The recent economic crisis is often compared to the Great Depression, and, comparing, researchers are paying particular attention to the ways of overcoming its negative consequences. In connection with this come a lot of articles about FD Roosevelt and policy, known as the “New Deal”. Authors of the articles often judge “New Deal” as positive, and come to a conclusion about the huge role that Roosevelt played in stabilizing the situation in the country in a period of deep economic recession, and say that the “New Deal” allowed to avoid serious social and political turmoil and helped to improve the economic situation of the Americans.
So far, Roosevelt is very popular among the Americans; he is one of the most respected politicians in the world. His achievements of successful struggle with the economic crisis are as follows: the introduction of progressive labor legislation, the elimination of unemployment, saving farmers from bankruptcy, state control over industrial and banking capital.
Speaking of the Great Depression, one should mention its background and previous events.
As everybody knows, the result of the Spanish-American War of 1898 was the final and complete expulsion of Spain from America and the United States capture of some of its former possessions as colonies or semi-colonies.
In the era of U.S. imperialism, exporting capital and using diplomatic and military pressure, they began to receive the large profits from Latin America, displacing the British capital.
In place of the military events of the late 19th – early 20th century the so-called Roaring Twenties came – the era of the 1920s in North America, London, Berlin and Paris. The name describes the dynamics of art, as well as cultural and social life of the period. It begins with the return to civilian life after the most, at the time, destructive war in history.
Social and cultural changes of Roaring Twenties began in the largest cities: Chicago, New Orleans, New York, Philadelphia, Paris and London. The U.S. reached the moment of dominance in finance, while Germany lost the war, and was not even able to pay the reparations imposed on it by the peace treaty.
Cessation of military contracts in the economy initially caused a brief but deep depression; but with the return of demobilized soldiers into civilian life, they have been interrupted. Market supply exceeds demand, resulting in relatively low commodity prices and stimulating of sales on credit, but during the 1920s, the consumption grew,
In the late 1920s, the majority of experts did not promise thunderstorms: steady growth in share prices of the largest companies, the volume of industrial and consumer loans, the unemployment rate was in the range of 4-5% of the workforce. The manufacture of conveyor was mastered, stock market rapidly developed, the number of speculative trading increased and real estate was valuing. Increase in the production of goods required to increase the money supply, and the dollar was pegged to gold.
Before the Great Depression, the U.S. gold reserves increased not as rapidly as the economy developed. This led to the emergence of hidden inflation, as the government printed new money for the rapid growth of the economy. Thus, having been undermined the security dollar by gold, budget deficit was growing, and the Federal Reserve lowered interest rates.
The situation occurred where the growth of labor productivity in industry had declined, the number of pseudo money (bills, receipts and so on), on the contrary, increased. According to most researchers, namely the imbalance in the economy led to the «Black Tuesday» in 1929 (Hamilton, 1987).
On October 23, 1929, Weekly “Nation” called this year “the year of prosperity of the business” and began publishing a series of articles under the heading “Prosperity – Believe it or not”. The same day, the U.S. stock market suddenly panicked: stock prices began to fall dramatically. In early 1929, the capitalization of the stock market was 89 billion dollars; in the first week of the stock market crisis devalued shares worth $ 15 billion by the year-end total of discounted shares reached $ 40 billion. According to the IRS, in 1932, there were almost 15 million unemployed people (one in four hard-working American). More than 5 thousand banks and more than 32 thousand private companies broke. U.S. national income fell to 80 billion dollars, in 1929 to $ 40 billion in 1932 (White, 1990).
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U.S. business leaders, whose interests so faithfully served the Republican administrations of the last decade, knew that in the current situation, it would be unwise and even dangerous to stay away from criticism of Hoover. The President was featured as the sole culprit of troubles that have affected the country, and the election campaign in 1932 took place in a complex political environment.
On March 4, 1933 FD Roosevelt officially took office. However, as wassaid, neither the president nor his aides had any specific plan of action. “New Deal” was, in fact, a complex of individual, not always related measures, sometimes contradictory, and ideas and positions put forward almost daily. They usually frowned upon by Congress hastily, and then used as the basis of the presidential program. The term of “New Deal” picked up by the press and publicized by Roosevelt like-minded persons carried rather the propaganda load, becoming a landmark between the policies of the previous administration and the new government.
Transition in frames of the “New Deal” can be divided into two large groups. The first group of the reforms was associated with the attempt to establish the state control over the economy, and the second included the changes in the social sphere. State control over the economy was faced with the resistance of big business. The most important of its victory in the confrontation with the President was the abolition of the law on industrial recovery. After that, Roosevelt, fearing the escalation of the conflict, was not trying to interfere in management of corporations and switched attention to social policy.
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Legislation of 1933-1935 reformed the Federal Reserve System. Under the banking law in 1935, the Board of Governors appointed by the President of the United States has received the authority to determine the amount of the reserve, which must be kept in banks, members of the FRS. In practice, this meant that the Board of Governors by raising or lowering the level of mandatory reserves could facilitate or hinder access to credit, and by means of this manipulation could influence the economic activity. Not less important is the fact that such a vital issue in the activity of banks was put under state control.
