Forgetting the Why of the New Deal

Until the Great Crash of 1929, the federal government did little to regulate the power of Wall Street as it precipitated cycles of boom and bust that ruined the lives of many Americans. That history is now being forgotten as Republicans move to dismantle what’s left of the New Deal, says Lawrence Davidson.

By Lawrence Davidson

In the 132 years between 1797 and 1929, there was no effective regulation of the U.S. economy. No federal agencies existed to control corruption, fraud and exploitation on the part of the business class. Even during the Civil War, economic management on a national level was minimal and war profiteering common.

As a result the country experienced 33 major economic downturns which impacted roughly 60 of the years in question. These included 22 recessions, four depressions, and seven economic “panics” (bank runs and failures).

President Franklin Roosevelt

Then came the Great Depression starting with the crash of the New York stock market in 1929. This soon became a worldwide affair which lasted until the onset of World War II. Millions were thrown out of work, agricultural production partially collapsed, and the fear of rebellion and revolution was palpable both in the U.S. and Europe.

It is to be noted that the way capitalism worked over these 132 years was a function of ideology. This was (and still is) the so-called free-market ideology which taught that if the government was kept as small as possible (basically having responsibility for internal order, external defense, and the enforcement of contracts), the citizenry would have to pay very low taxes and be left alone to pursue their own prosperity.

Thus, as the ideology goes, everyone would be free to maximize their own wealth and in doing so also maximize the wealth of the community as a whole.

The Great Depression was a real moment of truth for the capitalist West because it suggested to the open-minded that the free-market ideology was seriously flawed. Free-market practices had brought the economic system to the brink of collapse, and Russia’s newly triumphant communists represented serious competition. So the question that had to be answered was how best to modify the capitalist system so as to preserve the position of the ruling elite.

It was President Franklin Delano Roosevelt who came up with an answer, at least for the United States. Through a series of economic and social experiments he crafted the New Deal and promoted the notion of the welfare state.

It should be emphasized that this was not socialism. In essence, the New Deal was capitalism with safety nets and subsidies. It meant that some entrepreneurs — in areas such as agriculture, defense and other businesses — actually got money from the government to produce their products.

On the other end of the spectrum, government money was made available to keep the really poor people from starving and the unemployed solvent while they sought new employment. A national pension plan was devised in the form of Social Security, and bank deposits up to a certain amount were insured.

In addition, new agencies were created to monitor business activities, particularly the stock market and the banks, to prevent the sort of activities that had brought on many of the economic downturns of the past. This was a major step away from the ideal of a wholly free market but most of the citizenry, with the Great Depression at their backs, understood the necessity of the New Deal. Of course, taxes would eventually have to go up to help pay for it all.

How Quickly We Forget

Essentially, Roosevelt and the New Deal saved capitalism from itself. Left to those, such as Herbert Hoover, who could not escape the paradigm of free-market ideology, capitalism in the U.S. may well have followed much of Europe in succumbing to the revolutionary movements of the Right or the Left.

It has been 67 years since the end of WWII and during that time there have been 11 recessions impacting only 10 years of that time span. Most of these recessions have been mild affairs compared to the 33 that came prior to the onset of the Great Depression, and the welfare safety net has helped the hardest hit to survive. However, since the 1980s, the U.S. economy has become more unstable and some of the downturns more severe.

What of the steadfast adherents to the free market ideology? It would have been nice for the world if the Great Depression had put an end to them all – but that was not to be. For those who can understand things only with the help of rigid and all inclusive paradigms, ideology is what makes sense of an otherwise chaotic world.

Ideology is also what defines good and evil for such minds. So it stood to reason that many committed free marketeers would retreat into a temporary silence and wait for a time to reassert their beliefs.

It did not take long. In fact, counting from 1939 and the outbreak of the World War II (the event that finally marked the end of the Great Depression), it took only until 1980 or 41 years. That is two generations which is actually just about right.

Unless purposefully passed on from one generation to the next, both skills and memories tend to dim and lose their meaning. So it has been with the memories of what unregulated capitalism cost the nation in the years before the New Deal.

Why did things change for the worse in 1980? That was the year Ronald Reagan, a B-grade actor and man of little intelligence, surrounded by neoconservatives and free marketeer ideologues, was elected president. Working within the context of generational forgetfulness, he set us all on a path toward deregulation and a resurgence of the free-market ideology.

