Essay on Evaluation and Impacts of New Deal, Balanced Budget, and the Gold Standard

The term “New Deal” originated with Franklin D. Roosevelt’s acceptance speech for the Democratic Party’s presidential bid in 1932. He made his statement during the convention after promising a fresh bargain for the American people. Despite his lack of detailed policy recommendations at the time of the convention, Franklin’s New Deal contains several measures to lift and change the US economy out of the Great Depression (United States Department of Labor, n.d). It serves as the foundation for a variety of federal government initiatives aimed at assisting the poor, regulating private enterprise, and expanding the economy. In addition, the New Deal highlights three important aspects of the US economy: capitalism reform through regulatory legislation and the introduction of new social welfare programs, economic recovery through federal spending and job creation, and unemployment relief. The New Deal program attempts to greatly expand the federal government’s size and reach, as well as fundamentally reshape American political culture around the idea that the government is responsible for the well-being of its population (Library of Congress, n.d). At the time of Roosevelt’s inauguration, America was on the verge of a massive economic meltdown, with industrial output half of what it had been in the previous three years, the stock market just recovering from significant losses, and a 25 percent unemployment rate. Between 1933 and 1934, the first New Deal is implemented through a legislative measure known as The First Hundred Days (Washington, 2018). During this time, Congress, at Roosevelt’s request, passes legislation tackling the banking crisis, poor industrial performance, and unemployment by establishing new agencies and laws. The agricultural adjustment act, which tries to raise agrarian prices by granting government subsidies to lower output farmers, is one of the essential legislative laws.

Another legislation covers the civilian conservation corps, which aims to hire young, unmarried men for federally supported occupations on public lands. The national recovery Act is a crucial statute incorporated into the New Deal to enhance the business profitability and worker wages by establishing industry-by-industry standards that determine pricing and wages and ensuring employees’ rights (Leuchtenburg, 2018). As a result, the primary goal of this legislation is to increase industrialization and commerce operations in the country to increase revenue. In reaction to the US economic downturn, the federal emergency relief act was adopted, which provides federal money to states to cover salaries for government employees, local soup kitchens, and other direct-aid to the poor programs (History.com Editors, 2009). Along with the passage of these bills, Roosevelt supports the establishment of the Securities and Exchange Commission, which will provide critical federal oversight and regulation of the stock market.

Furthermore, the federal deposit insurance corporation ensures that individuals who have money deposited in banks will get it from the federal government if their banks fail. Between 1935 and 1938, the second phase of the New Deal focuses on strengthening worker protections and ensuring Americans’ long-term financial security. Millions of Americans were employed in public works projects ranging from road and bridge construction to playwriting and mural painting during this time period, thanks to the introduction of legislation on works progress administration. This program helps reduce unemployment rates and improves the empowerment of people by ensuring long-term financial security (Fishback, 2014). Workers also have the ability to form unions and bargain collectively for pay, benefits, and working conditions. The social security trust funds continually grow due to worker and employee payments through payroll taxes, which are deducted from monthly paychecks for pensioners over 65 and long-term disabled people.

To establish a fair labor standard, the second phase of the New Deal mandated that every worker work 40 hours per week, plus one and a half hours for overtime. The program establishes an hourly minimum pay and prohibits child labor that enhances human dignity and avoids overexploitation of human labor services (Dunleavy, 2018). The New Deal is a program that has had a wide range of effects on the US economy. It has re-energized the economy by increasing consumer demand through federal deficit expenditure. This fiscal strategy is quite similar to the Keynesian economic model, which claims that putting money in the hands of consumers stimulates them to buy things created in the private sector. As a result, employers thrive on selling more things and earning more money to hire more workers who can buy more products (United States Department of Labor, n.d). This economic plan is put in place by Roosevelt to aid the recovery of the American economy from the Great Depression. The New Deal initiative offered loans and grants to address a wide range of problems. Increased retail sales per capita and net in-migration were achieved as a result of the public works and relief programs, which enhanced economic activity in the United States. New migrant arrivals had a favorable impact on the welfare of the existing population since they fueled shorter work weeks, resulting in more equitable labor standards. Since a growth in private employment has resulted in a 10 percent decrease in newborns deaths, suicides, fewer property crime, and infectious disease deaths, relief expenditure reduced crime rates and many deaths (Leuchtenburg, 2018). Furthermore, relief spending increased the birth rate; yet, because it mostly replaced payments made through regular programs, old age support did not reduce the death rate of the elderly.

