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Monday, January 4, 2010

The New Deal Was a Good Idea, We Should Try It Some Time

Dissent Magazine

The New Deal Was a Good Idea,
We Should Try It This Time

On the blogs, in the newspapers, in restaurants, there has been so much discussion of the New Deal lately that the chatter could seem like that at a historians’ convention. Conservatives express panic about socialism and argue that the New Deal experience proved government intervention into the economy does not work. Liberals talk of the New Deal as if it had been a panacea. By contrast, in the 1930s the opposition to Franklin Roosevelt’s New Deal came from the Left as well as the Right. A Popular Front of politicized citizens ranging from liberals to communists complained that programs were inadequate both in reach and funding.

Today, by contrast, criticism of the New Deal comes almost exclusively from the Right. Its most trenchant charge is that the New Deal didn’t end the Great Depression. Only the Second World War did so, by providing a military rationale for massive state spending.

This conclusion is quite correct, and not at all original, but the conservatives are wrong about the reasons, and it is time for those on the Left—or those who think of themselves as part of the coalition crafted by Barack Obama’s campaign—to rethink the New Deal’s limitations. The need seems particularly urgent because there is a strong possibility that those inadequacies will be repeated. And these shortcomings would by no means simply create flaws in solid programs, the inevitable half-loaf we must often accept. They can be deadly because they could undermine the very long-term goals we seek.

Two kinds of shortcomings characterized much New Deal legislation: The first was inadequate funding. Many modern state programs, whether created by executive order or by legislation, are never funded to the extent necessary, and, as a result, we never know if they would have worked or not. This problem is not confined to public aid programs but appears equally in regulatory policies that lack adequate inspection or enforcement personnel and the necessary independence of regulators. Hundreds of initiatives fall into this category, from drug treatment to pollution control to foreign aid to public education to record maintenance to transportation to the War on Poverty.

Second, particularly common to welfare-state programs—in the larger sense of welfare that includes health care, education, and attempts to alleviate poverty—is a two-tier structure that provides the least for those who need the most. These tiers are often counter-intentional, counter-intuitive, and irrational, because they produce one level of generous and honorable benefits for those least in need and another that is stingy and disreputable for those whose need is greatest. This inequality is constructed in several ways:

• the neediest are often excluded altogether from the better programs;

• programs provide more benefits to the prosperous than to the poor;

• payments to the relatively prosperous are disguised, sometimes intentionally, as with the New Deal Social Security Old Age Pensions, so as to be unnoticeable, while payments to the poor are extremely public and thus, both stigmatizing and resented. Only the latter are typically called redistributive.

As a result of these limitations, we have no basis for evaluating how well New Deal programs would have stimulated the economy had they been implemented as intended. We do know, however, that the actual New Deal did not in the long run prevent the return of the very economic and political inequality that helped produce the Great Depression.

New Deal programs have, in fact, an impressive record of accomplishment, some immediate and some lasting for decades. They decreased unemployment and increased production and general well-being remarkably. Between FDR’s inauguration and 1936, production doubled. Unemployment fell from 25 percent to under 10 percent in that period. Incidentally, according to James Galbraith’s recent testimony before the Senate Committee on Banking, the charge that the New Deal did not increase employment massively rests on a truly absurd maneuver: the conservative critics don’t count federal relief (Civil Works Administration, Work Projects Administration, and Public Works Administration) employment. As Galbraith pointed out, this is like counting a construction worker building a military airplane under a government contract with a private company as employed, while categorizing a worker building the Lincoln Tunnel and paid directly by the federal government as unemployed.

This formidable progress was then interrupted by Roosevelt’s decision to cut public relief and jobs, which led to the disheartening depression of 1937-1938. It’s worth examining that decision, because it arose from a panic, which is being reproduced today, about the sheer size of spending and deficit. In 1983, under Ronald Reagan, the budget deficit of $209 billion was 6 percent of the GDP. Today that 6 percent of GDP would yield a deficit of $840 billion. The sky didn’t fall in 1983, and it won’t in 2009.

The New Deal did more than rescue people temporarily from destitution and insecurity. Another major effect of its programs was to transform the nature of U.S. citizenship. I use this concept of citizenship not to refer to legal status but to the rights of American residents. The National Labor Relations Act (1935), Fair Labor Standards Act (1938), and Pure Food, Drug and Cosmetic Act (also 1938) codified rights to form a union, to grievance procedures, to minimum standards of wages and hours and safety that employers were required to meet, and to minimum guarantees against the victimization of consumers by careless or callous producers. By providing relief to all Americans, even those not previously treated as citizens—such as African Americans in the South—the New Deal delivered a powerful message of inclusion in the polity. We must never underrate the power of such messages in turning subjects into citizens—that is, in constructing democracy.

