ROOSEVELT’S NEW DEAL WITH PRESIDENT OBAMA’S STIMULUS PACKAGE
The objective of this work is to compare President Obama’s Stimulus Package with Roosevelt’s New Deal.
President Franklin D. Roosevelt has historically been lauded for greatness in having created his “New Deal” and the new U.S. President, Barak Obama, has chosen much the same course with his new Stimulus Bailout Package therefore, the economy should get better, or will it?
FDR’s New Deal
According to economists at UCLA and as reported in the work of Meg Sullivan (2004) the reason the Great Depression “dragged on for almost 15 years” can be attributed to the policies of President Franklin D. Roosevelt.” It is reported that after “scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years. Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.” (Sullivan, 2004) Sullivan reports that Ohanian and Cole, “in an article in the August issue of the Journal of Political Economy…blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.” (2004) Sullivan states that specifically stated by Ohanian and Cole is: “and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years. Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.” (Sullivan, 2004)
Ohanian and Cole used data that the Conference Board and Bureau of Labor Statistics collected in 1929 and “were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt’s policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.” (Sullivan, 2004) Findings stated by Ohanian and Cole are that in the three years after the policies had been implemented by Roosevelt “…wages in 11 key industries averaged 25% higher than they otherwise would have done…but unemployment was also 25% higher than it should have been given the gains in productivity.” (Sullivan, 2004) Additionally reported is that prices “…across 19 industries averaged 23% above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27% below where it otherwise might have been.” (Sullivan, 2004)
Cole and Ohanian report that National Industrial Recovery Act (NIRA) policies “which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements” is that which raised wages significantly since protection from prosecution of antitrust matters “all but ensured higher prices for goods and services” resulting in the majority of industries taking “the bait.” (Sullivan, 2004) More than 500 industries had entered into the collective bargaining agreements by 1934 and these 500 industries are stated to have “accounted for nearly 80% of private, non-agricultural employment…” (Sullivan, 2004) Ohanian and Cole content that the Depression should have come to an end in 1936 but that due to the policies of Roosevelt’s New Deal in actuality the Depression did not end until 1943.
III. President Obama’s Stimulus Bailout Package
It is extremely difficult to compare President Obama’s Stimulus Bailout Package to the policies of Franklin D. Roosevelt in his ‘New Deal’ in that the policies in the ‘New Deal’ took place in a series of progressions and over the course of quite a few years. It is the belief of today’s economists that most of the benefits that will be derived from President Obama’s Stimulus Bailout Package will take months and even years to be realized. As stated by Tom Raum (2009) in his report entitled: “Analysis: Obama Plans Eclipsing New Deal Spending” the President’s bailout package includes:
(1) Congress passed and Obama signed into law a record $787 billion mix of tax cuts, job-creating projects and aid to struggling states;
(2) The president pledged up to $275 billion in federal aid to help stem a tidal wave of home foreclosures; and (3) The Treasury Department and the Federal Reserve announced financial-rescue steps that could send up to $2 trillion coursing through the economy. (Raum, 2009)
Raum (2009) states: “In all, the plans would raise the federal portion of the U.S. economy to some 31%, more than twice the level after eight years of FDR’s historic New Deal spending.” In comparison, Franklin D. Roosevelt’s ‘New Deal’ is stated by Raum (2009) to have “…dealt with revamping government structure rather than job creation, such as securities-market regulation, insuring bank deposits. His biggest idea, Social Security, didn’t really have much impact until later. The largest of Roosevelt’s jobs programs, the Works Progress Administration, begun in 1935, did provide jobs across the nation building roads, bridges and other projects. (Raum, 2009) Among Franklin D. Roosevelt’s other job-creating programs were those as follows:
