The Fallout and Recovery of the American Economy

Roosevelt’s Rise to Power The Democratic party nominated New York governor Franklin Delano Roosevelt, where he flew from New York to Chicago to deliver the first acceptance speech ever made to a nominating convention. Franklin Roosevelt’s policies for ending the Depression was known as the “New Deal.” On election day, Roosevelt won the elector vote , and received 23 million in the popular vote ; Hoover = 16 million Although Roosevelt won the Presidency, the country’s unemployment rate continued to rise; meanwhile, bank runs greatly increased, further threatening the nation’s banking system. – Some bank runs occurred because of the fear FDR would abandon the gold standard and reduce the value of the dollar in order to fight the Depression. – Under the gold standard, one ounce of gold equaled a set number of dollars; to reduce the value of the dollar, the government would have to stop exchanging dollars for gold. Across the nation, people stood in long lines with paper bags in hand to withdraw their money from the banks. By March 1933, over 4,000 banks had collapsed. In 38 states, governors declared bank holidays – closing the remaining banks before bank runs could put them out of business.

The Hundred Days Begins Roosevelt and his advisors, often referred to as the “Brain Trusts,” came into office bursting with new ideas on how to solve the Depression. Between March 9 and June 16, 1933, Congress passed fifteen major pieces of legislation to defeat the economic crisis; came to be known as the Hundred Days. FDR’s advisors were divided into three main groups: – The first group supported the “New Nationalism” of Theodore Roosevelt where government and business should work together to manage the economy. – A second group distrusted big business and blamed business leaders for causing the Depression; they wanted government planners to run key parts of the economy. – A third group supported the “New Freedom” of Woodrow Wilson, blaming large trusts for the Depression; they also believed the government had to restore competition to the economy.

Fixing the Banks and the Stock Market One day after Roosevelt had taken office, he declared a national bank holiday and called Congress into a special session; when Congress convened, the House unanimously passed the Emergency Banking Relief Act after only 38 minutes of debate. – Required federal examiners to survey the nation’s banks and issue the Dept. of Treasury licenses to those that were financially sound. On March 12, 1933, the President addressed the nation by radio in what he called “fireside chats.” – During fireside chats, FDR would directly speak to the American people, telling them exactly what he was hoping to accomplish. – He told the American people that their money would now be secure if they put it back into the banks; helped alleviate the bank crisis. Although the President had restored confidence in the banking system, many of his advisors who favored trust-busting and fair competition urged him to go further. New regulations for banks and the stock market were implemented with the Securities Act of 1933 and the Glass-Steagall Banking Act.

Fixing Banks and the Stock Market (Cont.) The Securities Act of 1933 required companies that sold stocks and bonds to provide complete and truthful information to their investors. The following year, Congress established the Securities and Exchange Commission (SEC), to regulate the stock market and prevent fraud. The Glass-Steagall Act seperated commercial banking from investment banking. – Commercial banks could no longer risk depositors’ money by using it to speculate on the stock market. To further protect depositors, the Glass-Steagall Act also created the Federal Deposit Insurance Corporation (FDIC). – FDIC would provide government insurance for bank deposits up to a certain amount. – This greatly increased the public’s confidence in the banking system.

Spending and Relief Programs Many of Roosevelt’s advisers emphasized tinkering with prices and providing debt relief in order to cure the Depression; however, others maintained that the fundamental cause was low consumption – people were not buying enough products to get the economy out of debt. Civilian Conservation Corps (CCC): – Most highly praised of the New Deal programs; gave unemployed men between the opportunity to work under the national forestry service planting trees, fighting forest fires, and building reservoirs. Federal Emergency Relief Administration (FERA): – Created to channel money to help state and local agencies fund relief projects. Public Works Administration (PWA): – Would create a series of construction projects to build and improve highways, dams, sewer systems, water works, schools, and other government facilities. Civil Works Administration (CWA): – Hired workers directly and put them on the federal government’s payroll – Improved 1,000 airports, 500,000 miles of roads, 40,000 school buildings, parks, and playing fields

