The New Deal Was a Good Idea, We Should Try it

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Ms. Gordon is Florence Kelley Professor of History, NYU. This piece was presented at a panel presentation 4/15/2009 for the Harvard University Project on Justice, Welfare and Economics.

            Two new conservative books have repeated an old criticism of the New Deal: it didn’t end the depression.  Only WWII did.  The conclusion is quite correct, but the authors are completely wrong about the reasons, as any careful student of US legislative history should know.  There were two problems, by no means confined to the New Deal.

            A) Many modern state programs, whether created by executive order or by legislation, are never funded to the extent necessary to realize them, and as a result we never know if they would have worked or not.  This problem is characteristic of government activity in many areas, domestic and foreign, and particularly in regulatory systems mandated but without adequate inspection or enforcement personnel. Hundreds of initiatives fall into this category, from drug treatment to pollution control to foreign aid to public education to record maintenance to transportation to the War on Poverty. 

            B) Particularly common to welfare-state programs, in the larger sense of welfare that includes health care, education, and attempts to alleviate poverty, is a two-tier structure that provides the least for those who need the most.   These tiers are often counter-intentional and counter-intuitive: one level of generous and honorable benefits from the relatively prosperous, and another that is stingy and disreputable for the poor.   The two tiers function to create inequality in several ways:

  • the neediest are often excluded altogether from the better programs
  • programs provide more government funds go to the prosperous than to the poor
  • payments to the prosperous are disguised, sometimes intentionally as with Social Security Old Age Pensions, so as to be unnoticeable while payments to the poor are extremely public and, thus, both stigmatizing and resented.  Only the latter are typically called redistributive.

As a result of these two problems, we have no basis for evaluating how well New Deal programs would have stimulated the economy had they been implemented as intended.  We do know, however, that the actual, historic New Deal has a mixed record on alleviating the kinds of economic inequality that helped produce the Depression in the first place.

New Deal programs have, in fact, an impressive record of accomplishment.  In terms of what we today call stimulus, they decreased unemployment and increased production and general wellbeing remarkably.  Between FDR’s inauguration and 1936, production doubled.   Unemployment fell from 25 percent to under 10 percent in that period.  Incidentally, according to James Galbraith’s recent testimony before the Senate Committee on Banking, the charge that the New Deal did not increase employment radically rests on a truly absurd maneuver: the critics don’t count federal WPA and PWA employment.  This is like counting a construction worker building a military airplane under a government contract with a private company as employed while categorizing a worker building the Lincoln Tunnel and paid directly by the federal government as unemployed.

This formidable progress was then interrupted by Roosevelt’s decision to cut public relief and jobs, which led to the disheartening depression of 1937-38.  It’s worth examining that decision, because it arose from a panic that is being reproduced today, about the sheer size of spending and deficit.  In 1983 under Reagan, the budget deficit of $209 billion was 6 percent of the GDP.  Today that 6 percent of GDP would yield a deficit of $840 billion.  The sky didn’t fall in 1983 and it won’t in 2009.

The New Deal helped a lot of people survive and even live better.  It also moved into citizenship large numbers of people previously excluded from any kind of state benefits.  But its discriminatory practices also helped create the growing inequality on which today’s crisis rests.  As we defend government activism, we also need to scrutinize closely what the New Deal did wrong, and to recognize that it did these wrong things on a grand scale. 

The most obvious example of category A is relief, including public jobs–what is today called “stimulus.”  These were far and away the most popular of New Deal programs, especially the jobs, but they helped only a fraction of those who needed help.  A few examples:  The most generous program, the first one tried, known as Civil Works Administration, offered 4 million jobs to an acknowledged 10 million unemployed persons.  Big cities had even higher proportions of those without help.  For example, in NYC the CWA offered 125,000 jobs for 1.25 million unemployed.  If we were to add in the uncounted unemployed, and the vast numbers of underemployed, we might assume conservatively 20 million in need of jobs, 20 percent of which were helped directly.

Then, Category B, New Deal relief systematically excluded the most desperate from its aid.  Because work relief was administered by local authorities, people of color found it much harder to get onto relief rolls.  Those who did suffered  further discrimination because they so often got lower stipends.  In San Antonio whites needed $35 a month, the local relief administrators figured, while to Mexicans $12-15 represented a fortune because, it was alleged, all they liked to eat anyway was beans, grease and cornmeal.  The same division prevailed in the southeast between whites and blacks or even between whites and “white trash.”   When people of color got WPA work, they were often segregated into stereotyped, low-wage tedious jobs.  The proportion treated in this way was greater in states with a high proportion of minorities, in New Mexico as well as Mississippi. 

Discrimination against women was equally serious but less visible, because of the blinding power of the assumption that all women had male support, from a father or a husband.  In 1934 federal relief was providing for 358,000 female-headed households while they probably numbered 2.3 million.  Even the feminist designers of the first federal welfare program for lone mothers underestimated their numbers by a factor of ten.   Many state relief officials enforced morals tests on potential female but not male recipients.  When there was a man in the family, relief checks always went to him, although moneys paid this way were less likely to be shared throughout a family. 

