut, so only $1 billion was added to the debt. Unemployment rose to 19%. The economy shrank 3.3%.
1939. Dust Bowl drought ended. The United States spent to build up the military as Europe entered WWII. The expenditures added $3 billion to debt. The economy grew 8%, and unemployment fell to 17.2%.
1940. The unemployment rate fell to 14.6% as the United States started the draft. FDR won reelection. America assisted Great Britain by sending weapons. This added $3 billion to debt. The economy grew by 8.8%.
1941. FDR began his third term. Japan attacked Pearl Harbor in December. The United States entered WWII. Spending eliminated the Depression and added $6 billion to debt. The economy grew 17.7%, and unemployment fell to 9.9%.
1942. Unemployment fell to 4.7% while the economy grew 18.9%. War spending added $23 billion to debt.
1943. War added $64 billion to debt. Gross domestic product growth was 17%, and unemployment fell to 1.9%. Italy surrendered.
1945. FDR died in April. Truman became president. He added $58 billion to debt. Germany surrendered in May. Truman dropped a nuclear bomb in August. Japan surrendered in September, ending WWII. The economy contracted 1%. Unemployment edged up to 1.9% as soldiers returned home.
Four Ways the New Deal Affects You Today
Many of the New Deal's programs are still safeguarding your finances today. The four most significant are Social Security, the minimum wage, the Securities and Exchange Commission, and the FDIC.
The Social Security program provides a guaranteed income for workers who have paid into the system. Most people are familiar with the retirement benefits which can also be extended to the retiree's spouse.
Social Security also pays disability benefits to eligible beneficiaries who become disabled before reaching retirement age. It pays children, surviving spouses, and dependent parents of eligible beneficiaries who die or become disabled. In some cases, it will even pay benefits to divorced spouses.
There is also a Supplemental Security Income program that pays benefits to disabled children and adults with limited income. There's also a Special Benefits program for qualified World War II veterans.
The minimum wage is the lowest legal wage companies can pay workers. As of 2019, the U.S. current national minimum wage is $7.25 per hour. The purpose of minimum wage laws is to stop employers from exploiting desperate workers.
The minimum wage should provide enough income to afford a living wage. That is the amount needed to provide enough food, clothing, and shelter.
Unfortunately, Congress hasn't raised the minimum wage enough to pace with inflation.
In fact, at 40 hours per week for 52 weeks, the minimum wage translates to $15,080 a year. That is more than the federal poverty level for a single person but is lower than the poverty level for a couple. In other words, if someone were trying to support a family by making minimum wage, they would qualify for federal poverty assistance.
The SEC regulates stocks, bonds, and mutual funds, making investing safer. The SEC also provides information to help you invest through Investor.gov. It provides basic education, such as how the markets work, asset allocation, and a review of the different retirement plans. It has a section on How to Select a Broker. It provides financial planning tools, such as how much you need to retire.
The FDIC insures savings, checking, and other deposit accounts up to $250,000 per account at each bank. For some joint accounts, the FDIC insures $250,000 per owner. The FDIC also examines and supervises about 5,250 banks, more than half of the total system.
When a bank fails, the FDIC steps in. It sells the bank to another one and transfers the depositors to the purchasing bank. The transition is seamless from the customer's point of view.