What If the New Deal Never Happenned

[Lord MJ]

So a staunch business conservative I know was saying that the New Deal worsened and prolonged the Great Depression, and that things would've picked up if the government had stayed out of the economy. He says this despite the fact that FDR intentionally scaled programs back because he didn't want the government too involved in the economy and didn't want some of the corrective programs he put in place to become permanent fixtures.

Another part of his argument is that the depression lasted for nearly 16 years, and Herbert Hoover president for only 4 of those years, so it is unfair to blame Hoover for the depression when FDR presided over the majority of it.

So the question I have is, what would be the effect if the New Deal never happened? Would the Private Sector have driven recovery on it's own, and in a shorter period of time that the New Deal did?

[Guardsman Bass]

I'm not sure there could be a counterfactual scenario where some version of the New Deal didn't happen. It might be different if a Republican was doing it (less given to farmers and labor unions), but some form of intervention to help boost the economy was wildly popular.

But if there was . . . it'd be like the period following the Panic of 1893. An extremely bad depression for a few years, followed by an eventual recovery.

[Borgholio]

Well as far as practical effects of the New Deal, there would almost certainly be no Hoover Dam, and Las Vegas would be a one-horse shithole (as opposed to a big glitzy shithole). I think the economic effects of the dam and a growing Las Vegas are fairly major in themselves and should not be discounted.

Talking about the wider national effects, I think putting money into the economy and providing jobs can never be a bad thing.

[Thanas]

This has potentially huge effects for WWII - if the new deal does not happen, the industry might not be as effective as in OTL, meaning the USA might not be willing to be as confrontational to the Japanese aggression against China (especially considering a likely isolationist candidate), in which case the USA might not even enter WWII...

[PainRack]

It also depends on what forces prevent the New Deal from happening, doesn't it?

If its akin to a refusal for federal funded projects or anti income tax, we can imagine how other federal projects like highways won't get built in the next few decades....

[Broomstick]

This has potentially huge effects for WWII - if the new deal does not happen, the industry might not be as effective as in OTL, meaning the USA might not be willing to be as confrontational to the Japanese aggression against China (especially considering a likely isolationist candidate), in which case the USA might not even enter WWII...

If Japan still bombs Pearl Harbor then America still enters the war... but perhaps is not as effective in supplying transport, weapons, and supplies to her troops.

[Thanas]

Yes, but without the new deal and without a recovery plus a "focus on the USA" approach it might very well be that the strategy which brought Japan into the war (cut off their industrial supply via economic sanctions) might never happen. Which then leaves Nazi Germany as the instigator and without the USA getting involved in the U-boat war or declaring war herself they might not get into it either.

Which will cause a lot of more deaths all around as the war in China gets dragged out longer or Nazi Germany manages to survive far, far longer (maybe even for decades as there might not be a war with the USSR). Only when/if the Nazi homefront/economy collapses and the people/army revolt might nations like France be freed in such an instance, which again is not that good. Remember that by then Poland would have been much more thoroughly cleansed. Not good for the jews either.

[Borgholio]

The US economy was already on the mend by the time war started, that's how we were able to begin construction on many of the warships that were used during the war. South Dakota class battleship, for instance, was started before the war.

Without the new deal, many of our critical surface combatants may not have started until much later...too late to slow the Japanese advance.

[Simon_Jester]

If nothing had been done (and, hell, even Hoover staged a number of government interventions to try and stop or at least slow the bleeding)...

Honestly, I think the situation might well have resulted in political violence in America. People were considering it in some cases. It was an era when a lot of governments, democratic and otherwise, were being overthrown. And unlike today with food stamps, people who were truly poor during the Depression were in real danger of starving.

[Broomstick]

No, I'd say you were spot on. Things were getting so bad socialism/communism was starting to gain traction. If there hadn't been some sort of government relief or aid there might have been outright rebellion. There was NO government aid, none at all. Couldn't afford food? You either stole or starved. Sick and poor? Too bad, unless you could convince a doctor to treat you as a charity case. Couldn't afford a roof over your head? You lived outside, homeless. Natural disaster happened? Too bad, sucks to be you.

