This paper examines three key components of Franklin D. Roosevelt's New Deal response to the Great Depression: the Public Works Administration, the Smoot-Hawley Act, and the Economy Act. It argues that while the PWA successfully reduced unemployment through large-scale public works projects and government funding, the protectionist Smoot-Hawley approach proved ineffective. The Economy Act's deficit-reduction strategy conflicted with Roosevelt's later Keynesian spending policies. Overall, the paper concludes that New Deal programs showed mixed results but provided a foundation for post-war economic growth, though sustainable recovery ultimately required World War II production.
The first program that should be discussed was the creation of the Public Works Administration (PWA), a governmental agency that aimed to provide ideas and funding for public works. According to Scott Smith (2005), between 1933 and 1934, the PWA spent as much as $3.3 billion to build 34,599 projects.
In terms of FDR's pragmatic thinking, the PWA is a clear example in this sense. One of the great problems of the Depression was unemployment. Through a spiral mechanism, the failure of banks limited the activity of the private sector and companies were forced to lay people off. With unemployment also came a decrease in overall aggregate demand: since more people were unemployed, fewer could afford to purchase products and services, leading to a decrease in prices and further problems for private economic entities.
FDR's PWA targeted exactly the problem of unemployment. By providing work for the unemployed in the form of work on large-scale building projects and, particularly, by providing funding for such actions, the PWA was able to reduce unemployment and increase overall revenues in the economy. The use of the PWA was highly successful in limiting the effects of the Great Depression.
A less successful program was the Smoot-Hawley Act of 1930. This act proposed a protectionist approach as a way of limiting the effects of the Great Depression. It consisted primarily of imposing or raising U.S. tariffs on over 20,000 imported products. The main objective of this act was to protect American jobs, particularly for farmers, from external products which may have been cheaper.
However, this approach was obviously not the correct one. The causes of the Depression were much deeper, and the solution was not to close the American market to foreign products. The main reaction to this Act was the Reciprocal Tariff Act, which allowed Roosevelt to take a different approach in American commercial policy, namely by negotiating trade agreements with other countries and proposing a more liberal practice.
The Economy Act is the third act that should be discussed here. This act proposed to counter some of the fiscal causes of the Great Depression by running a much smaller public deficit. This was primarily done by reducing the salaries of governmental employees by fifteen percent. As the economic and financial crisis of 2008–2009 showed, while this approach is understandable, it is not necessarily the correct one. Lowering public employees' wages decreases budgetary deficits, but also lowers consumption and aggregate demand in the economy.
At the same time, much of Roosevelt's reconstruction policy was based on large public works and these needed to be funded. As such, his policies had to rely on running large budgetary deficits; otherwise, they would not function. Roosevelt was a supporter of Keynesian belief, and as such, governmental spending was seen as key to recovery. The Economy Act became, more or less, unusable after 1933 as the recovery policies took off.
"Mixed results and World War II economic impact"
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