(1) Civilian Conservation Corps,
(2) Civil Works Administration,
(3) Public Works Administration and (4) Tennessee Valley Authority. (Raum, 2009)
III. Other Options Available to President Obama
A course that might have been better taken by President Obama is cited in the report of Buchanan (2009) who states that President Obama “will inherit the worse times since the Great Depression. The Great Depression began with the Great Crash of 1929. By 1931, unemployment had reached 16%. By 1933, 89% of stock value had been wiped out, the economy had shrunk by one-third, thousands of banks had closed, a third of the money supply had vanished, and unemployment had reached 25% — among heads of households. And in those days, there was no unemployment insurance, no Medicare, no Medicaid, no Social Security, no welfare.” (Buchanan, 2009)
According to Buchanan and others the New Deal was “economically…a bust, failing utterly to restore prosperity…” Buchanan considers “how Ronald Reagan responded to the economic crisis of 1980, the worst since the Depression. In the “stagflation” of that Jimmy Carter era, interest rates had reached 21% and inflation 13%. Reagan’s answer was the tight money policy of Fed Chairman Paul Volcker and across-the-board tax cuts of 25%, while slashing the highest rates from 70% to 28%. While unemployment hit 10% in 1982 and Reagan lost 26 House seats, in 1983 the tax cuts kicked in. From there on out, it was boom times until Reagan rode off into the sunset, having created 20 million new jobs.” (2009)
Buchanan notes that author Robert Bartley referred to this as “The Seven Fat Years.” (2009) Reagan it seems had followed the policy lead of Warren Harding and Calvin Coolidge “who had cut Woodrow Wilson’s wartime tax rates of near 70% to 25%, resulting in the ‘Roaring 20s’, a time of unrivaled prosperity.” (2009) Buchanan as well notes that, “also a Reagan model…the JFK tax cuts of the 1960s…were equally successful.” (2009)
Summary & Conclusion
While only time will tell how successful President Obama’s policies contained in the Stimulus Bailout Package will actually be, the facts are that while Obama has no intentions of raising taxes he will have to borrow somewhere to the tune of $2 trillion from somewhere whether it be the U.S. taxpayers or foreigners or alternatively the money will have to be created by the Fed.
While hundreds of billions will be sent out to non-wage-earning individuals who do not pay taxes the same astronomical amount will be spent out of state and municipal governments and the same amount yet again for ‘infrastructure’ projects which basically means the same thing as earmarks otherwise known as ‘pork’. (Buchanan, 2009, paraphrased)
Examination of President Franklin D. Roosevelt’s ‘New Deal’ and what resulted and the examination of President Barak Obama’s ‘Stimulus Bailout Package’ and the potentialities of that stimulus bailout can only lead this researcher to conclude that President Obama’s bailout package will have much the same outcome as did the “New Deal’ and had the ‘New Deal’ not been assisted by the start of World War II and defense spending by U.S. allies which boosted the economy the ‘New Deal’ would have been a historic failure at reviving the U.S. economy. This too appears to be the fate of the stimulus bailout package unless some unknown factor somehow ‘saves the day’ for President Obama’s policies and the United States economy.
Bibliography
Buchanan, Patrick J. (2009) Obama’s Choice: FDR or Reagan. Human Events Online 9 Jan 2009. Available at: http://www.humanevents.com/article.php?id=30214
Raum, Tom (2009) Analysis: Obama Plans Eclipsing New Deal Spending. Brietbart 20 Feb 2009. Online available at: http://www.breitbart.com/article.php?id=D96FI9CO0&show_article=1
Sullivan, Meg (2004) FDR’s Policies Prolonged Depression by 7 years, UCLA Economists Calculate” 10 Aug 2004. UCLA Newsroom. Online available at: http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409
Wolf, Richard (2009) Obama Calls for Bold New Economic Course. 11 Jan 2009. USA Today. Online available at: http://www.usatoday.com/money/economy/2009-01-08-obama-economy_N.htm
Francis, David R. (2009) Stimulus: Can it Work Like Roosevelt’s New Deal? 23 Feb 2009. The Christian Science Monitor. Online available at: http://www.csmonitor.com/2009/0223/p16s01-wmgn.html
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