AT THE SAME TIME, however, the New Deal’s discriminatory practices helped create the growing inequality on which today’s economic crisis rests. As we defend government activism, we also need to scrutinize what the New Deal did wrong and to recognize that it did these wrong things on a grand scale.

The most obvious example of New Deal underfunding was its emergency relief program, including public jobs—the “stimulus.” These were the most popular of New Deal programs, especially the jobs, but they helped only a fraction of those who needed help. Localities frequently ran out of relief funds after only a minority of those in need were served. Some states resisted taking federal relief money entirely, as did Governor Mark Sanford of South Carolina recently, although most eventually capitulated to popular outrage and accepted funding for relief and public works.

A few examples: The most generous program, known as the Civil Works Administration, offered at its peak four million jobs to an acknowledged ten million unemployed persons. The longest continuing program, the Federal Emergency Relief Administration, at its most ambitious sought to provide employment for 3.5 million out of the eleven to twelve million unemployed. Big cities had even higher proportions of those who got no help. For example, in New York City the CWA offered 125,000 jobs for 1.25 million unemployed. If we were to add in the uncounted unemployed, and the vast numbers of underemployed, we might assume conservatively twenty million in need of jobs, 20 percent of whom were helped directly.

New Deal relief also systematically excluded the most desperate from its aid. Because work relief was administered by local authorities, people of color found it much harder to get onto relief rolls. Those who did suffered further discrimination because they so often got lower stipends. In San Antonio whites needed $35 a month, the local relief administrators figured, while to Mexicans $12 to $15 represented a fortune because, it was alleged, all they liked to eat anyway was beans, grease, and cornmeal. The same division prevailed in the Southeast between whites and blacks and between whites and “white trash.” When people of color got WPA work, they were often segregated into stereotyped, low-wage, tedious jobs—as they were, of course, in the private sector.

DISCRIMINATION AGAINST women was equally serious but less visible, because of the blinding effect of the assumption that women had male support, from a father or a husband. In 1934, federal relief was providing for 358,000 female-headed households, which probably numbered 2.3 million. Even the feminist designers of the first federal welfare program for lone mothers underestimated their numbers by a factor of ten. Many state relief officials enforced morals tests on potential female but not male recipients. When there was a man in the family, relief checks always went to him, although moneys paid this way were less likely to be shared throughout a family.

The most overt sex discrimination was in the public works programs. Of 1.6 million in these jobs in 1934, only 142,000 or 11 percent were women. The CWA gave women 7 percent of the jobs. WPA did better, giving women 12 percent of the jobs, but women were 25 percent of the unemployed, even in official figures that always underestimated female unemployment. These figures, however, seemed to many less “real,” because unemployed women presumably had a man supporting them, and because employment for women was still regarded as exceptional and not fundamental to a family economy. The standard that women did not have the same entitlement to jobs that men did was very widespread. Relief boss Harry Hopkins’s policy rested on the assumption that women were not accustomed to real jobs and/or were accustomed to low wages and poor working conditions. So in dealing with the “women business,” as he called it, he put women in the category of unemployables along with “derelicts,” and many of those who were employed were assigned to make-work jobs, even sweatshop-like sewing projects.

Social Security and labor protection programs similarly excluded those most in need. Among the most impoverished and exploited Americans at the time were migrant farmworkers, sharecroppers, and domestic servants. But because Roosevelt deferred to powerful southeastern and southwestern senators and congressmen, whose support he needed, the neediest workers were excluded from these programs, along with employees of small businesses. This left most people of color and most employed white women without old-age pensions, the right to unionize, or the right to claim protection under the Fair Labor Standards Act.

We need to understand this exclusion not only as absolute but also as relative deprivation. New Deal programs helped move many of their recipients upward in the class pyramid, reaching upper-working-class or even solidly middle-class economic positions. (Nothing illustrates this more than the truly impressive reduction in poverty among elderly Social Security pensioners since 1939.) In other words, the permanent programs worked not just to suppress some but to elevate others, increasing inequality. And the inequality was by no means strictly economic. The rights to unionize or to an old-age pension were hallmarks of citizenship, of merit. The exclusion of domestic workers and non-employed women from old-age pensions contributed to disrespect for their labor and by extension for those who did it.

Another example of unequal tiers was the depression housing program. The New Deal invested federal money in public housing for the first time, and FDR’s housing committee envisaged large-scale development with fine design. A group of visionary architects and planners, who called themselves housers, devoted their energies to designing for the poor and working class. But when Senator Robert Wagner’s housing bill finally passed in 1937, it had been eviscerated by stingy funding, local control that allowed segregation, means testing, and other limitations. As a result, these projects often became slums within a decade. Housing benefits for the middle class were vastly superior. Mortgage insurance created by the Fair Housing Act of 1934 guaranteed risk-free lending and required up-to-code dwellings, while allowing lenders to discriminate against even prosperous nonwhite buyers.

