Why the New Deal Matters: a review

Political historian Eric Rauchway argues for the continued relevance of the New Deal as a symbol of the capacity of democratic states to restore confidence in times of crisis

Roosevelt on the campaign trail, 1932

Reimagining the role of the state

The programme gathered momentum over Roosevelt’s first two administrations, evolving into a sweeping series of initiatives that sought not simply to rebuild the nation’s fabric, but remake it. The New Deal evokes images of grand public works — of new dams, bridges, airports and highways — and the introduction of social security provisions such as pensions and unemployment insurance. But it also encompassed the strengthening of labour rights, including the introduction of a minimum wage, disability insurance and guaranteed access to trade unions, and legislation to tame the financial sector that had crashed in 1929, such as requirements for transparent corporate stock offerings and guaranteed access to money deposited in banks. Indeed Rauchway suggests that the New Deal reshaped America’s political and economic landscape so profoundly that its legacy is scarcely visible: ‘Like the proverbial fish that does not know it is wet because it never leaves the water, we sometimes have trouble discerning the properties and extent of the New Deal because it is the medium through which we move all the time.’

Rebuilding America

The New Deal infrastructure projects were the most visible early manifestations of the new economics emerging in the 1930s associated with John Maynard Keynes, who made the then radical case for the capacity of the state to inject life into depressed economies. Keynes’ theory of the multiplier suggested that well targeted government investment could kickstart demand in an economy drifting with the tide of market forces, putting idle resources to work, and creating a snowballing effect of accumulating economic activity.

A New Deal for everyone?

Rauchway’s essay is as much elegy as history, but he does acknowledge the New Deal’s limitations and controversies, notably its mixed legacy for Native and African Americans. Legislation was passed that did allow Indian peoples to reclaim, where possible, land for common use such as grazing, ending the prevailing policy of parcelling tribal lands for sale to private owners. Their right to organise their own governments was recognised, with sovereign powers over their homelands reverting to Indian institutions. But fears among some Native Americans that the reestablishment of tribal ownership risked turning turning reservations into racially segregated communities cut adrift from the main current of US economic life proved at least partially prophetic. The decline of herding as a sustainable source of income forced Indian communities to turn away from their ancestral economic model, setting them ‘ruthlessly on the road to a wage economy that looked much like any other in America, only poorer’.

New Deals then and now

But Rauchway’s essential point stands: the New Deal matters because it established the principle that the state could act effectively in times of economic crisis. Although overshadowed by the war effort, and smaller in financial scale than subsequent interventions — the rescue package summoned for the 2008–9 banking crisis was five times bigger — the New Deal reshaped American society more dramatically. It wasn’t conceived as a ‘bailout’ as was President Obama’s response to the Great Recession, as metaphor suggesting the ship is essentially sound, but as a ‘reconstruction’. The New Deal set the course of postwar politics across the Western world until the tide turned against Keynesian economics in the 1970s. Roosevelt sought to embed fundamental New Deal principles in charters for postwar institutions such as the Atlantic Charter, which promised ‘improved labour standards, economic advancement, and social security.’

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