Farmers whose revenues improved received modern subsidies during the New Deal. Furthermore, the farm program favored landowners, wealthy landowners, by paying them to remove land from production at the expense of numerous farm laborers (Fishback, 2014). The preceding years had seen a dramatic rise in house mortgage delinquencies and foreclosures. Nonetheless, by establishing the Home Owners’ Loan Corporation, the New Deal contributed to the resolution of the mortgage issue. This company sold bonds to homeowners who used them to get nonfarm mortgages from lenders. The HOLC closely replaced risky mortgages on lenders’ books since it frequently paid prices that met the interest and principal owed as well as taxes paid by the lender (Washington, 2018). Borrowers also benefited since HOLC refinanced at a low interest rate, prolonged the loan term, and implemented a modern, direct-reduction loan arrangement, in which each loan payment directly retired a piece of the principle owed. Furthermore, they benefited because HOLC was slow to foreclose, frequently delaying for more than a year and a half to give debtors more time to recover from the recession. A federal bond guarantee enables the HOLC to issue bonds at low interest rates and operate its patient foreclosure policy (United States Department of Labor, n.d). It also had a positive impact on property markets, preventing further price and ownership decreases. It stopped house prices from falling in most states across the United States, and it saved the homes of around 11 percent of nonfarm homeowners.

The New Deal addressed the unemployment crisis in the United States. The Federal Emergency Relief Administration gave direct support to states, which could pass it on to unemployed people. During its brief existence, the work-relief program supplied jobs. FDR also established the Works Progress Administration, which paid artists, playwrights, and actors to work and build new schools and other institutions across the country (United States Department of Labor, n.d). Because it increased tremendous economic empowerment, the initiative had a substantial financial and emotional impact on the people it helped. The National Recovery Administration, established by the New Deal, stifled uncontrolled competition, driving prices down and contributing to a deflationary cycle. Through explicit norms of proper completion, it aimed to fix earnings, wages, and working hours (Dunleavy, 2018). Furthermore, by compensating farmers to produce less, the Agricultural Adjustment Administration helped keep farm and agricultural prices stable. Several notable accomplishments were made possible by the New Deal. It re-employed people, saved money, and restored faith in the American economic system, all while instilling hope in the American people. By imposing federal bureaucracies, the federal government infringed on state sovereignty and impeded a private-sector-led recovery. The government debt has soared to 43 percent of GDP, more than doubling its previous level (Fishback, 2014). Deficit spending and mounting debt have done little to address America’s economic problems, and the country’s debt now stands at a staggering $26 trillion, with more on the way.

Apart from the positive aspects of the New Deal, it also had inevitable negative consequences that harmed and hampered people in many ways. Excise taxes brought in more money than both personal income and corporate income taxes combined. Consumers had less money to spend, and firms had less money to invest in growth and jobs due to the revenue imbalance (History.com Editors, 2009). New Deal taxes were massive job killers, pushing the unemployment rate to 17 percent. Employers had less money for expansion and jobs as a result of higher company taxes. In addition, social security payroll taxes made it more difficult and expensive for employers to hire individuals. So many job opportunities were lost due to New Deal measures like the National Industrial Recovery Act (Library of Congress, n.d). For example, it reduced output and raised wages above market levels, making it more expensive to hire personnel. According to research, the initiative resulted in the loss of nearly 500,000 employment opportunities for Blacks alone. The Agricultural Adjustment Act slashed farm production, wreaking havoc on black tenant farmers desperate for jobs. Furthermore, the National Labor Relations Act of 1935 provided labor unions with monopoly bargaining power in the workplace, which resulted in violent strikes and forced unionization of mass-production companies (Washington, 2018). The unions negotiated above-market salaries, resulting in mass layoffs and contributing to the Great Depression of 1938.

Budgeting has become considerably more complicated than it used to be due to significant changes in the budget structure, political party attitudes, and the interaction between the president and Congress. Previously, key budgeting and budgeting traits that led in more satisfying outcomes could be discovered. (George, 2020). Although it will be difficult to recreate such features exactly, some of their characteristics may be incorporated, which could help improve fiscal policy rationality in the future. In this piece, I’ll focus on Eisenhower’s budget for fiscal year 1960, which was his most successful in terms of reaching his budgetary goals. Eisenhower’s finances followed a steady pattern throughout his two mandates. Balancing the budget was a sacred objective for him. Following his declaration that he would like to provide a tax cut since tax burdens were much too high, he emphasized that his major goal was to lower tax rates under current circumstances in order to satisfy pressing national obligations (Marotta, 2013). Eisenhower, on the whole, advocated for a frugal government and strove to keep spending growth to a minimum. He did not, however, push for changes to social programs, and some may argue that he gave Republican approval to Social Security, the New Deal’s most major achievement. During his administration, Eisenhower was tough on defense, foreshadowing his farewell address, in which he cautioned the public about the military-industrial complex’s strength (Liebman & Jeffrey, 2010). Simultaneously, he did not hesitate to invest heavily in two key infrastructure projects: the interstate highway system and the St. Lawrence Seaway.