Then the tax code enlarged the inequality. The home-mortgage interest deduction is the federal government’s largest tax expenditure (a tax expenditure is the revenue loss due to exclusions, exemptions, deductions, non-refundable credits, preferential rates, and so on, in the tax code) and it alone will cost the federal government $89.4 billion in 2009. It is a sharply regressive subsidy: Today, 13 percent of those earning up to $30,000 can claim this deduction, as compared to 50 percent of those earning up to $75,000 and 76 percent of those earning over $200,000. Even among homeowners, more than half get no benefit from this deduction because their earnings don’t merit claiming it or itemizing deductions at all. In fact, the entire structure and culture of the American fixation on homeownership as a mark of citizenship, security, and prestige has been a major factor in worsening inequality.

Or consider the New Deal’s agricultural programs. Despite the efforts of Rexford Tugwell, an agricultural economist and member of FDR’s Brain Trust, the Agricultural Adjustment Act functioned as a system of subsidies to large growers. The program not only discriminated against small and nonwhite farmers but actually caused the eviction of many tenant farmers who were forced into the army of migrant farm workers. Roosevelt originally hoped for better, appointing progressives to the Department of Agriculture only to have them purged or marginalized by the conservative culture of the department. Even the most democratic agency within the Department of Agriculture, the Farm Security Administration, frequently attacked as socialistic by conservatives, accepted southern racial codes and discriminated against people of color in its aid programs.

It was the same with labor legislation. The NLRA and FLSA excluded the same groups already excluded from Social Security—domestic workers, agricultural laborers, and employees of small businesses. Once again the losses were not just absolute but relative, because unionization and enforced labor standards brought many working people to middle-class-level incomes and standards of living, while those excluded fell behind.

Medical insurance, of course, did not even get a start during the New Deal. Although FDR, as much as anyone in his administration, saw the necessity, he sized up the opposition and decided not to pursue it. Some of the consequences are well known—that we have nearly fifty million uninsured today, and the fact that insurance for most is tied to employment rigidifies the labor market and multiplies the recessionary effects of layoffs. Other consequences are not so well understood: Because more privileged Americans got themselves insured through other channels while those who needed it most did not, it became necessary to create a separate program just for the very poor (Medicaid), which created resentment among other Americans—including, notably, many without medical insurance—who see themselves as taxpayers supporting dependents. Of even greater consequence, failure to enact national medical insurance in the 1930s allowed corporate insurers to become giant multibillion-dollar lobbyists against any sort of universal provision.

MOST OF THOSE who study or practice politics know that it is all about compromise and usually conclude that a little is better than none. But sometimes little has turned out to be worse than none. This is because providing benefits for some but not others tends to undermine the possibility of developing national solidarity and therefore political support for expanding benefits. When compromises lead to increased inequality, the compromises may undercut even the existing programs. This is what led to the 1996 repeal of Aid to Dependent Children, condemning the United States to a child-poverty rate unique in the developed world.

There are many arguments against inequality, foremost among them that it often constitutes suffering and injustice, and that too much of it is incompatible with democracy. But the worst consequence of too-extreme inequality is that it becomes not only self-perpetuating but self-augmenting, particularly so with the kind of inequality built into domestic welfare and relief programs. A prime example was the resentment that grew up around what came to be called “welfare”—a resentment that usually rested on the misimpression that welfare recipients lived idle lives on taxpayers’ money, while Social Security pension recipients lived on their own money. The declining levels of social solidarity that result from the unequal, mystified, and even deceptive operation of domestic programs created a downward cycle that ever more disfranchised the poor and empowered the wealthy. As Larry Bartels has shown, the voting records of U.S. senators matched the views of their most affluent constituents and conformed almost never to their poorest constituents’ views.

There is no simple answer to this problem. Political compromises are unavoidable, but we need to calculate carefully their cost-benefit ratios and make well-informed judgments as to which compromises to support. We need to be conscious that every further inequity installed in legislation makes it harder to overcome inequality in the future. Benefits that do not reach everyone, especially the hidden benefits that so many among the prosperous are not even aware of, make it harder to build support for future legislation in the public interest. There are times when half a loaf is not only worse than a whole loaf but undercuts the possibility of ever getting a whole loaf. This is exactly what has happened with medical insurance: private coverage for the lucky among us has reduced the demand for and increased the obstacles to covering those who need the insurance the most. Precisely because crises like today’s afford opportunities as well as pitfalls, we ought to pay close attention to equity in the structure as well as the distribution of resources as the Obama administration develops its programs.

Linda Gordon is professor of history at New York University. Her most recent book is a biography of Dorothea Lange, the Great Depression-era documentary photographer (W.W. Norton, October 2009).

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