Why the New Deal Matters: a review
During times of economic and political crisis what resources do democratic states have to resist authoritarianism?
The question is being asked with some urgency today, as liberal democracies confront interlocking challenges: the energy supply crunch, war in Europe, looming recession, and, shadowing all, the onset of climate change. Populists offer to cut through the knots in which mainstream political parties, sensitive to electoral pressures, find themselves entangled, promising the hand of strong government, the will to power to get things done.
Why the New Deal Matters, by the political historian Eric Rauchway, considers the powerful legacy of the bold set of reforms driven through by Franklin D Roosevelt’s administrations during the 1930s, a radical programme designed to reinvigorate a moribund economy that has attained legendary status, a reassuring symbol of the capacity of the liberal democratic state to restore public confidence and a sense of collective agency.
For Rauchway the ‘New Deal mattered … at the cusp of spring in 1933, because it gave Americans permission to believe in a common purpose that was not war. Neither before nor since have Americans so rallied around an essentially peaceable form of patriotism.’ Coming to power during the depths of the Great Depression, the New Dealers sought not only to give citizens security through the provision of jobs, welfare and public services, but to restore faith in democracy itself, to prove there was a liberal alternative to fascism and communism.
Reimagining the role of the state
The programme gathered momentum over Roosevelt’s first two administrations, evolving into a sweeping series of initiatives that sought not simply to rebuild the nation’s fabric, but remake it. The New Deal evokes images of grand public works — of new dams, bridges, airports and highways — and the introduction of social security provisions such as pensions and unemployment insurance. But it also encompassed the strengthening of labour rights, including the introduction of a minimum wage, disability insurance and guaranteed access to trade unions, and legislation to tame the financial sector that had crashed in 1929, such as requirements for transparent corporate stock offerings and guaranteed access to money deposited in banks. Indeed Rauchway suggests that the New Deal reshaped America’s political and economic landscape so profoundly that its legacy is scarcely visible: ‘Like the proverbial fish that does not know it is wet because it never leaves the water, we sometimes have trouble discerning the properties and extent of the New Deal because it is the medium through which we move all the time.’
The programme reimagined the extent of the obligation that the state owed its citizens in times of crisis, and, in the judgement of generations of policymakers inspired by it, demonstrated that such action could be effective. Rauchway charts Roosevelt’s ideological battle with the incumbent Republican president he defeated in 1932, Herbert Hoover, over the proper role of the state. Hoover was not insensible to the crisis, but made the case still made by economic libertarians today, arguing that extensive federal intervention would undermine individual responsibility and crowd out private sector initiative. Defending the limited assistance his administration was prepared to offer as the economy nosedived Hoover said: ‘My own conviction is strongly that if we break down this sense of responsibility of individual generosity to individual and mutual self-help in the country in times of national difficulty, and if we start appropriations of this character we have not only impaired something infinitely valuable in the life of the American people but have struck at the roots of self-government.’ It was a matter of principle that the state should not intervene where the private sector was capable. For Hoover ‘voluntary giving and the responsibility of local government’ were preferable to ‘appropriations out of the Federal Treasury’.
But Roosevelt believed the state did have a moral obligation to act to address ills it seemed the private sector was not addressing. Introducing emergency measures as Governor of New York, the office he held before becoming president, Roosevelt said that ‘modern society, acting through its Government, owes the definite obligation to prevent the starvation or the dire want of any of its fellow men and women who try to maintain themselves but cannot.’ The state should help citizens suffering involuntary unemployment, poverty and disease not ‘as a matter of charity, but as a matter of social duty.’
He was, however, sensitive to the conservative concern that a remote state bureaucracy could disempower by facilitating drifting welfare dependency. The New Deal programmes were designed to give people work rather than dole: in Rauchway’s words, by employing citizens the state ‘became embodied in visible people: supervisors and coworkers … By not merely giving money to Americans but hiring them to work on the improvement of their own country, Roosevelt and his administration wanted to show Americans that as they worked for the government, so the government worked for them.’
Demonstrating a keen awareness of the power of image, Roosevelt sponsored federal arts programmes designed to document the New Deal in action, generating thousands of photos and public murals that have undeniable resonances with the socialist realist propaganda the USSR was producing at the same time. Rauchway references the 110-foot-long, 8-foot-high mural Edward Laning painted for an Ellis Island building, The Role of the Immigrant in the Industrial Development of America, a history in pictures beginning with immigrants’ debarkation at the docks and charting their various fields of endeavour, from coal mining to the laying of railroad tracks. But somewhat contrived as many of them were, these images did succeed in giving many ordinary Americans a sense that their labour was in the service of a grand project of national restoration.