Eisenhower only managed to balance the budget half of the time during his eight years as president. Following that, the country had a two-year post-Korean War recession (Rudolph & Eugene, 2017). The budget deficits of 1954 and 1955 caused significant concern, but Eisenhower implemented policies that helped the economy bounce back from recession with a fury, growing by 7 percent in 1955. In 1955 and 1956, the growth allowed for budget surpluses (Penner, 2012). This expansion had a variety of consequences for the US economy. Eisenhower favored a conservative government and strove to keep spending increases to a minimum. However, he did not argue for cuts to social programs, and many people might claim that he handed the Republican seal of approval to Social Security, the New Deal’s crowning achievement. During his administration, Eisenhower was tough on defense, foreshadowing his farewell address, in which he cautioned the public about the military-industrial complex’s power (Glick, 2012). Simultaneously, he did not hesitate to spend large sums on two crucial infrastructure projects: the interstate highway system and the St. Lawrence Seaway.

Instead of maintaining a lean military, Eisenhower argued that committing too much money to defense would hinder economic progress and imperil national security. He favored the Air Force and Navy above the Force because he believed that a vast army would make it easier to intervene in minor conflicts worldwide (Glick, 2012). Defense spending naturally fell to around 14 percent of total GDP after the Korean War due to the balanced budget policy. Military officers, mainly the Joint Chiefs of Staff, were outspoken in their opposition to Eisenhower’s decrease in the defense budget (Smith, 2012). He also used the Soviet-launched sputnik as a reason to urge for a significant increase in research and higher education spending, which included investment in both civilian and military matters.

Furthermore, Congress voted to collaborate in constructing the St. Lawrence Seaway with Eisenhower’s support and through the balanced budget policy. This program was in line with plans to open ocean-going ships and other types of watercraft (Rudolph & Eugene, 2017). Eisenhower’s balanced budget plan included infrastructure spending, which he achieved by signing the Federal-Aid Highway Act in 1956. Because federal gasoline taxes funded the projects, this legislation spurred significant roadways in the United States at reduced costs. Although the program added little to the country’s deficit, it significantly increased the federal government’s influence in creating national highway policy compared to the states.

The expansion of social security had a good impact on American presidents and the country since it met the need for economic stability. The Eisenhower administration pushed a rehabilitation approach in an attempt to use federal monies to minimize individual, state, and municipal reliance on the federal government (George, 2020). This strategy is based on the administration’s social security and vocational rehabilitation laws from 1954. s the introduction of disability insurance in 1956 demonstrated, bureaucrats at the Department of Health, Education, and Welfare, in collaboration with a Democratic Congress, expanded the 1954 laws into a major expansion of federal power. In the 1950s, the driving force behind welfare reform was institutional consistency, not a valiant individual endeavor.

Furthermore, by endorsing the expanded social security services, the approved changes bolstered the health and economic security of Americans who could participate in the Old-Age and Survivors Insurance program. The program enabled them to build a solid foundation of financial security for themselves and their families (Liebman & Jeffrey, 2010). The scheme allowed retired workers to earn more money without jeopardizing their social security benefits. The number of exempt earnings was increased to $1200 per year, and it applied to both self-employed and wage earners. He also pushed for legislation proposed by the Republican Party that would build additional hospitals and nursing homes for chronically ill people, as well as unique medical facilities for people who don’t need to be hospitalized or rehabilitation facilities (Marotta, 2013). This initiative assisted states and local communities in addressing the nation’s educational challenges, provide and improve housing to reduce slums, and develop and conserve metropolitan areas.

