It was unclear, however, how merely allowing corporations to become larger through nonmarket forces and to fix prices would restore vitality to the system. Eventually the collusive effects of the NIRA sparked intense opposition, especially from small employers, who referred to the Blue Eagle as a Soviet duck or a fascist pigeon, culminating with the Supreme Court’s declaring the act unconstitutional in 1935. But in the meantime, it did what most New Deal programs did: it spent money on a large scale. The NRA became so corrupt that Johnson himself persuaded the Senate to name a committee to investigate, headed by the famous attorney Clarence Darrow. The committee’s report, delivered in May 1934, called the NRA, among other things, “ghastly,” “preposterous,” “savage,” “wolfish,” “monopolistic,” and “invasive.”16
Labor and Leviathan
By that time, however, the Democratic Party realized that it had struck gold in the votes of the labor unions, which it courted even more intensively after 1934, when the midterm elections gave the Democrats an even larger majority. The new House had 322 Democrats to only 103 Republicans and fewer than a dozen third-and fourth-party representatives. The Democrats held more than a two-thirds majority in the Senate as well. It was the closest a single party had come to dominating the government since the Southern Democrats had walked out during secession. Traditional Democratic supporters, such as the unions, saw their opportunity to seize power on a more or less permanent basis, and even the split of the unions in 1935, when John L. Lewis left the older, more established American Federation of Labor, did not damage the Democrats’ support with organized labor. Lewis’s new union, the Congress of Industrial Organizations (CIO), drew together industrial unions like the United Mine Workers, the Ladies Garment Workers, and the Amalgamated Clothing Workers. In 1934, however, the unions overplayed their hand. A series of violent strikes, many of them initiated by radical elements, resulted in a wave of looting, burning, and general rioting in New York, Philadelphia, and Milwaukee. That was even before the textile workers began a strike of monstrous proportions, slamming shut factory gates in twenty states and setting off armed conflicts when police and troops battled strikers. Roosevelt conveniently was out of the country at the time, arriving home (with his characteristic good fortune) after the strike had ended.
If anything, labor unrest only encouraged the more radical elements of the Democratic Party to press for more extreme demands within their new majority. Many viewed the period after the 1934 elections as a chance to entrench programs that only a decade earlier might have seemed unattainable, locking their party into power for the foreseeable future.17 Harry Hopkins sensed the critical timing, declaring desperately, “We’ve got to get everything we want—a works program, social security, wages and hours, everything—now or never.”18 Securing the loyalty of the labor unions was crucial to establishing the Democrats permanently as the majority party; thus the new Congress passed the National Labor Relations Act, known for its author, Robert Wagner of New York, as the Wagner Act, which protected the right to organize unions and prohibited firing union activists. More important, perhaps, Congress established the National Labor Relations Board (NLRB) to bring management and labor together, at least in theory. In practical terms, however, management had to bargain in good faith, meaning that anytime the NLRB decided management was not acting in good faith, it could impose sanctions. The Wagner Act thus threw the entire weight of government behind the unions—a 180-degree turn from the government’s position in the late 1800s.
Similar prolabor legislation involved the Fair Labor Standards Act, which established a minimum wage. With the legislators’ focus on raising the wages of employees, especially male family heads, little attention was directed at the natural business reaction, which was to trim workforces. More than any other single policy, the minimum wage law cemented unemployment levels that were nearly twice those of 1929, ensuring that many Americans who wanted jobs could not accept any wage offered by industry, but could only work for the approved government wage. After the law, in order to pay minimum wage to a workforce that had previously consisted of ten employees, the employer now could only retain eight. The problem was that no set wage level creates wealth; it only reflects it.