The New Deal infrastructure projects were the most visible early manifestations of the new economics emerging in the 1930s associated with John Maynard Keynes, who made the then radical case for the capacity of the state to inject life into depressed economies. Keynes’ theory of the multiplier suggested that well targeted government investment could kickstart demand in an economy drifting with the tide of market forces, putting idle resources to work, and creating a snowballing effect of accumulating economic activity.
Rauchway devotes a chapter to an early New Deal initiative that seemed to prove the theory, the Tennessee Valley Authority (TVA), a public body vested with sweeping powers to restore the depressed economy and scarred landscape along the banks of Tennessee’s Clinch River, a once abundant region that had been depleted by over intensive farming by an impoverished local population desperate for new sources of income.
The results were transformative. Rauchway summarises neatly: ‘In the years that followed, the river’s energies, pent and regulated by the TVA’s projects, did indeed transform the region and its people. The TVA’s new dams and reservoirs allowed control of the river’s height and brought an end to catastrophic flooding, protecting as many as 10 million acres in the valley and downriver, around the Ohio. Together with the terraced hillsides, flood control stopped runaway erosion, and the waters cleared. With the river more fully managed, traffic on it and its tributaries increased in quantity and, with prosperity, improved in quality, carrying more and more finished goods. More than 1.3 million Americans used affordable electricity that came from TVA generators … With cheaper and more widespread electricity, more machinery came to the valley, and its manufacturing capacity grew twice as fast as the national average. Per capita income improved from well below half the national average to nearly two-thirds the national average within twenty years. With increased income, the valley contributed still more to the US Treasury, shouldering a fairer share of the federal budget.’
The TVA would build 20 dams over the next decades, most famously the Norris Dam, smaller in scale than the Hoover Dam that marshalled the power of the Colorado River, but admired then and now for its efficiency and sleek aesthetics. For the modernist Le Corbusier the Norris Dam was ‘a marvel of complete agreement and harmony between man and nature,’ its design so unobtrusive as to make ‘the proportion … almost automatic … an edifying spectacle.’
Rauchway also takes a close look at another celebrated landscape shaped by the New Deal, the intricate infrastructure connecting the San Francisco peninsula to the mainland. Landmarks constructed or enhanced during the era include the Bay and Golden Gate bridges, San Francisco International Airport, sea walls, landscaped valleys, and man-made islands. The New Deal Works Progress Administration drove through a multitude of smaller scale infrastructure projects, putting in 67,000 miles of city streets and 572,000 miles of rural roads that laid the literal groundwork for the nation’s postwar economic development.
A New Deal for everyone?
Rauchway’s essay is as much elegy as history, but he does acknowledge the New Deal’s limitations and controversies, notably its mixed legacy for Native and African Americans. Legislation was passed that did allow Indian peoples to reclaim, where possible, land for common use such as grazing, ending the prevailing policy of parcelling tribal lands for sale to private owners. Their right to organise their own governments was recognised, with sovereign powers over their homelands reverting to Indian institutions. But fears among some Native Americans that the reestablishment of tribal ownership risked turning turning reservations into racially segregated communities cut adrift from the main current of US economic life proved at least partially prophetic. The decline of herding as a sustainable source of income forced Indian communities to turn away from their ancestral economic model, setting them ‘ruthlessly on the road to a wage economy that looked much like any other in America, only poorer’.
The New Deal was also compromised for African Americans, the allocation of work and housing provision favouring whites: Roosevelt’s Democrats were still the historic party of southern segregation. But though the administration of the Deal was uneven, it did mark the beginning of black America’s turn away from the Republicans, the ‘party of Lincoln’, to the Democrats. African Americans benefitted materially from the jobs, public services and labour rights Roosevelt’s administrations introduced, and — limited — promotion of voting rights foreshadowed the civil rights reforms of the 1960s.