[Thanas]

There is a reason this is a common term now.

[Steve]

If I recall the argument is that the New Deal had some good and some bad, and certain policies that Roosevelt trumpeted as part of the New Deal helped contribute to the economic slip in 1937, I believe it was, where the markets slid again and almost crashed once more. That said, Hoover winning re-election still leads to government involvement in the economy since he favored such (one of the great ironies of history is that before the Depression and the impetus to "Blame it all on Hoover", Hoover was soon as a great and charitable humanitarian).

Though one thing to remember is that none of the parties thought the Depression would last as long as it did and as badly.

I would argue that even if the New Deal did delay or even roll back economic recovery, it was vitally necessary for the morale of America. If you really get some weirdo in charge who's approach is "ignore it and things will straighten out" then... yeah, there will be Trouble.

[Thanas]

BTW, here is how easy the new deal could have been scuttled or severely limited in its effectiveness: FDR gets hit, his VP succeeds him. Said VP opposed many of the measures FDR proposed.


EDIT: FFS, I got this of some TV show but can't remember which one. WTF is up with my memory?

[CaiusWickersham]

Also, recovery would have been a lot slower without the New Deal's abandoning the gold standard. The faster a country was off the gold standard, the faster its recovery from the depression as the governments could then freely devalue the excess money and get it out of the market to where prices could stabilize.

http://www.econbrowser.com/archives/201 ... olish.html

[Lord MJ]

No, I'd say you were spot on. Things were getting so bad socialism/communism was starting to gain traction. If there hadn't been some sort of government relief or aid there might have been outright rebellion. There was NO government aid, none at all. Couldn't afford food? You either stole or starved. Sick and poor? Too bad, unless you could convince a doctor to treat you as a charity case. Couldn't afford a roof over your head? You lived outside, homeless. Natural disaster happened? Too bad, sucks to be you.

It's been a conservative position that the "People would've died in the streets without the new deal" is a myth used by liberals/socialists to justify government intrusion into the private sector. And the person in particular I was talking to has the position that since unemployment was so high after Roosevelt's first two terms, the only reason FDR kept being reelected was because he was raiding the nation's treasury to buy votes by handing people freebies.

[Broomstick]

Yeah, funny how that works - you giving hungry people food they vote for you. You give homeless people shelter they vote for you. You give the unemployed a job they vote for you.

Maybe if the conservative ideology put a roof overhead, food on the table, and employed the downtrodden the poor folk would be all for it, too.

[Lord MJ]

Yeah, funny how that works - you giving hungry people food they vote for you. You give homeless people shelter they vote for you. You give the unemployed a job they vote for you.

Maybe if the conservative ideology put a roof overhead, food on the table, and employed the downtrodden the poor folk would be all for it, too.

In his mindset using the nations treasury to buy votes from the poor and hungry is just as corrupt to him, as big corporations buying our politicians is corrupt to me.

His point is that FDR totally failed to correct the Great Depression, made it worse, and injected the government into the economy. That does not merit reelection. But he got reelected despite his failure because he gave out freebies by raiding the nation's treasury. He obviously feels the same way about Obama's election.

The private sector could've handled things just fine during the Great Depression if the government didn't inject itself.

I think he's partially right, you can't hand out freebies to cover failure... But if a politician was such a colossal failure, the negative effects on the poor would far exceed any positive value that "freebies" provide. They would still be suffering, and they wouldn't vote for such a politician, no matter what handouts they are giving. And since the blight of the starving and poor improved, FDR must have been doing something right.

[Dr. Trainwreck]

In his mindset using the nations treasury to buy votes from the poor and hungry is just as corrupt to him, as big corporations buying our politicians is corrupt to me.

