The New Deal Worsened the Great Depression

Why the New Deal Helped the American Economy Recover. A response to my opponent’s arguments My opponent is arguing that the New Deal’s attack on the private property rights of investors prolonged the great depression by a number of years. This follows that my opponent is arguing for the laissez-faire model of economics. In a sense he is arguing that the new deal, instead of helping the economy, worsened it. He proposes that the economy, if left to the private investors, would have recovered quicker. There are a number of problems with this point of view. Firstly, the UCLA study. The study did not include people employed in the new deal programs, such as the WPA and the CCC. 1 The study also made the assumption that the economy, if not interrupted by the new deal, would have an economic growth rate simply not possible during the great depression.2, 3 Other studies suggested that the unpopular fiscal policies made into law by F.D.R were not as harmful as speculated in the UCLA study. 4, 5 Also, the view expressed in the paper is not universally accepted. There are many sources that show that the NIRA was not responsible for all of the wage increases in the 1930’s.6,7,8,9 Another thing I would like to address in my opponents arguments is that you say economies recovering from a depression/recession grow rather fast. This is just untrue. While smaller economic crises tend to recover slower, and larger tend to grow quicker, each and every economic crisis is different. In fact economies that experience a banking crisis, such as the great depression, tend to have an unnaturally slow recovery rate.10 The great depression also had to deal with other factors such as the dust bowl,11 and still had a generally quick recovery rate. In fact the recovery rate from 1933-1937 “was the highest seen outside of wartime. Had the U.S. not had the terrible policy-induced setback in 1937, we, like most other countries in the world, would probably have been fully recovered before the outbreak of World War II. ”12 We have never had an economic downturn even proportional to the size of the great depression, so to say that every economic recovery is fast and the economy of the great depression would have recovered quickly unaided is not factually correct. The final error that my opponent makes is assuming that just because some aspects of the new deal worsened the depression, the entire new deal worsened the depression. He assumes that the leading factor in employment was private investors. The Roosevelt administration at times employed nearly 15% of the unemployed men in the 1930’s. The WPA alone employed an average of 2000 workers a year. Furthermore, graphs comparing nominal fiscal development and real fiscal development show that during the 30’s fiscal policy played a role, however small, in increasing economic growth. This can only mean one thing. No matter how worried investors were, the fiscal policy that Roosevelt adopted worked in improving the economy. Adding my own arguments. During the great depression, the unemployment rate decreased nearly 9% in 6 years. Papers, except for a select few, have shown again and again that the new deal did indeed help shorten the depression. 4, 13, 14, 15, 16 Furthermore, just saying that businesses, after suffering the worst economic collapse in history, would just start hiring again, is just utterly ridiculous. Finally I would like to state that the great depression had the greatest recovery rate 33-35 in the history of the United State. One of the most interesting things is that Fiscal policy when viewed by a number of studies played an insignificant role in economic growth.13 It was monetary policy that played the biggest role. I am only mentioning this because this is what the studies that I have read proposed. I understand that my opponent does not wish to discuss monetary policy, but I would remind him that to criticize me on the mention of monetary policy as saying that I am arguing that I am including monetary policy in my arguments would be a straw man. Furthermore, the same study as well as one by E. Carry Brown, a study you may or may not be able to access, states fiscal policy was unable to rejuvenate the economy “not because it does not work, but because it was not tried.” These studies proposed that if the scope of Roosevelt’s fiscal policy was bigger, than the economy would have recovered more. I would also like to state that there are studies pointing in all directions. The UCLA study, as well as some others can explain how private investors didn’t invest in the economy, thus making it worse. The real challenge is to determine which studies has the most evidence, and which side has more studies agreeing with it. After reviewing all the evidence I can collect, it is reasonable to say that the New Deal helped the great depression recover. As I stated before, some of the policies did nothing, and some policies hurt the economy, especially those that affected private investors. However, overall, F.D.R., along with the war, helped the American economy out of the great depression. The Great Depression was, undoubtedly, the worst economic downturn we have ever seen in recent history. Hoovers policy was to leave the economy alone, thinking that it would automatically stabilize itself. Of course, it doesn’t take much knowledge to realize that this did not work. Once FDR came into office, he immediately began fixing the depression. He fixed the banks, eliminated the gold standard, and enacted the New Deal(s). This program was analyzed in later years, and found to be a major contributor in shortening the length of the depression. There are some studies claiming otherwise, but the majority of studies since the great depressions have come to the conclusion that without the New Deal, the depression would have been far more severe. Sources: 1http://www.cobar.org...'NEWDEAL'%20(4)%2012.12.08.pdf 2http://www.openleft.com... 3 http://www.openleft.com... 4 http://www.levyinstitute.org... 5http://www.levyinstitute.org...( Page 10) 6 http://fraser.stlouisfed.org... (page 46) 7http://www.jstor.org... * 8 http://www.jstor.org... * 9http://pedrolains.typepad.com... 10http://www.kc.frb.org... 11http://www-personal.umich.edu... 12http://www.brookings.edu... 13http://elsa.berkeley.edu... (pages 766-769 for monetary vs. fiscal) 14 http://www.jstor.org... * 15 http://faculty-web.at.northwestern.edu... 16 http://www.j-bradford-delong.net... *To access jstor papers, you can use your local library, institution, if you’re in one, or possibly high school. If none of these options are available, hopefully the abstract will provide enough information.