Roosevelt Recession

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  The Achievement of American Liberalism

  The New Deal and Its Legacies

  • William H. Chafe, William Chafe(Authors)
  • 2002(Publication Date)
  • Columbia University Press

    (Publisher)

  He ordered draconian relief reductions for the fiscal year that began July 1. By then also, the one-time-only shot of the bonus payment had made its impact. Federal Reserve policy, as was the case throughout the thirties, did some inadvertent damage; fear-ing inflation, although unemployment was still at double-digit rates, the Fed pushed up interest rates. (Roosevelt’s Federal Reserve chairman, Marriner Eccles, is usually remembered as a strong advocate of deficit spending; he was also a sound Mormon banker who spent much of his career fixated on the adverse consequences of loose monetary policies.) The result was a recession that might fairly be styled a mini-depression. In a matter of months, unemployment rocketed toward 20 percent; as late as 1939, it averaged 17 percent. 12 Looking back, it appears that the Roosevelt administration almost inadvertently had set a recovery process in motion with no real plan for managing it. What could have been the crowning suc-cess of the New Deal became instead its most conspicuous failure. THE PROBLEM OF ECONOMIC RECOVERY: WAS THERE AN UNTAKEN PATH? In February 1938, as the “Roosevelt Recession” was plumbing its depths, the president received a lengthy letter from the renowned English economist John Maynard Keynes. Stripped to its essentials, the communication had two central lines of advice: back off from unproductive fights with the business community and resume a program of strong government spending, espe-cially in such socially desirable areas as working-class housing. 13 Roosevelt answered with a friendly, noncommittal reply. Two months later, after an in-high tide 29 tense debate among his advisers, FDR initiated a period of higher relief ex-penditures; the move halted the downward economic spiral. But the renewed spending was too little and too late to bring the country back to where it had been in 1936, much less to full recovery; and neither the administration nor Congress was prepared to go much farther.

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  A History of Big Recessions in the Long Twentieth Century

  • Andrés Solimano(Author)
  • 2020(Publication Date)
  • Cambridge University Press

    (Publisher)

  11 2.2 Business Cycles, Recessions, Depressions, and Recoveries and protracted contractions in economic activity. Some may apply the term “depression” to permanent decelerations in output growth relative to some historical averages. The term “depression” is often attributed to US president Herbert Hoover who used it to describe the slump affecting the US economy in the period between 1929 and 1933, characterized by mas- sive bank failures, output contraction, high unemployment, plummeting investment, and pessimistic expectations (see Chapter 4). In the nineteenth century, when the system of national accounts as we know it today was in its infancy (or simply it did not exist), the term “depression” was used to describe episodes of financial instability, bank failures, and market panic. For example, the panics of 1819, 1873, and 1907 were defined as “depressions.” Nowadays, a Great Depression encompasses an economy in serious dis- tress, a situation that combines severe features of market destabilization, panic, and stress along with company bankruptcies, output contraction, investment collapses, rising unemployment and poverty. 7 8 9 10 11 12 13 2 3 4 5 6 7 8 9 10 Output Level Quarters (a) Inial trend line Temporary output loss Output 7 8 9 10 11 12 13 2 3 4 5 6 7 8 9 10 Output Level Quarters (b) Permanent output loss Inial trend line Output Figure 2.2. Transitory and permanent deviations from trend. Level of Real Output Time Figure 2.1. The phases of a business cycle. 12 Recession and Depression Economists have developed alternative empirical definitions for clas- sifying an event of economic contraction as a depression. To quote at least three of them: Definition I: a drop of total GDP above 10 percent combined with an unemployment rate over 20 percent of the labor force. In chapter 1 we define depression as a decline in GDP per capita above 15 percent. Definition II: a decline in GDP that lasts at least three years.

