These two chapters bring a close on the New Deal and prepares us for the second half of the book covering World War II. The two chapters are:
- Chapter 11 – The Ordeal of Franklin Roosevelt
- Chapter 12 – What the New Deal Did
Although FDR won a big victory in 1937, it wasn’t complete. Although he demonstrated the change of the Democratic party by showing he didn’t need the “solid south” to be re-elected, he was unable to move his agenda forward. During the campaign he tried to remake the South by supporting reformers, but his candidates did not win. A reporter once rhetorically asked one of the southern senators (forget his name) if Roosevelt wasn’t his own worse enemy; “not as long as I’m alive” the Senator replied.
As a result of his miscalculations in the election he had implacable folds in both houses of Congress. These southern Democrats successfully filibustered a bill which would make lynching a federal offense. Of course the excuse was “state’s rights”. The south was worried that the anti-lynching bill would be followed by a civil rights bill.
By 1938 the era of The New Deal was essentially over; there was no major legislation to extend reforms. In fact, the roots of modern conservatism started at this time. Southern Democrats “issued a ten-point ‘Conservative Manifesto’ that denounced the sit-down strikes, demanded lower federal taxes, and a balanced budget, defended encroachment and warn of the dangers of creating a permanently dependent welfare class” (p 340)
In 1937 a modest recovery had started, but was soon washed aside by another wave of recession in 1938.
The lasting legacy of the New Deal was structural reform rather than economic recovery. In his summary of The New Deal, Kennedy says the pattern of reforms can be summed up in a single word: “security”. (p 365). In addition to Social Security, which gave security to older Americans, The New Deal brought security “for capitalists and consumers, for workers and employers, for corporations and farms and homeowners and banks and builders as well” (p 365). With the exception of social security and agricultural subsidies, these goals were reached without massive taxpayer costs. The New Deal used the twin strategies of information and reliability to bring about this security.
Security in the financial sector
In the financial sector security was brought about by two changes. The first was to separate investment banks from commercial banks which secured average American savings deposits from speculation. The second change was the introduction of the FDIC which guaranteed bank deposits up to $5,000. These two actions did not levy much cost on taxpayers or member banks; neither did it introduce impose heavy regulations. Together they injected “unprecedented stability into the American banking system” (p 366)
Security in the securities industry
Security was injected into the securities industry through the introduction of the Security Exchange Commission (SEC). Prior to this, there was no reliable information for investors to use to make informed investments. The power of the SEC lay in two provisions. The first mandated standard disclosures of corporate health: balance sheets, profit and loss statements, and compensation of corporate officers. The second was the requirement of verification of this information by audits using standardized accounting procedures. This action elevated the status of accountants.
Security in the Housing sector
The Federal Housing Administration was created in 1934 to insure long-term mortgages much like the FDIC secured depositors’ accounts. This was also when Fannie Mae, the Federal National Mortgage Association was created. These changes made it possible for people to buy houses with relatively low (10%) down and long term (30 year) mortgages. At the same time, construction and appraisal standards were put in place so that lenders could lend money with some level of safety in the property they were lending on. The housing sector was an especially important vehicle for reform because of its wide-reaching impact. There were no geographical boundaries; people all across the country needed housing.
The long view
In the past, I’ve viewed the Great Depression as an event in American history that “just happened” in a smooth flow of history. Now I think it can be seen as the visible fault line between frontier America filling out the country and modern America with diminishing free land building within the borders. In this decade America was remade; lasting social change had taken place. If nothing else, government was seen to have a “major responsibility in ensuring the health of the economy and the welfare of citiznes” (p377)
Come the end of the day, FDR steered America between the Scylla and Charybdis of “orthodoxy and revolution”. (p 380) Germany, Austria, and Italy didn’t go the same path. We’ll see the ramifications of that in the second half of the book.