The Great Depression and the New Deal 1929

The Great Depression and the New Deal (1929 -41) Textbook chapters 8 and 9 Sections in this unit: Hoover First New Deal Second New Deal

The Great Depression Herbert Hoover elected 1928 Black Thursday: October 24, 1929 – Stock prices drop precipitously, eventually lose 80 percent of value by 1933 Buying on margin 90 percent – for stocks Bank failures, bank runs Most severe deflation in U. S. History (1/3) Unemployment level rises to 25 percent by 1933

Hoover Responds Republican Congress turns surplus into deficit Proposed Reconstruction Finance Corporation, Congress agrees (1932) – $2 billion in loans to get banks to lend Dust bowl: Farmers endure worst drought in 100 years – Impact increased by farming techniques Strikes based on wage cuts Bonus March on Washington

Hoover and “Austerity” Your textbook stresses Hoover talks about local solutions, but. . . Federal spending increases every year under Hoover (1929 -33), and at a faster rate than under Roosevelt (though Congress spends money). In current dollars, Congress increased federal spending an average of 23 percent per year under Hoover (1929 -33), compared with 13 percent per year under Roosevelt (1933 -40). Roosevelt increased from a higher base, however.

The New Deal The First New Deal (1933 -35)

New Deal First “ 100 Days” March 4: Inauguration “The only thing we have to fear is fear itself. ” March 5 -9: Roosevelt pronounces “Bank Holiday” March 12: Fireside chats begin March: CCC passed April: Gold standard abolished by Executive Order 6102 (Americans must turn in gold to Federal Reserve for $20. 67/oz. . . dollar officially valued at $35/oz. in 1935, though Americans can not get gold coins any more) May: Federal Emergency Relief Act, AAA, TVA, Federal Securities Act

Civilian Conservation Corps (CCC) One of the first New Deal programs (1933), and it survived until 1942 Built roads, bridges, dams, and engaged in conservation efforts Not very controversial (unlike NRA, and WPA in Second New Deal)

Agricultural Adjustment Administration (AAA) Created May 1933 Tried to keep agricultural prices up Bought and destroyed agricultural products to reduce excess supply. Also paid farmers not to farm. Taxed some farmers to pay for the subsidies, and some farmers sued to stop the tax. They won in the Supreme Court, in the 1936 case, U. S. v. Butler.

New Deal First “ 100 Days” Last day of 100 day session of Congress, the National Industrial Recovery Act is passed, creating the National Recovery Administration (NRA).

NRA: National Recovery Administration Symbol: Blue Eagle Sought to regulate prices and wages by combining industry with government Headed by WWI General Hugh S. Johnson Hollywood support for NRA enlisted: http: //www. youtube. com/watch? v=DZ-F-bh 4 Upo

Hugh S. Johnson Time magazine “Man of the Year” 1933 Creeped out Roosevelt’s Secretary of Labor Frances Perkins (first female cabinet member) by distributing The Corporate State by Mussolini’s favorite economist Raffaello Viglione. Time magazine said he gave a “fascist salute” during a New York City NRA parade Fell out of favor with Roosevelt after he rebelled against Roosevelt’s “court -packing” scheme

NRA rules included … Ban on pressing pants for less than $0. 40. One man jailed for pressing pants for only $. 035 Maximum of four strippers in a burlesque act Chickens can’t be picked by customers, they must be randomly picked. 10 million pages of rules and regulations

“The NRA was discovering it could not enforce its rules. Black markets grew up. Only the most violent police methods could procure enforcement. … They roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night. But without these harsh methods many code authorities said there could be no compliance because the public was not back of it. ” - New Deal Opponent John T. Flynn

Schechter v. U. S. (1935) Chicken farmer wanted to let customers pick out their own chickens NRA argued: In order for national rules to be uniform, chicken picking must be random Schechter flouted the NRA (like a lot of people) and took his case to the Supreme Court and won a 9 -0 decision. Court ruled that the legislature can’t delegate authority to the NRA abolished that year.