The most overt discrimination may have been that in the public works programs.  Of 1.6 million collecting work relief in 1934, only 142,000 or 11 percent were women.  The CWA gave women 7 percent of the jobs.  The federal emergency relief programs  did better, giving women 12 percent of the jobs–but women were 25 percent of the unemployed, even in official figures.  But these figures seemed to many less “real,” since unemployed women presumably had a man supporting them, and because employment for women was still regarded as exceptional and not fundamental to a family economy.  The standard that women did not have the same entitlement to jobs that men did was very widespread.  Relief boss Harry Hopkin’s policy rested on the assumption that women were not accustomed to real jobs and/or were accustomed to low wages and poor working conditions.  So in dealing with the "women business," as he called it, he put women in the category of unemployables along with "derelicts" and many of those who were employed were assigned to make-work jobs, even sweatshop-like sewing projects. 

Similarly the Social Security and labor protection programs excluded those most in need.  Because Roosevelt capitulated to powerful southeastern and southwestern Senators and Congressmen, agricultural and domestic workers and employees of small operations were excluded from the best programs.  This left most people of color and most employed white women without old age pensions, the right to unionize, or the right to claim protection from the Fair Labor Standards Act (1938).  We need to understand this not only as absolute but also as relative deprivation.  While excluding some, these programs eventually served to move many of their recipients upward in the class pyramid, reaching upper-working class or even solidly middle-class economic positions.  (Nothing is more illustrative of this than the truly impressive reduction in poverty among elderly social security pensioners since 1939.)  In other words, the permanent programs worked not just to suppress some but to elevate others.  They happened, of course, because a major crisis had hurt the majority of US residents; and national crises like these also provide opportunities for fundamental change, opportunities not usually present to such a degree.

Meanwhile, the system of taxation behind these programs put more of the burden on the poor. Social Security taxation is unusually regressive, exempting all earnings above $106,800--so that middle-class and lower-income workers pay a much higher percentage of their earnings than do the wealth--and exempting unearned income–interest and profits–altogether. 

Another vivid example of two unequal tiers was the New Deal housing program.  The New Deal invested federal money in public housing for the first time, and FDR’s housing committee envisaged large-scale development with high design values.  A group of visionary architects and planners, who called themselves housers, devoted their energies to designing for the poor and working class.  But when Robert Wagner’s housing bill finally passed in 1937 it had been eviscerated by stingy funding, local control which allowed segregation, means testing and other limitations.  As a result these projects often became slums within a decade.   Housing benefits for the middle class were vastly superior.  FHA mortgage insurance (created by the Fair Housing Act of 1934)  guaranteed risk-free lending and required up-to-code dwellings while allowing lenders to discriminate against even prosperous nonwhite buyers. 

The home mortgage interest deduction is the federal government’s largest tax expenditure (a tax expenditure is the revenue loss due to exclusions, exemptions, deductions, nonrefundable credits, and preferential rates, etc., in the tax code) and it alone will cost the federal government $89.4 billion in 2009.  It is a sharply regressive subsidy:  Today 13 percent of those earning up to $30,000 can claim this deduction, as compared to 50 percent of those earning up to $75,000 and 76 percent of those earning over $200,000. Probably more than half of homeowners get no benefit from this deduction because their earnings don’t merit claiming it or itemizing deductions at all.  In fact, the entire structure and culture of the American fixation on homeownership as a mark of citizenship, security and prestige has been a major factor in worsening inequality.

Or consider the New Deal’s agricultural programs.  Despite the efforts of Rexford Tugwell, the Agricultural Adjustment Act functioned as a system of subsidies to large growers.  The program not only discriminated against small and nonwhite farmers but actually caused the eviction of many tenant farmers who were forced into the army of migrant farmworkers.  Roosevelt originally hoped for better, appointing progressives to the Department of Agriculture only to have them purged and/or marginalized by the conservative culture of the department.

Similarly with labor legislation.  The National Labor Relations Act (1936) and FLSA excluded the same groups already excluded from Social Security–domestic workers, agricultural laborers, and employees of small businesses.  Once again the losses were not just absolute but relative, because unionization and enforced labor standards brought many working people to middle-class level incomes and standards of living while those excluded  fell behind.

Those who study or practice politics know that it is all about compromise, and usually conclude that a little is better than none.  But sometimes the historical evidence points to more serious, even destructive consequences.  When compromises lead to increased inequality, we need to think about consequences more seriously.

There are many arguments against inequality, foremost among them that it often constitutes suffering and injustice, and that too much of it is incompatible with democracy.   But as a final word let me focus merely on one policy-feedback issue: That inequality is not only self-perpetuating but self-augmenting, and the kind of inequality built in to domestic welfare and relief programs particularly so.   A prime example was the resentment that built around what came to be called “welfare”–a resentment that usually rested on the misimpression that welfare recipients lived idle lives on taxpayers’ money, while Social Security OAP recipients lived on their own money.  The declining levels of social solidarity that result from the unequal, mystified and even deceptive operation of domestic programs created a downward vicious cycle which ever more disfranchised the poor and empowered the wealthy.  As Christopher Jencks pointed out in a recent essay, citing Larry Bartels, an empirical study of Senators showed that their voting records matched the views of their most affluent constituents and that they “appeared to put no weight at all on their poorest constituents’ views.”  Thus every further inequity makes it harder to overcome inequality and to build support for public wellbeing.   Precisely because crises like today’s afford opportunities as well as pitfalls, we ought to pay close attention to equity in the structure as well as the distribution of public resources.

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