On June 16, 1933 the Law for the industrial recovery (National Industrial Recovery Act) was issued. NIRA allowed business associations to develop, and the president – to authorize the “codes of fair competition”. The observance of this law should be conducted by the Federal Trade Commission. The Code establishes the volume of production, prices and other terms of sale, as well as the prescribed conditions. The two-year use of the provisions of the antitrust laws was suspended for some sectors. In a short time, 557 major and 189 additional codes were composed in the sectors covering 95% of all industrial workers.
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Article 7 of the NIRA proclaimed the right of workers to form unions and oblige employers to comply with the maximum hours of work, minimum wages and other conditions of employment, approved or prescribed by the President. At whole, codes covered 22.5 million people. In the 13 codes, working week does not exceed the 35 hours recommended by the President.
However, the major disadvantage of this law was the lack of common standards. It was assumed that in different parts of the country, their codes will be developed, depending on local conditions. In practice, this meant that the implementation of the law was given to the local businesses that could not obtain the necessary credentials. Codes sanctioned low wages in the southern states. As a rule, the workers had no voice in the drafting of codes. Those provisions, which are satisfactory to the workers, often were not implemented; there was no effective means of holding them out. Although NIRA proclaimed some trade union rights, the declaration was not supported by any administrative measures (Anderson & Butkiewicz, 1980).
Mostly the government was concerned about unemployment. According to official data, in 1933, 12.8 million were out of work. The first attempts were made to solve this problem – to cancel the NIRA, but the most significant reforms have been held since May 1935.
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Measures in this regard include the program of deregulation, as well as direct assistance to the unemployed in the form of cash grants and organization of funded public works, the introduction of unemployment insurance and pensions.
Big spending on social services has been a constant source of conflict between the President and opponents of the “New Deal”. In 1937, the White House and the Capitol, hoping to stabilize the situation, reduced social spending. However, under the impact of the economic crisis of 1937-1938, they had to go back to their increase. In general, the years of the WPA functioning for its projects 8.5 million worked. During its existence, the WPA spent $ 10.8 billion dollars. Around the funds that were spent on various social projects, debates were not dropped.
An important part of the “New Deal” was the creation of the social security system. Adopted in August 1935, the law provided for two types of insurance – old age and unemployment. Common to both types of insurance was removing from their scope of large groups of workers, the low level of insurance and many reservations as the right to receive benefits.
Although many of the actions of the Roosevelt’s administration were later found controversial, a number of innovations of this period, such as the Social Security program, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission in the United States are so far applicable. As the most successful initiative of President Roosevelt aid to the unemployed is considered, which, by order of the federal governments, attracted to work in the civil case of environmental protection and a number of other government services (Flynn, 1996).
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Although the measures taken by the Roosevelt’s administration prevented the further curtailment of production, or at least alleviated the effects of the economic crisis of the general public, the Great Depression in the United States ended only with the beginning of the World War II. Administration began financing the military orders, while the production of civilian goods declined sharply, when consumption had quotas on. This has allowed the economy to cope with difficulties. From 1939 to 1944, the production has almost doubled. Unemployment fell from 14% in 1940 to less than 2% in 1943, while the labor force grew by 10 million people.
After the elections in 1938, Roosevelt’s entourage was “confused about the next phase of the New Deal”. The President was “inclined to move with caution” in his relations with the Congress, and demonstrated the “moderation”. Period of social reforms finished, but the state regulation of the economy continued after 1938, state-monopoly nature of the “New Deal” was an irreversible phenomenon. The most important result of the “New Deal” was also the fact that it marked a major shift in the social development of the country.
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Do we extract the benefit of the lessons that history teaches us? How often do we appeal to experience which had taken place in real life?
Knowing about the events that occurred in the last century, one automatically is drawing an analogy with the recent global financial crisis. One can easily find common facts in the Great Depression and the global financial crisis of 2008-2009.
“There are parallels between then and now, largely unrecognized” – Samuelson notes quite truly (Samuelson, 2012).
All again, started in the USA from the financial sector and then spread to the real economy; the stock market collapsed, consumer demand was falling, unemployment was rising and money was worthless.
The crisis of 2008 and the Great Depression have similar features, but there are differences. Current decline, fortunately, is not comparable to the Great Depression’s one. It lasted for a shorter time than the four-year decline in the last century. Significantly different is the process of recovery. Indeed, in the last century, everyone was saving himself, as he could, notes Victor Kuvaldin:
“If you remember the 30s, as some countries struggle with the crisis, then this is best represented by: everyone dies alone. All fled in different directions, cut off from each other by enormous protectionist barriers and look at it, who will hand over the first, whose economy will not stand” (Kuvaldin, 2004)
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However, it still managed to learn a lesson. The way out of the current crisis is under the slogan: one for all and all for one. Most decisions are now made taking into account views of all participants in the global economic process. In the end, the major world powers pursue a coordinated policy, closely monitoring what is happening at the neighbors and are willing to coordinate their actions. The experts also noted the increased role of Big Twenty, which discusses exactly the global economic recovery, and encouraging the potential of the BRIC countries – Brazil, Russia, India and China. And now analysts come to the conclusion that the joint efforts will help to overcome the consequences of the global economic crisis faster than it was planned.
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