That's easy enough, your friend is a thick cunt. It happens, I got a buddy who insists I'm not an atheist because I say 'oh god' when something happens. The simple thing is to quit debating him on that topic, and actively rebuff him when he wants to drag you in a debate.

[PainRack]

In his mindset using the nations treasury to buy votes from the poor and hungry is just as corrupt to him, as big corporations buying our politicians is corrupt to me.

That's kinda fucked up. If the poor and the hungry comprise such a huge portion of the population that a politician won because he pandered to them............... isn't that kinda WHAT government is supposed to do? To solve problems that individuals and small groups can't achieve?

Hell, its even in the US constitution , the very first paragraph.

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."

His point is that FDR totally failed to correct the Great Depression, made it worse, and injected the government into the economy. That does not merit reelection. But he got reelected despite his failure because he gave out freebies by raiding the nation's treasury. He obviously feels the same way about Obama's election.

He moderated the Great Depression, an act good enough. Even if we were to ignore stuff about how it was lifting his foot off the pedal that helped accelerate the Depression, the fact remains that the US economy, and the condition of her people improved significantly during FDR era.

[FTeik]

Ask your friend how the Great Depression/financial crash of 2008 could happen at all, if economy and private sector were free of political influence prior to the New Deal. And then ask him, if the players responsible should be made to pay for the damage they caused instead of the community.

[Zaune]

In his mindset using the nations treasury to buy votes from the poor and hungry is just as corrupt to him, as big corporations buying our politicians is corrupt to me.

His point is that FDR totally failed to correct the Great Depression, made it worse, and injected the government into the economy. That does not merit reelection. But he got reelected despite his failure because he gave out freebies by raiding the nation's treasury. He obviously feels the same way about Obama's election.

To which I can only reply, does he think putting down food riots and eventually organised insurrection would have cost the taxpayer less?

[Lord MJ]

I would say this quote summarizes his feelings on FDR, etc.

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.

[energiewende]

So the question I have is, what would be the effect if the New Deal never happened? Would the Private Sector have driven recovery on it's own, and in a shorter period of time that the New Deal did?

Yes and no; current economic understanding suggests that the Great Depression was a result of monetary policy and wage rigidity, so it is true that the absence of the New Deal's spending and transfer programs wouldn't have made much difference. They neither increased nor decreased unemployment, which is what was driving the inflation, and while the public works programs probably invested money poorly they were never a large enough proportion of the GDP that they turned the US into a substantially planned economy. They were just a minor deadweight cost at a time when unemployment was causing huge deadweight cost, making others less visible. It's possible that the New Deal worsened wage rigidity which is possibly what your friend is referring to when he says that the New Deal may have prolonged the Depression.

But monetary policy was under the control of the government - both under Hoover (and before) and under FDR - so it's not really true to say that the private sector would have fixed the problem on its own, either: it didn't have the power unless something radical happens like abolition of central banking, which no one was proposing at the time.

Both Hoover and FDR increased wage rigidity via labour regulations, Hoover pursued a deflationary monetary policy, and FDR pursued alternately inflationary and deflationary monetary policies at different times. Regulations increasing wage rigidity and deflationary monetary policy are what caused the high unemployment. If this remains constant, it's not really plausible that there's no New Deal. 25% of the population can't support themselves without work for more than a decade, and society becomes unstable. Alternatively, if we suppose Hoover immediately induced high inflation then the US could certainly have survived this era with a quick recovery, low unemployment and no major change in its economic institutions. I guess a lot of the New Deal programs that survive to the present day would have been introduced anyway in a gradualist process, but some of the weirder ones (eg. Fannie Mae and Freddie Mac) probably don't happen, with interesting butterfly effects for our recent history.

[Welf]

So a staunch business conservative I know was saying that the New Deal worsened and prolonged the Great Depression, and that things would've picked up if the government had stayed out of the economy. He says this despite the fact that FDR intentionally scaled programs back because he didn't want the government too involved in the economy and didn't want some of the corrective programs he put in place to become permanent fixtures.