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  The Climax of Capitalism

  The U.S. Economy in the Twentieth Century

  • Tom Kemp(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  Thus, at any rate in its early years, the New Deal owed nothing to the 'deficit-spending' and 'pump-priming' remedies for depression of the sort proposed by the British economist J. M. Keynes and advocated also by American economists like Alvin Hansen. Keynes showed that a market economy docs not necessarily bring about the full employment of labour and resources because of the deficiency in demand which it tends to generate. Government spending can, and should, fill the gap; by its overall regulation of demand, the state can thus bring about a higher level of employment than would result from the free operation of market forces. Hansen was the best-known advocate of these theories in the United States, urging that fiscal policy should be used to prevent depression. These ideas gradually made their way in the economics profession, achieving the status of a new orthodoxy from the 1940s until the 1970s, when they came under increasing criticism. Roosevelt was not a follower of Keynes, but the British economist did have some influence on the thinking of the New Dealers. The recession of 1937 (see below) appeared to be a confirmation of the Keynesian analysis and the policy of government deficit spending as an anti-cyclical remedy.

  Immediately after his inauguration, Roosevelt had to deal with the breakdown of the banking system. His response was to declare a national bank holiday and secure the passage of an emergency banking act to prop up ailing banks with state funds. The public having been reassured by the first of his broadcast 'fireside chats', confidence in the banks came back and they were re-opened within a week. Roosevelt followed this with an economy measure: ex-servicemen's pensions and the pay of federal employees were cut. Prohibition was ended and the breweries and distilleries were back in legitimate business. Thereafter, during the rest of the first hundred days of his administration, a stream oflegislation was passed, constituting the first version of the New Deal. The new economic policy was represented above all by the National Industrial Recovery Act (NIRA), the Agricultural Adjustment Act (AAA) and the Securities Act. Drawn up in haste and under pressure, they received widespread support and were taken as an indication that the administration intended to deal with the depression as a national emergency.

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  The American Pageant, Volume II

  • David Kennedy, Lizabeth Cohen(Authors)
  • 2019(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Admit-ting that there had been some waste, they pointed out that relief—not economy—had been the primary object of their multifront war on the depression. 31.15 Our Skipper This pro-FDR cartoon depicts a confident Roos-evelt ignoring his critics while head-ing cheerily toward economic recovery. In fact, FDR’s New Deal brought neither the recovery he promised nor the ruin his detractors prophesied. The depression dragged on with only periodic improvement for nearly eight years under his leadership, until the cata-clysmic emergency of World War II finally banished unemployment from the land. The Granger Collection, NYC — All rights reserved. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. The Legacy of the New Deal ● 767 How Radical Was the New Deal? In this view, though Roosevelt never found a means short of war to bring about economic recovery, he shrewdly utilized the stub-born economic crisis as a means to enact sweeping reforms. Some leftist scholars writing in the 1960s, however, notably Barton J. Bernstein, charged that the New Deal did not reach far enough. This criticism echoed the socialist complaint in the 1930s that the depression represented the total collapse of American capitalism and that the New Deal had muffed the chance truly to remake American society. Roosevelt had the chance, these historians argued, to redistribute wealth, improve race relations, and bring the giant corporations to heel. Instead, said these critics, the New Deal simply repre-sented a conservative holding action to shore up a sagging and corrupt capitalist order.

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  A People and a Nation, Volume II: Since 1865

  • Jane Kamensky, Carol Sheriff, David W. Blight, Howard Chudacoff(Authors)
  • 2018(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  The episode had a final, ironic twist. During the long public debate over Court packing, the ideological center of the Supreme Court shifted. Key swing-vote justices began to vote in favor of liberal, pro–New Deal rulings. In short order, the Court upheld both the Wagner Act and the Social Security Act. Moreover, a new judicial pension program encouraged older judges to retire, allowing Roosevelt to appoint seven new associate justices in the next four years, including such notables as Hugo Black, Felix Frankfurter, and William O. Douglas. In the end, Roosevelt got what he wanted from the Supreme Court, but the Court-packing plan damaged his political credibility. 22-6b Roosevelt Recession Another New Deal setback was the renewed economic reces- sion of 1937–1939, sometimes called the Roosevelt reces- sion. Despite his use of deficit spending, Roosevelt had never abandoned his commitment to a balanced budget. In 1937, confident that the depression had reversed, he began to cut government spending. At the same time, the Federal Reserve Board, concerned about a 3.6 percent inflation rate, tight- ened credit. The two actions sent the economy into a tailspin: unemployment climbed from 7.7 million in 1937 to 10.4 mil- lion in 1938. Soon Roosevelt resumed deficit financing. The New Deal was in trouble in 1937 and 1938, and New Dealers struggled over the direction of liberal reform. Some urged vigorous trust-busting; others advocated the resurrection of national economic planning as it had existed under the National Recovery Administration. But in the end, Roosevelt rejected these alternatives and chose deficit financ- ing as a means of stimulating consumer demand and creating jobs. And in 1939, with conflict over the world war that had begun in Europe commanding more and more of the nation’s attention, the New Deal came to an end. Roosevelt sacrificed further domestic reforms in return for conservative support for his programs of military rearmament and preparedness.