Rauchway also notes that, notwithstanding its legendary status as a foundation stone of the social democratic tradition, the New Deal was limited in scope relative to subsequent programmes. Many of Roosevelt’s initiatives were constrained or broken by stubborn opposition from political, commercial and legal opponents. Ambitious plans to replicate the TVA model across multiple states were scuppered by legal challenges from conservative justices who ruled the concentration of so much power in public institutions unconstitutional. New Deal industrial and economic initiatives were restricted by Supreme Court rulings against planning and regulation, obliging Roosevelt’s administration to rely on expansionary fiscal policy. Indeed, the resources the New Dealers were able to command were not off the scale. Rauchway observes that the ‘biggest budget of Herbert Hoover’s presidency ran to some $4.66 billion in 1932; the biggest New Deal budgets were not quite twice that, reaching $8.42 billion in 1936 and $8.84 billion in 1939. The wartime budgets ran to ten times those sums, reaching $79.4 billion in 1943 and $98.3 billion in 1945.’ It took the US entry into World War II to create the conditions for a public jobs programme of sufficient scope to marshall the full resources of the nation, guaranteeing work for every American.
New Deals then and now
But Rauchway’s essential point stands: the New Deal matters because it established the principle that the state could act effectively in times of economic crisis. Although overshadowed by the war effort, and smaller in financial scale than subsequent interventions — the rescue package summoned for the 2008–9 banking crisis was five times bigger — the New Deal reshaped American society more dramatically. It wasn’t conceived as a ‘bailout’ as was President Obama’s response to the Great Recession, as metaphor suggesting the ship is essentially sound, but as a ‘reconstruction’. The New Deal set the course of postwar politics across the Western world until the tide turned against Keynesian economics in the 1970s. Roosevelt sought to embed fundamental New Deal principles in charters for postwar institutions such as the Atlantic Charter, which promised ‘improved labour standards, economic advancement, and social security.’
And in the past few years policy makers have returned to the grammar of the New Deal to articulate the growing sense that governments need to take radical action to speed the transition to a sustainable global economy. A ‘Green New Deal’ introduced to the US Congress in 2019 calling for ‘national, social, industrial, and economic mobilisation’ foreshadowed the Biden administration’s Inflation Reduction Act, which includes the most significant climate change legislation enacted in the US, dedicating $369 billion to climate and clean energy programmes. The EU has labelled its growth strategy a European Green Deal, and the UK promises a Green Industrial Revolution. China’s remarkable economic rise over the past 40 years has been driven by something like a continuous New Deal: an unrelenting focus on marshalling the power of a strong state to generate new markets and spark ongoing private sector innovation.
The ambience of the New Deal also suffuses work by influential economists such as Mariana Mazzucato, who advocates for ‘mission-based’ economic policy driven and co-ordinated by governments engaged in every stage of the process of innovation. Mazzucato draws on the example of the Apollo space programme, a rolling state-sponsored project spurred by another Democrat president, John F Kennedy, , in which public institutions such as NASA and DARPA generated markets in which private companies competed to develop groundbreaking technologies such as GPS, the internet, solar panels and touch screen devices.
There is no consensus on the form state intervention should take, as evidenced by profound conservative political dissent from the various new deal programmes that have emerged over the past few years, unease with China’s heavy handed direction of its economy, and objections to Mazzucato’s mission-based economics . John Kay’s dissenting review of Mazzucato’s book length advocacy of the Apollo programme, for example, contends that revolutionary innovation is more likely to arise through the play of market forces: contra Mazzucato, he argues, the development of the tech industry in recent decades is ‘characterised by a striking absence of centralised vision and direction’, a process of ‘piecemeal innovation through disciplined pluralism in which temporary winners were almost always displaced as they failed to anticipate the next step of the journey.’ For Kay and other critics the kind of missional projects Mazzucato advocates require sustained, intelligent state intervention that is too much to ask of politicians in liberal democracies driven by short term electoral considerations, and the technical capacity of civil servants to oversee. The space programme was a special case, motivated by the unique politics of superpower rivalry.
But though sceptical about the role the state has played in driving the direction of today’s tech-driven economy, Kay does acknowledge that public investment in research and development supercharged its development, seeding many of the technologies the private sector was to bring forward. Even economic liberals continue to urge governments to do more to build the essential infrastructures on which market economies depend.
As Rauchway’s accessible and persuasive book illuminates, it was the New Deal that established the principle that governments can, and should, act to foster economic development. Over time, perhaps, the market may have self correcting mechanisms. But in Keynes’ words ‘in the long run we all dead’. The point is well made through an observation recorded in Rauchway’s chapter on the Tennessee Valley, where he writes that ‘skeptical economists with greater confidence in the private sector sometimes said that market forces would eventually have effected all these changes without the TVA. Asked to consider this suggestion, one newspaper publisher in the valley replied, ‘Well, they didn’t.’
Why the New Deal Matters by Eric Rauchway is published by Yale University Press.