Alaska News

New Deal was capitalism's good angel

The New Deal and the Great Depression have been much in news and commentary recently as analysts search for a reference point for understanding the present economic crisis. Writers wonder whether today's crisis is as great as that of the 1930s, and many statistics take those years as the measure of how bad things are now, as in "we haven't seen numbers like these since the Great Depression."

Accompanying these comparisons, "socialism" has surfaced as a term of opprobrium in reactions to President Obama's budget, and his support of the various bailout programs, and the stimulus funds now starting to flow into states and municipalities. All that government spending, some have cried, is taking us all down the tyrannous path toward government control. Newsweek ran a cover proclaiming "We Are All Socialists Now." The suppression of freedom cannot be far off.

More stable minds are inclined to think, "Oh, piffle!"

Washington Monthly last month published a chart showing tax rates for the wealthiest Americans going back to the 1920s. President Obama wants to elevate their burden from the present 35 percent to almost 40 percent In 1928 the figure for this bracket was 60 percent; during the New Deal it went from 63 percent to 79 percent. It was 91 percent under Eisenhower. During most of the Nixon years it was 70 percent, and during Reagan's first term, before his tax cuts, it was 50 percent. It was 40 percent during the Clinton years, when the deficit was paid down and the economy was healthy. Tax and economic policy are more complex than tax brackets. But these numbers are useful.

The theory of the Bush tax cuts was to create jobs and economic growth by putting more money into the hands of those with risk-taking ability, competence and vision. That might have worked if the cautionary restraints on banks, investment and insurance institutions, established by the New Deal, had not been relaxed. But they were, and here we are.

Massive government spending characterized the New Deal response to the Great Depression. From 1932 to 1943, when the Works Progress Administration closed, the federal government poured money into the economy, through the Federal Emergency Relief Administration, the Public Works and Civil Works Administrations, and the WPA, which funded artists, writers and actors, among others. A strengthened Reconstruction Finance Corporation funneled loans to failing banks, railroads and other businesses, and the Federal Home Loan Bank System, later reconstituted as the Federal Housing Authority, offered aid to homeowners threatened with foreclosure.

Through these, and other reforms, including protecting unions with the National Labor Relations Act, providing a social safety net with the Social Security Act, and guaranteeing bank deposits with the Federal Deposit Insurance Corporation, the New Deal neither embraced nor established socialism. Instead, it undertook to save capitalism by curbing its excesses.

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It did a rather good job. Though these programs did not end the Depression -- it took World War II to do that -- American capitalism emerged from the 1930s functional and vigorously aggressive. After seeing the country comfortably through World War II -- the small amount of rationing imposed was more cosmetic than necessary -- the American economic system embarked on a continuing upward spiral that continued with but a few deflections essentially until ... now.

Socialism rests on a foundation of government control or ownership of the production and distribution of goods, and an enforced equality of economic attainment. It has never succeeded in America because it is not a logical outgrowth of liberalism, which rests on a foundation of enhancing personal autonomy, not curtailing it.

The New Deal did address equality, using the power of the federal government to begin to eliminate discrimination in housing and employment, in education, and in public facilities. By the eve of World War II, civil liberties had assumed a central place in the New Deal understanding of freedom. In a number of salient cases, the U.S. Supreme Court relinquished its role as a judge of economic legislation, replacing liberty of contract with civil liberties as the judicial foundation of freedom.

The Obama economic plan certainly is not socialism. Comparisons of today with the New Deal suggest we could do far worse for a model of how to approach our uncertain future.

Steve Haycox is a professor of history at the University of Alaska Anchorage.

Steve Haycox

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Steve Haycox

Steve Haycox is professor emeritus of history at the University of Alaska Anchorage.

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