FDR's New Deal: Effective or Not?

The New Deal was an economic plan developed by Franklin D. Roosevelt, based on Keynesian Economics that was geared towards pulling the nation out of the Great Depression. Although it did not achieve its main goal, it steered the nation in the right direction so that it finally ended in 1943 when unemployment rates reached pre-Depression rates. However, many critics argue that the New Deal was not effective at all in ending the Great Depression because it caused an even greater debt after FDR left office. This may be true, but this is the main point of Keynesian economics by using deficit spending to increase aggregate demand, and in turn stimulating the economy. The New Deal “provided regulation for a modern financial economy, establishing the Securities and Exchange Commission, passing the Glass-Steagall rectrictions on banks, and creating deposit insurance. It established federal unemployment insurance, a minimum wage, and of course social security. It enabled unions to organize…eventually, it created the Bretton Woods framework for international trade and investment” (Jeff Madriek). For the first time in peacetime history, the federal government assumed responsibility for managing the economy. Although it may not have seemed like the New Deal did much at the time, looking back at it now, we see that it had many effects on the economy. The New Deal created millions of jobs. This is proven because the unemployment rate feel rapidly from 25% in 1933 to 14.3% in 1937. That means that almost half of the previously unemployed regained jobs within four years. However, when the government spending was cut back and the Federal Reserve tightened monetary policy, the unemployment rate fell back to 19% again, which means that if it had continued without the policies being changed, the unemployment rate probably would have continued to fall. Also, from 1933 to the end of FDR’s first term in 1937, the nation’s GDP rose by 9% a year. The capital investment also rose from $11 billion in 1933 to $91 billion in 1937. These statistics proved that the economy was in fact improving as the New Deal was taken into effect. In addition, the economy also improved because of World War II. Because the nation went into a wartime economy, this increased government spending on the military. This follows the Keynesian Economic theory of deficit spending, and it really did help economy by increasing cash flow within the nation. Wages doubled for all income groups. Social security also reduced elderly poverty rates from more than 30% to less than 10%. Also, TFP (total factor productivity) increased significantly during these years. It rose at rates that exceeded growth in most other decades, including the 1920’s (industrial age). New technologies, managerial innovations, scale economies due to growing demand, were all on the rise. The New Deal also resulted in the construction of much of the nation’s roads and bridges. These means of transportation made productivity for many businesses much more effective, which played a large part in increasing the TFP of the nation. Also, the capital stock of the nation’s roads, bridges, and new highways rose by 70% between 1929 and 1941, as well as the development of sewers and water systems. The construction also needed workers to do the labor. This created hundreds of thousands of jobs for the unemployed. The construction of these roads, bridges, and other forms of surface infrastructure would also have a long term benefit for the country. The investment in these roads would lay the groundwork for suburban development in the near future as well as a growing commercial economy after World War II. This ultimately improved the nation’s economy a great deal in the long run. In conclusion, Franklin D. Roosevelt’s New Deal was effective in improving the nation’s economy even though it did not achieve its purpose to end the Great Depression. It did however, achieve in steering the country towards the right direction, and would end the Great Depression soon after. The New Deal created millions of jobs for the unemployed. It also increased the nation’s GDP, capital investment, and TFP based on a Keynesian economic theory. It sponsored public works projects that reached almost every county in the nation. The war increased government spending and stimulated the economy, and many poverty rates were decreased, as well as wages increasing for many laborers. Much of this would not have happened if it were not for the New Deal, and therefore it proved itself to be an effective economic plan.