The Second New Deal and its Challenges Support for the President and the New Deal began to fade by 1935; members of both parties criticized FDR’s plan for regenerating the American economy. Roosevelt had abandoned the concept of a balanced budget and started borrowing money to pay for his programs (deficit spending). Groups like the American Liberty League were formed to show opposition to the New Deal legislation. In January 1935, FDR began asking Congress for $5 billion for the Works Progress Administration (WPA). – Over the next several years the WPA spent close to $11 billion; its 8.5 million workers constructed 650,000 miles of highways, roads, and streets, 125,000 public buildings, and improved over 124,000 bridges and 853 airports. – The WPA’s most controversial program was “Federal Number One.” Offered work to artists, musicians, theater people, and writers The Social Security Act: – Major goal was to provide security to the elderly and for unemployed workers. – Bill would provide monthly retirement benefits and unemployment insurance. – Workers earned the right to collect the benefits through paying premiums while still in the work force.

Millions of voters owed their jobs, their bank accounts, their homes, and in some cases their lives to Franklin Roosevelt. Democratic Party membership began to shift from mainly white Southerners to include farmers, laborers, African Americans, immigrants, women, and progressives. African Americans and women made moderate gains in government, with the President appointing Mary McLeod Bethune to the director of the Negro Division of the National Youth Administration (NYA) and by appointing Francis Perkins to Secretary of Labor, making her the first woman to serve in a Presidential Cabinet position. Roosevelt’s opposition in the Election of 1936 was Kansas Governor Alfred Landon (R). FDR won the election in one of the greatest land-slide victories in American history. Election of 1936

The Court-Packing Plan The Supreme Court did not support the President’s New Deal programs. In January 1936, the Court declared the Agricultural Adjustment Act to be unconstitutional, and there was fear that the Court would declare other New Deal programs to be the same. Roosevelt, furious that the Court was holding back the will of the majority, sent a bill to Congress that would increase the number of justices: – Any justice who had served for ten years had to retire within six months after reaching the age of 70. – If they did not, the President would be allowed to appoint an additional justice to the Court. The “court-packing plan” as it was called was FDR’s first big mistake as President; it looked like the President was trying to interfere with the Constitution’s principle of the Separation of Powers. The court-packing plan split the Democratic Party; many Southern democrats feared Roosevelt would put justices on the Court that would overturn segregation. At the same time, African Americans were fearful that a future President could put an all-white Court together. The Senate quickly killed the plan before it even came to a vote.

The Roosevelt Recession In late 1937, Roosevelt suffered yet another blow to his administration when unemployment suddenly surged. Roosevelt decided it was time to abandon some of the ideals of deficit spending and balance the budget. FDR cut spending just as the first Social Security payroll taxes removed $2 billion from the economy; almost immediately the economy plummeted and 2 million people were out of work. This recession led many to debate whether or not Roosevelt had the right concept on how to fully recover the American economy. FDR’s advisers wanted to cut spending dramatically in hopes of encouraging business leaders to invest in the economy, while others wanted to adopt the beliefs of John Maynard Keynes, an influential British economist. – Keynesianism – In 1936, Keynes published a book that discussed the causes of recession – Government should spend heavily during a recession in order to jump start the economy.

The Last New Deal Programs Despite Roosevelt’s idealistic goals, the fight over the court-packing scheme and the recession weakened FDR politically. The National Housing Act: – FDR wanted to provide better housing for the nation’s poor; created the United States Housing Authority to subsidize loans for builders willing to buy blocks of slums and build low-cost housing. – Promoted by Eleanor Roosevelt The Farm Security Administration: – Gave loans to tenant farmers to purchase land for farming – Many members of Congress kept appropriations low, believing the plan would make agricultural problems worse. The Fair Labor Standards Act: – Gave protection to workers, abolished child labor, and created a 40-hour work week for workers.

Legacy of the New Deal The New Deal had limited success but gave Americans a stronger sense of security and stability. The New Deal operated to balance competing economic interests. – Business leaders, farmers, workers, consumers, homeowners, and others looked to the government to protect their interests. The New Deal’s mediating role established the “broker state;” helped work out conflicts among different interests. The New Deal brought on a new public attitude regarding the role of the government. – The program gave Americans a safety net that provided safeguards and relief programs to protect them from economic disaster. “We have behind us eight terrible years of a crisis…Here we are, and our basic institutions are still intact, our people relatively prosperous and most important of all, our society relatively affectionate…No country is so well off.” - Dorothy Thompson Journalist