The world community regarded the famous classical gold standard as a mark of approval, based on the assumption that gold is an appropriate monetary standard both domestically and globally due to its attributes as a standard of value and a medium of exchange. The gold standard limited policymakers’ ability to battle deflation and economic contraction (White, 2008). Because big commercial banks borrowed from their central banks infrequently, their control over the money supply was shaky, and they could not cope with severe macroeconomic contractions. The gold standard limited policymakers’ ability to fight deflation and economic contraction. Major commercial banks had limited control over the money supply and were unable to cope with severe macroeconomic crises since they borrowed from their central banks infrequently. (Konkel, 2018). The gold standard had to be saved at any cost, according to the consensus worldview. Indeed, officials mistakenly believed that if the country maintained the gold standard, macroeconomic problems such as unemployment would stabilize, and output would restart. In contrast, any attempts to raise employment would fail outright.

The gold standard disrupted the price-specie flow process, resulting in more unpredictable prices. There was no automated check to allocate gold reserves across member countries because the gold standard was regulated. Because the money supply was declining internationally, not only in the United States, the price-specie flow mechanism broke, partly due to a gold shortage (Konkel, 2018). Second, while the discount rate declined between 1929 and 1930, bills discounted lost money faster because un-borrowed reserves were not increased. Despite the gold influx, high-powered money declined by 5 percent, showing that the Federal Reserve was sterilizing gold inflows and decreasing high-powered money even further.

The collapse of the price specie flow mechanism resulted in some countries’ accumulation of gold reserves, exacerbating the existing balance of payments imbalance and financial instability. Speculative attacks on currencies came from capital flight under the god standard. Following the appearance of variable capital and gold flows, the government commissioned the Macmillan Committee, which recommended a 10 percent depreciation of the sterling’s gold parity and a specific plan for doing so within the gold standard’s constraints (Cesarano, 2008). The gold standard made it difficult for the economy to recover. The gold standard was the principal transmission mechanism of the Great Depression, with no country experiencing any recovery while remaining on it. There was a significant disparity in real wage growth between countries that stayed on the gold standard and those that departed it; the difference was around six percentage points per year (Cecchetti & Schoenholtz, 2017). This disparity resulted from countries that had left the system had more freedom to implement expansionary monetary policies, even if there was a six-month lag before doing so. The six-month period was a necessary interlude to persuade the public and policymakers that abandoning gold would not result in inflation (Cachanosky, 2021). Regaining monetary independence broke the relationship between the balance of payments and the price level, allowing countries to cut interest rates and grow production without fear of a currency crisis.

In conclusion, the New Deal changed the government’s role, persuading the majority of ordinary Americans that the government could, and indeed should, interfere in the economy and safeguard and provide direct assistance to American individuals. President Roosevelt’s New Deal resulted in economic relief, recovery, and reform, as well as the rebuilding of the economy’s foundation, allowing the post-World War II economic boost to return it to normal (Library of Congress, n.d). The New Deal policy brought together voters and altered the connection between the government and the people of the United States. And his reform of the executive branch created the framework for the contemporary president. Even though the Eisenhower era was a vastly different time, Leaders and citizens can still apply some lessons to today’s economic policy issues. The most crucial point is that when discretionary expenditure dominated the budget, it was far easier to keep total spending under control and set logical objectives. Congress did not have to deal with enormously popular, automatically expanding, and massive entitlements for the elderly ( Penner, 2012). It’s critical to devise laws and processes that give the government more control over benefits, making them appear more like discretionary spending. That isn’t to say that stricter rules are always required to reduce spending. It simply means that any increases should be deliberate rather than coincidental. The gold standard was a critical factor in catapulting the regular downturn of 1929 into the Great Depression. This massive economic shock spawned a new science of macroeconomics that is still recognized and utilized today. Because the gold standard was developed during economically and politically tumultuous times, with little international cooperation, it had intrinsic structural flaws that contributed to the early years’ rising financial instability (Bernanke, 2004). Only two macroeconomic impossibilities, capital mobility, independent monetary policy, and fixed exchange rates, were met when various countries implemented the gold standard. Central banks were unable to enforce separate economic policies due to fixed exchange rates and free capital movements, and when they attempted to do so, the system imploded.

References

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Cachanosky, N. (2021, January 12). What the gold standard is and why the government killed it. AIER. https://www.aier.org/article/what-the-gold-standard-is-and-why-government-killed-it/.

Cecchetti, S., & Schoenholtz, K. (2017, January 6). Why a gold standard is a very bad idea. Money, Banking, and Financial Markets. https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea.

Cesarano, F. (2008). Monetary theory and BRETTON woods: The construction of an International Monetary Order. Amazon. https://www.amazon.com/Monetary-Theory-Bretton-Woods-International/dp/0521739098.

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