Employment recovery represented the industrial side of job relief, whereas raising income in the agricultural sector was the aim of the Agricultural Adjustment Administration (AAA), which sought to drive up prices by restricting farm output. Aimed at addressing the central problem of agriculture in the 1920s—overproduction, which had resulted in lower prices—the AAA subsidized farmers not to produce, that is, to restrict production. In one summer southern farmers received funds to plow up 10 million acres of cotton, and midwestern farmers were paid to eliminate 9 million pounds of pork, all at a time when unemployed starving people stood in soup lines. Farm income indeed rose, but only because farmers took the government subsidies and kept their production levels up, occasionally double planting on the remaining acreage. Large corporate producers did well in the new system, receiving substantial government checks, with a large sugar company receiving more than $1 million not to produce sugar. But the farm programs worked in favor of the Democrats, adding to the Roosevelt coalition. Even after the Supreme Court declared the AAA unconstitutional, the administration shuffled the subsidies off to existing soil conservation programs, where in one form or another they remained until the 1990s, when Congress finally eliminated most of them.
Still other parts of the Hundred Days incorporated more direct state planning, such as the Tennessee Valley Authority (TVA) Act, which authorized public money for multipurpose dams to generate power for rural areas. The authority would build a 650-mile canal from Knoxville, Tennessee, to Paducah, Kentucky, and marked a further insinuation of government into private markets.
Although most of the recovery efforts could be, and were, justified as necessary to pull the nation out of the Depression, it would be naive to ignore the political implications of the measures, especially for the Democratic Party. With each new government initiative, reliance on the federal government grew, and the party that would promise to maintain, or even expand, government assistance, could count on the votes of large numbers of Americans who saw the opportunity to tax others for their own benefit. Such was the case with the Home Owners’ Loan Act of June 1933, in which the government guaranteed home loans. This legislation had the effect of benefiting new home buyers by making it less risky for a lender to extend credit, but it created a new quasi-dependent class of people who assumed it was the government’s responsibility to guarantee that everyone could own a home. Supports of this type were expanded under similar Federal Housing Administration (FHA) and, after World War II, Veterans Administration (VA) loans, all under the guise of making home ownership a right.19
All these acts carried the potentially fatal risk that at some point a majority of Americans would see the path to prosperity as running through the government—essentially taking from their neighbors to pad their own pockets—and at that point the game would be up. All politics would disintegrate into a contest of promising to dispense more goodies than the other fellow.
Regardless, the political and economic policies of the New Deal almost without exception created long-term unintended effects that severely damaged the nation (see below, The New Deal: Immediate Goals, Unintended Results). Only a half century later did Americans pay attention to the warnings given by conservatives in the 1930s about the dangers posed by introducing such massively destructive social and economic incentives into American life. In almost every case, the temporary fix offered by the New Deal program resulted in substantial long-term disruptions of labor markets and financial structures and reduced American competitiveness. Whether or not they led to an inflationary state (as some conservatives contend) is unproved, but without question they saddled future generations with mountains of unfunded obligations (like Social Security), and laid the groundwork for destroying the black family through AFDC and other welfare policies.
NEW DEAL PROGRAM
INTENDED EFFECT AND/OR IMMEDIATE RESULT
LONG-TERM EFFECT AFTER 50 YEARS
Civilian Conservation Corps
To provide employment to 2.5 million; address conservation issues.
Negligible. Program ended in 1942.
Agricultural Adjustment Act
To control production; raise prices by offering subsidies to farmers. Farm income rose 51%, but did not return to 1929 levels until 1941.
Farm subsidies raised prices to consumers, benefited large agribusinesses, and encouraged overproduction. In 1995, Congress ended most agricultural subsidies because of cost, inefficiency, and discrimination against both consumers and small farmers. Subsidies on dairy products and sugar remained.
Glass-Steagell Act (1935)
To seperate investment banking (brokerage of stocks and bonds) from commercial banking (loans, checking, and savings accounts)
Allowed financial institutions other than banks (e.g., insurance companies) to compete with banks in a wide range of services, such as checking and insurance; limited American banks’ ability to compete in world markets and to diversify.
Tennessee Valley Authority Act
To create the TVA and provide government-subsidized electric power to private citizens.
