Pros and cons of the New Deal are back in the spotlight as the US vies for economic recovery. Here’s what both sides think of the Depression-era policy. To have insights like this and more delivered directly to your inbox, sign up for our newsletter. Photo: Franklin D. Roosevelt, at his desk in 1918.
A Brief History of the New Deal
Before diving into pros and cons of the New Deal, let’s quickly recap. The New Deal was a series of economic policies enacted by President Franklin D. Roosevelt to end the Great Depression. From 1933-1939, the agenda included reform laws and experimental programs aiming to stabilize the economy, create jobs, and provide immediate relief.
The Great Depression began with a stock market crash in October 1929. On top of the global economic crisis, bank failures, market speculation, and a severe drought ravaged the US economy. As President Herbert Hoover’s interventions failed, nearly a quarter of the country’s workforce remained unemployed in 1932.
Challenging Hoover in the 1932 presidential election, Roosevelt promised to harness the power of the federal government to pull the US out of depression. He beat Hoover by a landslide. Roosevelt’s administration worked with congress to reform banking, agriculture and labor laws, and fund job creation programs and immediate relief programs.
Ultimately, the New Deal didn’t end the Great Depression, but the US did see economic gains during Roosevelt’s two terms. The New Deal is also credited with forever expanding the size and scope of the federal government. From that lens, here are pros and cons of the New Deal.
Pros of the New Deal
Starting with the pros, New Deal programs did help grow the economy and reduce unemployment. In 1932 — one year before Roosevelt took office — the US economy shrank by 12.9 percent. In 1934, just two years into New Deal efforts, gross domestic product grew by 10.8 percent. The economy continued to grow by double digits until Roosevelt cut investment in New Deal programs in 1937. Unemployment also fell from its peak — 25 percent in 1933 — to 14.3 percent in 1937.
The New Deal is also credited with stabilizing the economy and protecting the country’s most vulnerable through unprecedented regulation. During this time, the Social Security Act offered income to children in low-income households, the elderly, blind, and disabled, according to The Balance. Other programs imposed protections for child laborers, provided immediate relief to struggling farmers, protected employee rights, and expanded affordable housing opportunities.
Testifying before the US Senate Committee on Banking, Housing, and Urban Affairs in 2009, distinguished professor of history Allan M. Winkler argued that the New Deal “created a framework for a regulatory state that could protect the interests of all Americans, rich and poor, and thereby help the business system work in more productive ways.”
Cons of the New Deal
As for cons of the New Deal, the effort did not put a swift end to the Great Depression. The economy contracted and unemployment increased again in 1937. The economy didn’t fully recover until the end of the decade, after the administration’s focus turned to military spending.
There are mixed opinions on why the New Deal did not jolt the economy completely out of depression. Left-leaning economists and historians contend that Roosevelt did not invest enough money to jumpstart the economy. On the other hand, conservatives argue that greater government control of the economy through haphazard, ill-conceived programs stifled market competition.
Some also argue that the New Deal did not spur strong private investment in the economy. In his senate testimony, Professor Winkler notes that, on the contrary, Roosevelt’s rhetoric alienated business interests, resulting in a lack of private sector job creation.According to libertarian historian Jim Powell, there’s also growing evidence that excise taxes enforced on everyday items to help fund the New Deal — like alcoholic beverages, cigarettes, candy, soft drinks, and telephone calls — disproportionately affected poor Americans.
What Both Sides Think
At the time, Southern Democrats teamed with Republicans to oppose New Deal programs. Today, however, Democrats largely consider Roosevelt’s New Deal a relative success. It’s often presented as evidence that direct government spending is key to reversing an economic downturn. Many on the left contend that if the federal government had invested more in the New Deal early on, the Great Depression would have ended far sooner. For liberal activists and policy makers, like Senator Bernie Sanders and Senator Alexandria Ocasio-Cortez, the New Deal remains a solid framework for tackling the biggest economic and social crises of our time.
On the right, conservatives generally oppose the New Deal. At the time of his presidency, critics compared Roosevelt’s economic programs to communism and fascism. Today, critics credit the New Deal with bloating the size and scope of the federal government. In his book FDR’s Folly, Jim Powell also argues that “stifling competition” and diverting funds from investment to “hastily conceived government programs” prolonged the depression. Lowering taxes on businesses and the wealthy — allowing them to reinvest in the private sector — is a popular alternative.