Caught Skipping Class

The University of Louisville College of Arts and Sciences had better toughen its standards. Its leading graduate, Sen. Republican Leader Mitch McConnell, either didn’t take a modern American history course or was truant when they lectured on the first part of the 20th century.

I come to this conclusion because, yesterday, Sen. McConnell took time to grab some attention on the Senate floor by stating that the New Deal didn’t work. He made his speech to show his disdain for the recovery package called for by Pres. Obama, the majority of both houses of congress, and 51% of Americans who believe that it is “critically” important to improving the nation’s economy.

Here’s McConnell’s quote: “But one of the good things about reading history is you learn a good deal. And we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still at 15%.” He goes on to admit that it was WWII that “got us out of the doldrums.” I hate revisionist history unless, of course, it is founded on legitimate new discovery. No new research here. This is just partisan sour grapes, 70+ years of sour grapes.

I don’t know which text McConnell was reading to come up with his ideas. I’m partial to checking the Bureau of Labor Statistics, which has been collecting economic data since the 1880s. Using this reference, we can track both unemployment and GDP (in the 30s called GNP). I’m neither a historian nor an economist but I can follow their numbers pretty easily.

Unemployment: 1932=23.6%, 1933=24.9%, 1934=21.7%, 1935=20.1%, 1936=17.0%
GDP: 1932=58.7B, 1933=56.4B, 1934=66.0B, 1935=73.3B, 1936=83.8B

By 1933, 21 states had closed their banks. You couldn’t get a loan; you couldn’t cash a check or access your own deposits. Between 1929-33 the stock market lost 90% of its value. Prices were falling, there were foreclosures, and hope was all but lost.

Herbert Hoover, who was a kind man, a successful business man and administrator despite what popular history has made of him, had a plan that would end the nation’s economic woes. He had established the Reconstruction Finance Corporation (RFC) to help stem a run on the banks which was a good move. The rest of the plan was not so good. He demanded all government expenses be cut and that Congress balance the budget. He would not spend federal money on the states but did loan money through purchases of state issued bonds. He greatly favored private organizations providing help, as if the Salvation Army could solve the problems of the Great Depression.

With the economy in the shape it was in and doleful persona of Pres. Hoover the Republicans were in for an uphill battle that election year. Added to this along comes Franklin D. Roosevelt, the antithesis of Hoover.
The first mention of the phrase “New Deal” was made by Franklin Roosevelt in his acceptance speech at the Democratic National Convention held in Chicago. “I pledge you-I pledge myself to a new deal for the American people.” FDR’s goal was to put people back to work, help the markets recover and reform the financial system so that recovery would be sustained. Just about the opposite of the Republican plan. FDR won. The people wanted to try it a new way, to shed the destructive policies of the 1920s.

Right after the swearing-in the new programs began to roll out. FDR instituted the programs collectively known as The First 100 Days- the TVA, hydroelectric power, roads, parks, public buildings, etc. There was so much Keynesian deficit spending for New Deal programs poor Herbert Hoover must have gone into his own depression. It was FDR’s first term on steroids that restored hope by putting millions back to work, restoring consumer confidence, and tripling the Dow. A look at other economies around the world show that countries that did not apply massive government spending or began it late in the game had a worse time of it than we did.

In 1936 the public demonstrated that it thought the New Deal was working by reelecting Democrats by landslide majorities. The contagious optimism of the elegant president put us back on track so much so that FDR wanted to cut public spending and concentrate on balancing the budget. This action was followed an economic slow down. Some called it the “Roosevelt Recession.” Ironically it was cutting back too soon not spending too much that was the problem. It wasn’t much of a slow-down for we soon began a second round of massive government spending, this time for a war build-up. This round of spending preceding our entry into WWII followed by war spending itself put a lid on the Great Depression once and for all. Mitch McConnell got this part right.

The similarities between 1933 and now are eerie – from the greed, corruption, over leveraging of the banks, the drop in the Dow, lay offs, foreclosures, bank closings, and finally the emergence of a charismatic leader promising change. Let’s hope our new leader does as well as the other one