The New Deal’s Capitalist Lessons for Joe Biden

In American politics, we talk a great deal about the New Deal, particularly in times of economic crisis. But our collective memory of its contents typically fails to include its most powerful parts.

The New Deal’s alphabet soup of job programs still loom large, and was doubtlessly a saving grace for millions of working men and their families. However the macroeconomic impact of President Franklin Roosevelt’s direct government employment programs was dwarfed by what I call the “Other New Deal”: low-cost government loans, ambitious housing insurance programs and tax subsidies that spurred major industries. Together, this resurrected private investment and loosened credit markets — the heart of the capitalist system — for businesses and everyday people.

As President Biden begins his presidency with razor-thin Democratic congressional majorities that could stymie future spending plans, these undersold successes of the New Deal provide him with a historical blueprint for how to creatively “Build Back Better.”

Take the Reconstruction Finance Corporation, or R.F.C., which was led by Jesse Jones, the Texan lumberman, developer and banker. Jones held a dim view of Eastern bankers, who believed they had already invested in everything worth doing. This glut of savings — that is, idle capital — could not be profitably invested, or so the bankers thought. (Somewhat similarly, despite the stable economy of the past decade, we’ve witnessed a glut of private savings as financiers focus on speculation in property and stocks .)

Housed under the R.F.C. were new organizations like the Federal Housing Administration, the Rural Electrification Administration and the Defense Plant Corporation. These agencies did not spend taxpayers’ money, but drew on that idle bank capital to finance large projects geared toward the public good.

Through low-interest rates loans and the unprecedented use of insurance underwritten by the U.S. government itself, these lending systems laid the foundation for the 20th-century American middle class and the nation’s ability to win the industrial battle that was World War II. Tens of billions of dollars (nearly a trillion today) were borrowed by the R.F.C. for reinvestment. Even more in private investment was promoted through insurance programs.