It is to be noted that the country’s most recent recession (2007-2009) has been the worst of the post-war era and a direct result of prior deregulation.

We are still on that path and the living proof of this fact is that the Republican presidential candidate, Mitt Romney has just selected Rep. Paul Ryan of Wisconsin as his running mate. Ryan is the Chairman of the Budget Committee in the Republican-controlled House of Representatives and author of a proposed federal budget that would slash social spending (and those safety nets) by some $3.3 trillion, ditch Medicare and Medicaid, while simultaneously cutting taxes for the wealthy.

Ryan is no less than the reincarnation of a free marketeer who wants to recreate the circumstances that brought us all 33 major economic downturns crowned by the Great Depression. How quickly people forget.

Social Darwinism

It was University of California Professor Robert Reich who recently explained what Paul Ryan in a position of real power would mean. “More than any other politician today, Paul Ryan exemplifies the Social Darwinism at the core of the today’s Republican Party.”

And what is Social Darwinism? It is a belief in the necessity of a struggle for survival where only the “fittest” survive. Here is how William Graham Sumner, the 19th Century’s leading American spokesman for this outlook, put it. “Civilization has a simple choice. It is either liberty, inequality, survival of the fittest or not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.”

This may well be Paul Ryan’s version of the struggle between good and evil. By the way, liberty here is defined as the freedom of individuals to pursue wealth in an unfettered way.

Following this ideology, a Mitt Romney and Paul Ryan presidency would most likely increase the pace of deregulation and destroy what is left of the country’s safety nets. It would ultimately devastate the middle class, greatly increase the ranks of the poor and unemployed, do away with union rights, and reserve prosperity for the upper class alone. All of this will be done in the name of liberty. And, it will be guided by an ideological paradigm that has already been historically proven to be disastrous.

We can speculate about popular reaction to these policies as time goes on. There will probably be eventual protest in the streets. Those in power will respond with red-baiting tactics and repression against the protesting victims of their policies. Also, keep in mind that these ideologues will almost certainly bring us a new set of wars. And, as we already know, in wartime repression comes easier.

All in all it is a pretty grim picture. It was George Santayana (1863-1952), a philosopher with both Spanish and American roots who said that “those who cannot remember the past are condemned to repeat it.” We in the United States — so thoroughly attached to our local here and now — are certainly candidates for this fate.

Lawrence Davidson is a history professor at West Chester University in Pennsylvania. He is the author of Foreign Policy Inc.: Privatizing America’s National Interest; America’s Palestine: Popular and Official Perceptions from Balfour to Israeli Statehood; and Islamic Fundamentalism.

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5 comments on “Forgetting the Why of the New Deal

  1. These economic depressions always seem to happen when inequality of income is at its greatest, in my view this is not mere coincidence.

    The super-rich, through lobbying of politicians and ownership of the media, are able to continually press the case for more for themselves and less for everybody else. Superficially and in the short-term, it seems quite reasonable to suppose that a lower wage-bill will make a business more competitive. What is conveniently forgotten is that the ordinary citizens whose wages are cut (or even eliminated entirely) are also the main consumers of everyday goods. Eventually a situation arises where the rich are the only ones with any real money to spend. At first the extension of credit can partly replace the lost purchasing power but that doesn’t solve the basic problem, it simply defers the issue, at the expense of making it worse in the long term.

    The reason that the New Deal (and Keynesianism in general) actually worked, is that it transfered money, and hence purchasing power, back to the masses. The only real way to end the current phase of depression is is to redistribute wealth by making the super-rich pay taxes again and using that money to create jobs, preferably to renew the nation’s infrastructure. The estimated $21+ trillion dollars being hidden away in tax havens should be put back in circulation where it belongs.

    If the money gifted to the super-rich bankers had instead been distributed equally to all, then the debtors would have been able to keep up their mortgages and loan payments, and the toxic mortgage assets would have proven considerably less toxic. Those not in debt would have had more spending power leading to more demand for goods and at least some job creation. As it was, the bank bailouts simply transferred debts from the super-rich to the general public, making things even worse.