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  An Economic History of the United States

  Connecting the Present with the Past

  • Mark V. Siegler(Author)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  366 18 Recessions, Depressions, and Stabilization Policies The growth of the American economy has gone through great fluctuations around its impressive long-run trend. In some periods, real GDP is above its long-run trend (as it was during World War II), while in other periods growth is negative and below its long-run trend. For example, during the Great Depression from 1929 to 1933, real GDP fell by over 25 percent, while the unemployment rate exceeded 20 percent. In the Great Recession, real GDP fell by more than 4 percent from the second quarter of 2008 to the second quarter of 2009. These ups and downs in aggregate economic activity are called economic fluctua-tions or business cycles. The term “business cycles” is somewhat of a misnomer since they are not cyclical in nature, but occur at irregular intervals, and with differing degrees of severity. In recent years, “economic fluctuations” has been the preferred term, so this is what is generally used throughout the chapter, but “business cycles” and “economic fluctuations” are synonymous. This chapter discusses how and why the economy fluctuates, and looks at some of the more dramatic episodes in U.S. history. Because of its depth and duration, there is particular emphasis on the Great Depression of the 1930s. The Great Inflation of the 1970s and the Great Recession from 2007 to 2009 are also discussed. Recessions, Depressions, and Stabilization Policies 367 18.1 MEASUREMENT AND PROPERTIES OF ECONOMIC FLUCTUATIONS The National Bureau of Economic Research (NBER) defines and determines official U.S. business cycle dates. While most would assume that the “National Bureau of Eco-nomic Research” is a government agency, it is actually a private, nonpartisan, non-profit, research institution, founded in 1920. The NBER Business Cycle Dating Committee consists of nine prominent economists who determine when the U.S. economy has entered a recession and when an expansion has begun.

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  The Defining Moment

  The Great Depression and the American Economy in the Twentieth Century

  • Michael D. Bordo, Claudia Goldin, Eugene N. White, Michael D. Bordo, Claudia Goldin, Eugene N. White(Authors)
  • 2007(Publication Date)
  • University of Chicago Press

    (Publisher)

  2.5 Unemployment and the budget, 1920-40 Sources: U.S. Bureau of the Census (1975) and CEA (1996). execution of his entire Federal Reserve Board, ending the section in his Mem- oirs dealing with 1920s Federal Reserve policy with the accusatory: “There are crimes far worse than murder, for which men should be reviled and pun- ished” (1952, 3: 9, 14). 2.2.2 Depression-Era Deficits If Herbert Hoover regarded his presidency as a success or failure depending on whether he managed to keep the budget balanced, his presidency was a failure. The federal budget swung from substantial surplus at the start of Hoo- ver’s presidency into a deficit of 3 percent of GDP or more-partly as a result of congressional override of Hoover’s veto of the veterans’ bonus; partly as a result of “extraordinary” relief expenditures; and mostly as a result of the col- lapse in the nominal collections of a relatively progressive tax system, as real national income and the price level fell in the slide into the Great Depression. Figure 2.5 shows the pattern of deficits and official unemployment rates dur- ing the interwar period. The 1920s see relatively low official unemployment, in the 3-8 percent range, with government surpluses established to reduce the World War I debt in the range of approximately 1 percent of national product. By contrast, the 1930s see unemployment in the 15-25 percent range. And the federal deficit varies from near 1 up to 6 percent of national product. Swings in the deficit associated with swings in the unemployment rate in the interwar period are substantial. On average, a 5 percentage point increase in the unemployment rate is associated with a 1.6 percentage point increase in the deficit, measured as a share of actual national product. During the Hoover and the first Roosevelt administrations, these deficits 78 J. Bradford De Long 2% 1 1% 0% -1 % -2% -3% -4% Full Emdovment Balance -5% 1922 1926 1930 1934 1938 Fig.

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