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FSU ECO 3622 - Ch. 24 The New Deal

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First New Deal: 1933-1934Second New Deal: 1935-1941What were the goals of the new deal?General goals of 1st New Deal: relief, recovery, and reformNot much of anything had improved in over 3 yearsDo not forget the mentality of the American people (and politicians) that is the background of the decadeGeneral goals of 2nd New Deal: social insuranceWhat policies were implemented and what institutions were created to meet those goals?1st New Deal: ReliefWorks Projects Administration: focused on relatively small projects like roads and employed creative artistsWas formerly the “Works Progress Administration,” but name changed to avoid left-wing associationsMain concern was creating employment; contribution of infrastructure to the economy was secondaryPublic Works Administration: focused on relatively large projects like dams, hospitals, and airportsFederal Emergency Relief AgencyUnemployment reduced from 16.9% to 9.9%1st New Deal: RecoveryNational Recovery AdministrationAntitrust laws were suspendedAllowed for formal agreements to set prices and output (cartels)Identified as one of the crown jewels of the New DealNational Industrial Recovery Act (NIRA): raised prices and wages, spread work by reducing hours, and prevented price cutting by competitors trying to maintain volumeNational Recovery Administration supervised “code of fair practice” for each industryAgreements among sellers to set minimum prices, limit output, and establish minimum wages and maximum hours of workEffective? The codes redistributed rather than expanded outcomes. Unemployment, although reduced, was still incredibly high, and most manufacturing firms were operating at far less than capacityIn 1935 declared unconstitutional1st New Deal: Reform Part 1—Financial SectorFederal Deposit Insurance Corporation & Federal Savings and Loan Insurance Corporation: insured depositorsTremendous drop in bank failures after implementationGlass-Steagall Act: separated commercial and investment bankingToday, no longer existsSecurities & Exchange Commission: regulated securities (i.e. Wall Street)Ended commitment to the Gold StandardFederal Reserve System: created Fed Board of Governors, located in Washington1st New Deal: Reform Part 2—Agricultural SectorAgricultural Adjustment Administration: attempted to limit supply to increase pricesAcreage allotment was the best tool; farmers compensated by “adjustment payment”Declared unconstitutional in 1936  Congress passed a new AAA in 1938Marketing agreements (cartels to reduce output and raise prices) and surplus removal programs (The Food Stamp Plan)Secondary effects: high unemployment and hunger2nd New Deal: Social Security and Unemployment InsuranceGeneral goal: social insuranceThe attitude of the country towards social insurance changed dramatically after 1932Social Security Act of 1935: “sold” to the public as insurance with employee and employer equally sharing in contributionsThe employee usually bears the burden of taxes  resulted in lower wages for workersAmendment in 1939 converted the system to a pay-as-you-goWhat were the reactions to those policies and institutions?Many policies were not warmly received, but the idea that something was being tried was generally well received by the publicFireside chats were great toolsFrom Labor GroupsLabor was very supportiveNational Recovery Act provided new powers to unions to strike and organize free of employer interferenceAfter NRA was declared unconstitutional, the National Labor Relations Act (Wagner Act) provided even more support for union activityFurther guaranteed workers the right to form and join a labor organization, to engage in collective bargaining, to select representatives of their own choosing, and to engage in collaborative activity. Additionally outlawed “unfair” managerial practicesBetween 1930 and 1939 union membership increased from 6.8 to 15.8% of the labor forceThe Fair Labor Standards Act creates many of the laws we deal with today:Minimum wageRules for overtime payChild labor lawsThe New Deal failed to accomplish its largest goal: restore full employmentPersistence of unemployment was the result of “sticky” wages. Real wages did remain high, perhaps too highThe unemployed were slow to adjust their “reservation wage” as they searched for jobs and New Deal policies helped maintain wagesFrom the Supreme CourtThe Court supported some but not all New Deal policiesRuled unconstitutional:National Recovery Act (delegated too much arbitrary authority to executive branch and attempted to regulate interstate commerce)Agricultural Adjustment Act (financed by improper taxes)FDR attempted to appoint additional justices and “pack the court,” but failedRuled constitutional:Fair Labor Standards Act1937 is argued to be a major turning point in American history with regard to the powers of the federal governmentCriticsTurning the U.S. into a bureaucratic stateFunds spent to maximize political support for New Deal, not for genuine reliefNew Deal prolonged the depressionWhat are some of the legacies of the New Deal and Great Depression?1) Enduring institutions and programs: federal aid to agricultural industry, FDIC, SEC, unions, Fair Labor Standards, Social Security, Unemployment Insurance2) Idealistic spirit  additionally liberal legislation in the future3) Attitude that government can give solutions to economic difficulties4) Did not try to overthrow capitalism  just tried to reform and conserve the systemHow did America prepare for war?Since the US had many idle resources, it was in a good position to mobilize for warAt first, the US supplied the Allies with war productsLater, the US supplied itself and the Allies with war productsEconomic effects: in 1940, the government was spending 8.2% of GNP; in 1944, the government was spending 52.3 of total GNPFrom mid-1940 to mid-1945, the US produced LOTS of war products, like tanks, airplanes, rifles, carbines, and sidearms, field artillery and mortars, artillery shells, small arms ammunition, landing vessels, navy ships, and cargo ships and transportsKey points:Since the US was far inside its PPC, it could quickly increase productionCivilian purchases during WWII were generally lower than during the Great DepressionWithin 3 years, the US was producing more war munitions than Germany and Japan combinedThe US had several distinct economic advantages:Except for Pearle Harbor, the war was fought on foreign soilThe US had an absolute and


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