  2. Morton Kurzweil on said:

    There is a more simple explanation. We are herd animals. Survival of the species is the natural result of adaptation. Individual survival is a condition of species survival by fitness or luck.
    Groups form to survive. Humans form family groups, tribes and common cultures by defeating others for resources.
    The effect is the evolution of beliefs in the certainty of successful groups and the certainty of the values of that group.
    Each culture develops s fear of others, a paranoia inherited over generations.
    Justice, morals, divine intervention, good and evil and behavior control are genetically developed to insure group acceptance of common values. Religions and government demand behavior control through coercion. “Thou shalt not” is the commandment that sets the moral values of a tribe.
    In a heterogeneous society, with each tribe or sect fearful and prejudiced by the same genetic development
    kindness and charity are different among religious and political ideologies. Kindness and charity must be learned. They are not inherent values necessary for the survival of small minds in small social groups. Every culture that rise above the bigotry of the past to form peaceful and productive trade in goods and ideas, fell before the onslaught of the strongest, most extreme religious-political ideology within two generations. The great city-states of Babylon, Damascus, Cordoba, Cairo and Alexandria fell to anarchists. The democracies of Germany and Russia, fell to freely elected Nazi and Communist anarchists. We are on the edge of an abyss when we suggest that this election is a natter of women’s’ rights, states’ rights, balanced budget, or inequality. It is about the fall of democracy into the hands of self-righteous anarchists who actually believe in the certainty of their ideology. The fools are led by the same cynical hypocrisy that claimed every free people.

  3. Terry Washington on said:

    Ironic isn’t it- FDR , ridiculed as a “traitor to his class” by Republicans, was arguably responsible for saving capitalism from itself!

  4. jerry gates on said:

    Lawrence Davidson argues against Liberty for plunderers of citizen commons which stands against Theodor Rooseveldt’s New Deal, or the Marshall plan. Another perspective of the Mashall plans directorate and directives might consider Standard and Poor’s Hyde Park contingent, and explore how Rockafeller and Henry ford funded Hitler behind Rooseveldts administrations obfuscations and turned back. Was Mashalls plan to extract wealth from war behind the scenes of Rooseveldt’s new deal? Was the engine of New Deal the harbonger of doom to Jews suffering under Hitler? A lot of questioning of the actuality of the New Deal ought to be made if we seek to demonstrate our knowledge base going forward without repeating past errors in judgemnent as to how to grow wealth and if this path is sustainable.

    Churchill circumvented Ford and Rockefellar ,Warburg, Rothschild and Wallenberg but only with limited long term impact which can be metriced to show resolve towards peacetime prosperity such as alternative power for the engines of modern live to be the new deal, not saving the graceless fossil fuel industry from oblivion as the Tyrannosaur which it is by it’s dependence on agressionary violence as it’s engine of prosperity.

    Life isnt a toy to be parlayed for ideological resonings unbecoming of humanity in transition from such selfish motivations towards a more world inclusive group thinking which ponders every engine of prosperity’s costs accounted with interest upon future generations. If Democrats had proven their resolve to segregate zionist church from our democratic state, I might see the wisdom in Lawrences attitude against Ryan’s anarchist attitude and stumping for his ilk and mane but as it stands It was Rahm Emanuel whom ousted Elizbeth Warren from the dems beltway, not the GOP and zionist atheism which ousted Jesus from his post as advocate in Obama camp by creating the barrier between church and state in the commons which is non existant in the Obama administrations policy directives in foreign agressions. No room at the inn for messianic Jews as accepted in zionist world mentality means, to me, that it isnt the gop or the crats who cannot summon the resolve to examine self and reform, it’s the back channelite digressionist attitude of Jewish people which hampers reform in the back channels of all parties which Davidson obscures with his playing for affinity to the crats .It isnt my place to suggest that Obama might fail regulatory commissions more so than the GOP will, It isnt my place to seek redress of Obama’s policies and ask for better going forward because I dont beleive for one minute that this will ever come. The same people run both parties in medias well known for obfuscations and intransigence, all due to one siple truth, Rabbinical counsel advocates that all Jews advocate for all Jews, which stifles debate against some Jews which do need to reform their way of life, so that orthers may simply live in peace without the disgraces of their upper crust instilling fear in hearts inclined more towards justice and prosperity primarliy for Jews first then all others, including messianic Jews are subsumed as underclasses unworthy of even being considered as Jews let alone being included in prospeity across the board. Roosevelt allowed the inception of holocaust by his fear, that mistake should loom large in todays news, but as yet, no clear resistance to Obama’s obfuscation as to Palestine exist in Davidsons discourses. Why we might ask does this kind and gentle soul not see the evil forces behind Obama as the same ones behind Ryan and understand that both parties leave zero room at their inns for Jesus.