Developed Tennessee River Valley hydroelectric dams with locks; increased government’s intrusion into private sector electric utility operations; fostered monopolies in electric power.
Federal Deposit Insurance Corporation (1934)
To insure all bank deposits up to $5,000 per account; bring stability to the banking system.
Sister agency, Federal Savings and Loan Insurance Corporation (FSLIC), contributed to the collapse of the S&L industry in the 1970s and 1980s by encouraging risky investments by managers and owners. Total tab: $800 billion.
Revenue Act of 1935
To offset huge federal deficits under FDR by enacting huge tax hikes and estate taxes.
Accelerated progressive notions of redistribution by targeting upper classes. Did not offset deficits, but rather ensured that the rich would continue to avoid taxes by being able to move money offshore or purchase tax-free municipal bonds, shifting the real burden onto the poor and middle classes. Concept remained in place until John Kennedy’s and Ronald Reagan’s cuts, both of which increased the amount paid by the wealthy.
Works Progress Administration (1935)
To create public works jobs for 9 million to construct bridges, sidewalks, art theaters, opera houses, and other projects.
Ended in 1943 during World War II. By 1937, though, unemployment had again soared to 14 million. Many WPA projects were unnecessary economically and often catered to the elites (opera houses, art galleries, etc.) and subsidized via deficits.
Social Security Act (1935)
To provide a supplemental old-age pension and emergency unemployment compensation as well as aid to families with dependent children (AFDC).
Because of cross-generational transfers, the Social Security Trust Fund, while solvent during the baby boom years, is projected to be in severe deficit by 2020, and, depending on the economic conditions, bankrupt not long after that, even according to the most optimistic estimates. The system faces massive overhaul, with higher taxes, lower benefits, or privatization. One result of AFDC was the “illegitimacy explosion” of the 1960s–1970s and was substantially curtailed in 1995 as part of the welfare reform bill.
Fair Labor Standards Act (1934)
To set minimum wages and maximum hours that could be worked; raised wages in industry while reducing employment overall.
New studies suggest this might have prolonged the Great Depression; minimum wage laws in the 1950s and 1960s were closely correlated with minority teenage unemployment at the time, suggesting the laws encouraged discrimination.
Moreover, the New Deal caused a new influx of corporate money into politics unlike anything seen before. What stands out is how little business gave to either political party prior to the Great Depression and the manipulation of the tax code that politicians wrought in an attempt to combat it.20 Sociologist Michael Webber has conducted a study of the contributions of corporate boards of directors in 1936, finding that region and religion—not class identity—determined who gave how much to either the Democrats or the Republicans. Instead, the lesson corporate donors learned in 1936 was that government had put itself in the position of picking winners and losers in the tax code, making it critical, for the first time, to influence politicians with money.
Social Change in the Great Depression
With the end of Prohibition, the saloon business mushroomed—one of the few growing areas of enterprise in the 1930s. Another growing industry, which served somewhat the same purpose with less destructive physical effects, was motion pictures. Although several studios met with hard times during the Depression, movies became more popular than ever, providing a low-cost way for people to escape reality temporarily. Some 60 to 90 million Americans went to the movies every week, seeing classic stars such as Greta Garbo, Jean Harlow, Clark Gable, Cary Grant, and Joan Crawford, as well as a relatively new use of the silver screen for full-length animated features, pioneered by Walt Disney’s Snow White and the Seven Dwarfs (1937). Walt Disney Studios, MGM, Warner Bros., and many others cranked out formula pictures from the famous studio system in which a motion picture company signed artists and directors to long-term contracts, making them (in some cases) little more than assembly-line employees. The assembly-line process of making movies led to great names in the industry being shuffled in and out of pictures like the interchangeable bolts and screws in Eli Whitney’s factory.