Another part of his argument is that the depression lasted for nearly 16 years, and Herbert Hoover president for only 4 of those years, so it is unfair to blame Hoover for the depression when FDR presided over the majority of it.

So the question I have is, what would be the effect if the New Deal never happened? Would the Private Sector have driven recovery on it's own, and in a shorter period of time that the New Deal did?

That is the story conservatives tell themselves to ignore the unwelcome fact that government intervention can improve the economy.
Without the New Deal the S would have been worse in the 1930s. The reason there was a double dip recession in 1937 was that Roosevelt ended the investment programs to soon. And it was government intervention that finally ended the depression. It was a program called "WWII".
Just think about it: war is the ultimate government waste. The US used billions of dollars in a already weakened economy to produce stuff with no productive value. And then it used billions of dollars to deprive the economy of 11 million Americans in the best working age for years, and lost 1 million if those young men because they died or were wounded. If you can imagine any program that's worse for a country I would like to hear. And funny thing: that lead to full employment and a sustainable recovery. Ask your friend what he thinks about that.
After WWII there would be differences again. It's not likely that the US would have had such robust growth for decades. More likely a still unregulated stock market would have developed bubbles again and the unequal society would have produced inefficient politics and a lack of public investment.

So the question I have is, what would be the effect if the New Deal never happened? Would the Private Sector have driven recovery on it's own, and in a shorter period of time that the New Deal did?

Yes and no; current economic understanding suggests that the Great Depression was a result of monetary policy and wage rigidity, so it is true that the absence of the New Deal's spending and transfer programs wouldn't have made much difference. They neither increased nor decreased unemployment, which is what was driving the inflation, and while the public works programs probably invested money poorly they were never a large enough proportion of the GDP that they turned the US into a substantially planned economy. They were just a minor deadweight cost at a time when unemployment was causing huge deadweight cost, making others less visible. It's possible that the New Deal worsened wage rigidity which is possibly what your friend is referring to when he says that the New Deal may have prolonged the Depression.

That was the understanding of 10 years ago. I think there was a famous speech of Ben Bernanke at a party for Milton Friedman when he said it was the Fed's fault. But in recent years we realized the zero lower bound for interest does exist and that monetary policy can be rendered useless by the liquidity trap. Monetary policy in the late 20s and early 30s wasn't controlled by the government since they still had the gold standard. And wage rigidity isn't necessity something bad. If wages fall after a crisis it can even amplify a recession if it was caused by high private debt. If all wages fall by 20% it means debt to equity ratio increases by around the same percentage.

[energiewende]

Apologies, "They neither increased nor decreased unemployment, which is what was driving the inflation" should of course have read, "They neither increased nor decreased unemployment, which is what was driving the depression".

That was the understanding of 10 years ago. I think there was a famous speech of Ben Bernanke at a party for Milton Friedman when he said it was the Fed's fault. But in recent years we realized the zero lower bound for interest does exist and that monetary policy can be rendered useless by the liquidity trap.

While the significance of the possibility of a liquidity trap is disputed, there wasn't a liquidity trap in the US during the Great Depression. The Government could and at times did inflate the currency.

Monetary policy in the late 20s and early 30s wasn't controlled by the government since they still had the gold standard.

The government's monetary policy was to have the gold standard.

And wage rigidity isn't necessity something bad. If wages fall after a crisis it can even amplify a recession if it was caused by high private debt. If all wages fall by 20% it means debt to equity ratio increases by around the same percentage.

It also means unemployment increases. From a welfare point of view it is generally better for everyone to lose 20% of their income than for 20% of people to become unemployed and lose their income entirely (which reduces total wages by the same amount anyway, assuming job losses are evenly distributed). Wage rigidity that isn't caused by regulations (including union privilege) is simply a market failure and, while you might be able to find some case in which it's perversely beneficial, it's much more likely to cause problems.