The new deal did not end the great Depression?

Question

TRUE or FALSE??

please please help

Answer 1

True. It did not.

After the recession in '29, and then worsening results through '31 largely due to the world reacting by closing its doors to each other, the deepest nail was driven as liquidity finally disappeared (bank runs, people not being willing to invest in anything (except oil) anymore, people drawing cash as they could out of operating businesses on the theory they would likely fail (a nicely fulfilling prophecy)).

The proper path to curing the worst ills worldwide was not to let all this run on and see where it would all end, then after one's curiousity was satisfied, fix it. World trade had to be re-established and liquidity restored. Do understand that the underlying problem was one of false (in the sense of wrong, incorrect, not in the sense of active lying) valuation of economic assets, to wit: companies via their stocks. So the cure had to also allow these to seek and find their true values.

Just because a stock was "worth" $100 in '28 doesn't mean it actually represented organic value. That value might have been $61. The additional $39 was always imaginary money like we saw with internet stocks some years ago. Today's credit crunch is the same thing: a great deal of money "existed" due to overvaluation of assets like stocks and property and had to be invested somewhere. This happens all the time. It is then lost in poor investments and stops "existing." It never was lastingly real so it is not, itself, a loss. The loss, or damage, comes from otherwise viable investments being affected by these corrections to the system and usually the most hurt are the least knowledgeable investors: your grandmother and the guy down the street with the E*Trade account. (Doing 23 trades a day does not make you knowledgeable.)

The problem that had to be addressed first was liquidity. If there is none, or little, there's almost no physical way for such corrections to work their painful way into and through the economy. It's akin to prices readjusting to take into account 10% higher priced oil/steel/labor/whatever. A manufacterer has to pay more, so charges a bit more, which makes a distributor charge more than he had, etc. Eventually consumers (you and I, other factories, offices, etc.) pay more. We then want more money in wages, or for our products even though they do not use the oil, say, directly. This knocks on, ebbing and flowing, until everyone settles at some new happy point. Actually, there is so much of it going on, we never really settle, but you get the idea. But imagine commerce itself has stopped. How then would this ever work its way into a smooth accomodation of the new facts? It wouldn't.

So Roosevelt's insight/demonic urge/genius (people vary as to which really drove Mr. New Deal) was to act as strongly as he could on the individual, the solitary citizen. Change his perception that any money he had that wasn't grasped in his very tightly closed fist was money simply lost, change his perception that any item imported was a theft of some citizen's family's meal, and you gradually get the money moving again. Then factories and shops see a floor to their losses and a way back. Workers begin to be re-hired. People have hope rise in them and believe a good future can exist. They stop opposing imports and start using banks again. Stock values rise a little giving people further confidence. An economy can perhaps claw its way back to a steady state.

He did this by going off the gold standard. No more strict matching of imports vs. exports every year with gold flowing one way and another between nations. Pain from this year's excess of imports could be delayed into future years easing the confidence problems the excess would have brought. He did it by forcing liquidity into the economy: no government can force you to spend and invest, but it sure can tax you and then spend and invest that money itself. The idea was to swamp the economy with cash flow this way (Tax it from people with actual cash and spend it which is pretty much what investment is: people with actual cash "spend" it on stocks, property, etc. The incentive to those with cash in this system is that, if they start investing again, they get to own something. If they continue holding back, then they are out the money and own nothing.) A knock-on idea was that if you did infrastructure projects like roads, dams, neighborhood clean-ups, government buildings, and you chose unemployed men (yes, men, not women) to do the work, you ended up with something durable that had economic use while also spreading the cash into consumer hands. Oh, you're spending huge amounts with companies who supply the various materials, but they will only hire a few workers and so you end up taxing those with cash just to give the cash back to them. Hire the unemployed by the million and the cash is spread vastly more widely and the effect of its investment (yes, every time you choose Burger King over McDonalds you are giving BK an investment, the profit they make on the sale) is correspondingly wider as well as being "true" investment in that it wasn't some banker tool who chose what to invest in but rather the end consumer helping to ensure that what end consumers actually value is invested in.

And he did this with great (as in "very effective" and as in "copious") use of publicity.

There is no doubt whatever, this was the way forward and was an extreme success. I say this as someone who is disgusted with the eventual outcome of the New Deal. There is no question whatever.

And the economy responded. The world did too, slowly. The New Deal had many admirers around the world who copied what they could stomach, or force on their people. Gradually world trade resumed. The world did not fall apart without annual gold shipments between nations.

However, like many men of vision, Roosevelt had only the one really worthwhile vision. And he wasn't the most adroit, regardless of received wisdom about such over the years, at accomplishing the details. He wasted much of the country's belief in his visions by heavy-handed power struggles in Washington. Imagine the gall of a President who thought he'd crush an entire branch of government because its court decisions displeased him. Your shiny new law is unconstitutional? Then write it again and use competent people to author it. Nah, let's just effectively throw out the Supreme Court. Can't? Oh. Let's add 30 new members that I'll pick from my cronies so it never votes "wrong" again.

This kind of thing polarized Washington and gave his opponents all the strength they needed to handcuff him. Even though he won in '36 with the biggest landslide ever. Note the dynamic this situation creates: now nothing can ever be admitted to be wrong, or even characterized as wrong, with the New Deal to date. It then follows that it can't be ended or redirected as it succeeds to build on its gains and to end parts of it before they become damaging. It also follows that one has to keep beating its drum, which is the understanding the public has of its actions and its goals: not its actual actions and goals.

The net result was that large parts of the New Deal that had served their functions and were now to become harmful were continued. We still have some of them today, 75 years later. New things that needed doing to react well to the improvements in the economy couldn't be done. And the economy tanked. It picked up, looked hopeful, peaked and tanked.

In 1938 we entered a recession definitively worse than the recession entered in '29 to '31. The rest of the world continued its own painful struggle back, but as they didn't have Roosevelt's political dynamic, they kept edging forward. Naturally, our recession harmed them and their own slow progress left them more vulnerable than they had to be. But after about '36, a few notable economies had begun their own New Deals, one might say, their own programs of tax and spend, only they chose to invest in huge armament programs with the millions of unemployed being hired into their militaries.

Unfortunately, one gets different ideas about how to go forward into the future when one has a couple million men in the army rather than building roads, dams, and public buildings. Those men have different ideas too. Now a recession brings forth and allows in a nasty feedback loop calls for something vastly worse than shutting off imports. World War II began.

And we sat back and sold to all comers, though we gradually began to favor the British and their few allies over the clearly agressor nations. But we built and exported our way out of the horrible hole Roosevelt had buried us in by 1938. The cost was more to our souls than anything, but we all felt that cost washed away when we eventually were forced into doing the right thing.

So TRUE. It did NOT end the Great Depression. It could very well have if Roosevelt had kept to his knitting and not made power plays meant for God alone knows what real reason. But as events played out, it did not.

Answer 2

It helped a lot, but it did not bring the nation back to the prosperity of the 20s.  The depression didn't really end until we got into WWII.