For all its detractors, the studio system attained, at least briefly, a level of quality that has never been matched. Consider the stunning releases of 1939—by far the best year in motion picture history, with no other coming close. Several notable pictures received Academy Award nominations, including Dark Victory, Of Mice and Men, and Wuthering Heights. At least five of the nominees rank among the greatest films ever to grace the silver screen: The Wizard of Oz, Stagecoach, Mr. Smith Goes to Washington, Goodbye Mr. Chips, and, of course, the picture that swept the Academy Awards, Gone With the Wind. That year, John Wayne, Judy Garland, Jimmy Stewart, and Clark Gable all appeared in roles that defined their careers. Even B-list movies from that year, such as Beau Geste, are considered classics.
Radio broadcasting also reached new heights, with more than 39 million households owning radios by the end of the 1930s. They heard stars like comedians Jack Benny and Edgar Bergen, or listened to adventure shows such as The Lone Ranger. Perhaps the event that best demonstrated radio’s tremendous influence was Orson Welles’s broadcast of “The War of the Worlds” on October 30, 1938, on The Mercury Theatre on the Air. The broadcast induced mass panic as Welles convinced thousands of Americans that Martians had landed and had laid waste to major cities in an intergalactic war.
The popularity of radio and movies said much about the desire of Americans to escape from the circumstances of the Depression and also from the relentless criticism of American life that emanated from intellectual circles. Such attacks on American institutions commonly appeared in many of the books deemed classics today, but which inspired few at the time. Chief among the critical writers of the day, John Steinbeck (Grapes of Wrath, 1939, and Tortilla Flat, 1935) and John Dos Passos (Adventures of a Young Man, 1939) won literary acclaim, but the general public passed their books on the way to purchase Margaret Mitchell’s Gone With the Wind (1936). Americans showed that they needed chicken soup for the soul—stories of courage, hope, and optimism—not another application of leeches or a dose of castor oil masquerading as social commentary.
The First Referendum
After four years of the New Deal, many of the programs had shown positive short-term results. Unemployment had dropped from 12 million to about 8 million; the banking system had been sa
ved; and the panic mentality associated with the stock market crash had ebbed. Most important, Roosevelt’s flurry of activity convinced average Americans that he cared about their circumstances, and that the administration was at least trying to solve the nation’s economic woes. On the other hand, most of the long-term dangers and structural damage done by New Deal programs remained hidden. Even business still hesitated to attack Roosevelt’s statism, which provided a chance for those companies still operating to solidify their hold on the market, free of new competitors. Thus, Roosevelt stood little chance of being unseated by any candidate in 1936. The Republicans ran Alf Landon, governor of Kansas, who all but endorsed Roosevelt with a me-too-only-better attitude, as a sacrificial candidate. Landon was trounced, receiving only the electoral votes of Maine and Vermont.
The Democratic Party completed its remarkable comeback from the depths of Reconstruction by forging a new coalition. Despite the hardships caused by the New Deal’s agricultural programs, farmers—especially in the South and West—still remained loyal to the party. Unionized labor’s votes were cemented through the minimum wage legislation and the Wagner Act, whereas ethnic groups, such as Italian Catholics and Jews, were enticed by large numbers of political appointments and repelled by memories of the Republicans’ Prohibition policies. But the newest group to complete the coalition was comprised of blacks, who had supported the GOP since Reconstruction. The shift of the black vote provided the Democratic Party with its single most loyal constituency well after the millennium. Eleanor Roosevelt, in particular, publicly courted black voters for her husband, and public education programs temporarily provided a stimulus for reducing black illiteracy. New Deal public health programs also proved popular, and Roosevelt’s rhetoric, if not his actions, was supportive and sympathetic to black concerns. Republicans, who had essentially abandoned blacks after 1877 and refused to challenge Plessy, lost their appeal to black citizens who still labored under strict segregation in parts of the country and blatant racial discrimination virtually everywhere. A combination of blacks, unions, ethnic groups, and big-city intellectual elites ensured Democratic dominance over both houses of Congress for more than forty years, ensuring a total grip on public policy agendas, even when Republican presidents were in office.
A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror Page 94