Schechter Case and “Fuhrerprinzip” Hitler’s Germany: “The Fuhrer's Orders have the Force of Law" Mussolini: “Duce, ” the “boss, ” also said “In every class, among all citizens, nothing is done against the state, nothing is done outside the state” U. S. Constitution begins: “All legislative powers herein granted shall be vested in a Congress…”

U. S. v. Butler (1936) “The act invades the reserved rights of the states. It is a statutory plan to regulate and control agricultural production, a matter beyond the powers delegated to the federal government. The tax, the appropriation of the funds raised, and the direction for their disbursement, are but parts of the plan. They are but means to an unconstitutional end. “ - U. S. Supreme Court, citing the 10 th Amendment to the U. S. Constitution.

Court-Packing Scheme After Schechter and Butler cases … Roosevelt proposes increasing the number of Supreme Court justices from 9 to 15 (giving him an opportunity to appoint a majority of justices). Congress refuses to consider the proposal, but by the end of his third term Roosevelt has appointed all the justices anyway.

New Deal Opponents From the right: American Liberty League: Al Smith and John W. Davis, Democratic Presidential nominees for 1928 and 1924 – seek repeal of New Deal spending/regulations John T. Flynn, progressive writer/author From the left: Fr. Charles Coughlin, radio talk show host and anti. Semite (sympathizes with some fascist policies) Louisiana Democratic Governor Huey Long (“Kingfish, ” Share the Wealth), assassinated 1935 Socialists, communists

The New Deal Second New Deal (1935 -39)

WPA: Works Progress Administration (1935) Largest New Deal Agency; 8 million employed in it at one time or another before it was abolished in 1943 Cost $7 billion 1936 -39 Built roads, bridges, airports, schools and other public buildings Labeled “make-work” by critics, Headed by Brain-Trust member Harry Hopkins (later revealed as a WWII-era Soviet spy by the Venona documents) who was known for “tax, spend and elect” quote (not a quote, but a paraphrase)

Fair Labor Standards Act of 1938 First national minimum wage of $0. 25 per hour (~$7. 00 in today’s dollars) Today the minimum wage is $7. 25 per hour ($8. 00 in Mass. ) Exempted farms, gratuity-based professions and some family businesses Prohibited child labor Guaranteed time-and-a-half for more than 48 hours per week.

New Deal Agencies Today FDIC: Federal Deposit Insurance Corporation (insured up to $25, 000) Social Security Administration (initial tax 1% for employers plus 1% for employees; today it’s a combined 15. 5%) Federal Housing Administration: Bank guarantees for home loans. FCIC: Federal Crop Insurance Corporation insures farmers against weather, climate change and pests.

New Deal Agencies Today, cont’d Fannie Mae: The Federal National Mortgage Association buys mortgages from banks to keep banks lending. (And recently precipitated the housing crisis) SEC: Securities and Exchange Commission regulates the buying and selling of stocks. TVA: Tennessee Valley Authority helped electrify rural areas of the Appalachian mountains. Also construction projects.

New Deal Agencies Today, cont'd Social Security Program Created from an idea by Francis Townshend, who proposed a national minimum income for retired people. Guaranteed a minimum income for people who worked and paid into the system and are over 65. Guaranteed income for people disabled on the job. Pays a $255 death benefit In 1960 s, partial medical treatment passed (Medicare) to program Pay-as-you-go program

Why the depression started Keynesian School: “Animal spirits, ” a stampede to buying stocks Too much investment in stocks Correction symptoms need to be fixed to a “liquidity trap. ” Austrian School (Hayek and von Mises) Low interest rates (easy credit) Animal spirits Too much investment in stocks Appropriate correction (recession is the cure)

Why did it last? Keynesian Government spending cuts in 1937 led to crash same year Austrian Too much government interference/ spending led to new economic bubbles, 1937 recession

Spending and Unemployment Under Presidents

Racial Change in the New Deal Roosevelt initiates “Black Cabinet” of African. American advisors (Federal Council of Negro Affairs) to advise him, including one woman, Mary Mc. Leod Bethune. In June 1941, he issued Executive Order 8802, creating the Fair Employment Practices Committee (FEPC), which prohibited discrimination in federal employment (not always followed).