Was the New Deal a Successful Failure?

I realize that I seem to have become graph-addicted, recently but check this one out. It provides a classic reminder that while figures may not lie, they can damn sure be of value to people who do.

The blue line in the figure is more or less the basis for the GOP’s not-so-solid current party line as it attempts to discredit the Obama administration’s stimulus package by discrediting its presumed ancestor, the New Deal. The argument goes something like this. Unemployment stood at about 25 percent when FDR took office in 1933 and was at roughly 19 percent in 1938. This just shows us, therefore, that we can’t spend our way out of a recession. Not only is this conclusion pure horse pucky, (We got out of the Depression when the government really got serious about spending for defense in a run-up to World War II, didn't we?) but the data that is supposed to support it is extremely misleading as well because the blue line counts anyone who has a job created by a New Deal program as unemployed. I don’t know about you, but where I come from, we tended to think that anybody who went to work each day and got a paycheck at the end of the week must have a job. If you’ll take a look at the pink line below the blue line, you’ll see what real unemployment (as in no job and no paycheck) looked like under the New Deal. As you can see, there’s a substantial gap between unemployment without the New Deal and with it. As you can see from the pink line, actual unemployment dipped below 10 percent in 1937 in response to expanded New Deal spending in 1935. Contrary to stereotypes, FDR had always had misgivings about large-scale deficit spending, however, and at that point he really got all Nervous Nellie and decided to slow the flow of federal funds and raise taxes to get the budget in better shape. Note that regardless of which line you’re watching, joblessness jumped back up at this point. In response, an exasperated Roosevelt went back to spending in April 1938, and unemployment was soon on the downswing, a trend that would accelerate significantly as we began to produce the materials that we would supply Great Britain under lend-lease and moved to shore up our own preparedness. At this point, all the brakes on government spending were off. To offer a little perspective, the value of just the ten largest defense contracts issued between 1942 and 1944 was roughly equivalent to total government expenditures during the New Deal. New Deal spending may not have worked as effectively as FDR had hoped to reduce unemployment, but it did work, and the more we spent, the better it worked. If unemployment stats aren’t enough to persuade you of this, please note the consistent growth in GDP until the 1937 cutback/tax hike.

Nothing is a surer sign that a Democrat is in the White House than the sudden resurgence of Republicans’ concern about the deficit. Neither, however, are they particularly keen on Oby’s plan to reduce said deficit, since it entails a reported 2% tax hike on incomes over $250,000. Before the economic populists out there get too excited about this, we should note that FDR’s “soak the rich tax” of 75% on incomes over $5 million turned out to have minimal impact on the revenue stream. It’s also true that if FDR was unwilling to spend enough government money to get us out of the Depression, this measure and his consistent rhetorical pounding on Wall Street didn’t do much to get the wealthiest segment of the private sector to open up their wallets either. On the other hand, Oby has done a much better job of reaching out in this area than Roosevelt did, and even if it’s largely symbolic, after eight years of indifference, some effort to address the deficit definitely seems in order. Anyone who thinks that higher taxes don’t await those of us a little farther down the food chain, however, probably thinks Bill Clinton is pulling for Oby any more than Rush is.
In sum, while it may be true in a twisted sort of way that much of the credit for actually getting us out of the Depression should go to Adolf Hitler rather than Franklin Roosevelt, we can legitimately judge FDR’s New Deal a “failure” only if we know what would have happened without it. Since we obviously don’t and can’t, I’d be just as inclined to suggest that in transforming our economic and political system, the New Deal may have saved them as well. The Republicans are clearly gambling that the Obama stimulus plan will fail. (How many life preservers do you think there are on the S.S. Limbaugh?) They may well be right, but who’s to know a year hence whether success should be judged in terms of making things better or simply keeping them from getting worse?