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I can comment on the macroeconomic history part of this. Most programs like the CCC (Civilian Conservation Corps), WPA (Work Projects Administration), and similar had a very small (almost insignificant) but net positive direct benefit to the economy. You could make a case for spillover/multiplier effects from training people in a trade but I'm unaware of any such work from that period. E.g. one small part of the New Deal was increased regulation of utilities. This led to mandates like the electrification of rural areas. It's hard to objectively measure how much economic benefit that had, but obviously that opened up rural America to further economic development. Speaking generally, infrastructure improvement has one of the highest multiplier rates of any type of government spending (food stamps, which is an FDA program, is generally found to have the highest).
The real change was the creation of Social Security. Prior to its creation many low wage workers became increasingly destitute after they retired (read: no longer able to work). It was extremely common to see homeless elderly. As in, for most people if you didn't have viable family to take care of you this was your fate. Social Security has reduced this to the point where such a situation hardly exists today. Social Security also covers widows/widowers, children with dead parents, etc. These were people who not even a century ago would find themselves in a very precarious position if they were injured on the job or their husband died. So at least in macroeconomics it's understood to have mitigated some very serious social issues.
Edit: many industries were regulated under the New Deal. Specifically telecommunications (FCC created in 1934, how relevant) and pharmaceuticals (new powers to the FDA in 1938). There was also a moratorium on farm foreclosures (Rucker & Alston 1987). Not sure what effect this has had for better or worse.
Source: Lessons from the Great Depression, pages 122-129, Peter Temin, MIT Press 1989.
Here's an excerpt from the above source:
Herein lies a paradox. Conventional wisdom asserts that high wages raise costs and reduce international competitiveness... The Americans passed the Reciprocal Trade Agreement Act and began to reduce tariffs, drawing back the protectionist stance adopted by Hoover. The paradox is deepened by American business support of the high-wage component of Roosevelt's policy. Industrialists had never been as staunch deflationists as financiers, and they supported the imposition of high wages. Their argument, never clearly stated, was that high wages promoted longer job tenure, the acquisition of job skills, and innovation... High wages and low tariffs were the keys to their success in their eyes (Ferguson 1984).
Also, I forgot to answer the WWII part of your original question. WWII absolutely brought the American economy back. The New Deal and the massive government spending during WWII are unrelated though. The importance of large scale government spending in this situation is a property of macroeconomics. The larger economy is a closed loop; my spending is your income and vice versa. If the general public doesn't have money to spend and businesses have no incentive to spend since they have few consumers then only the government is left to fill the shortfall in spending. If the government decides not to spend then we know aggregate spending will decrease, and since your spending is my income the economy will operate below potential (i.e. a recession or depression).
But what about the debt this creates? After the war the US Government had massive debt obligations, but since the economy was booming as consumers spent, after years of pent up demand due to rationing, the debt largely dissipated due to the rapidly growing economy. To explain, say the government's debt is 100% of GDP. If the economy grows rapidly then the debt as a percentage of GDP is reduced. Add to this a healthy amount of inflation that accompanies upswings in the business cycle and the debt burden is even further reduced (Krugman talks about this stuff a lot, not the greatest source but if you dig around he has many other articles with great data (here's another).
Wars, their debts, and the taxes they lead to are a treasure trove for macroeconomic historians and economists. A prime example of this is the US Civil War. Since there was no income tax at the time the government had to implement a tax which it later abolished once the war debt was paid. IIRC it took seven years to pay back. In fact the history of modern finance can largely be traced back to the creation of bonds by the English so they could fight the French. They set the payoff dates past the life expectancy at the time, so many were never claimed. Some of those who did receive their payouts created a whole new class of super wealthy in Britain. I don't have a source for this other than my macro history classes so if someone can chime in, please do.
Piggy back question. I've heard it said New Deal programs were an pressure release to the working class that undermined radicals & prevented the US from going communist. True?
This is a question where I feel I can help. Unfortunately, you aren't going to like my help much since economics doesn't offer a straight answer. Economically much of the New Deal would be classified as fiscal policy, the use of government spending and revenue (taxes) to affect the economy. Deficit spending, spending increases and cuts, tax cuts and hikes are all examples of fiscal policy. Fiscal policy falls into the domain of macroeconomics. Where microeconomics looks at the structure and behavior of markets, macroeconomics pertains to the overall economy, be it national, regional, or global. The problem with answering your question cleanly is Three fold:
First, the controversies that separate the different schools of though in macroeconomics run deep. Some are so deep that they come from disagreement over fundamental human behavior (like the debate over Lucas's introduction of rational expectation to macroeconomics^1).
Second, since macroeconomics deals with matters that are directly related to policy, the discipline is hopelessly tainted by politics and political ideology. Macroeconomic studies of the past have direct implications for present and future policy. If the New Deal was a success, then government spending looks like more effective counter-cyclical policy (don't worry, I'll come back to this) than tax cuts and is evidence that one of the US's two political parties is (sort of) right about the economy, and the other is wrong. Because of this, each side of the political divide has plenty of incentive to make a meal of any shred of evidence that bolsters their argument and spit out any morsel of evidence that discredits their beliefs.
Third, while an objective, informed, and intelligent thinker doesn't need a whole lot of empirical evidence to sniff out the truly harebrained economic theories, among those that do have potential merit, good empirical evidence to judge them by is hard to come by. Macroeconomic theories deal with whole economies, so properly controlled experiments to test these theories are virtually impossible. Natural experiments are tough to come by as well, since policy is never simple enough for the effect of one fiscal or monetary policy to be isolated, measured, and neatly attributed to that one policy and we don't tend to have national policies that split the economy in two so we don't have good controls. To make matters worse, the economy has a life of its own and economists disagree on what influence monetary and fiscal policy has on the economy at large.
In the case of the New Deal, it wasn't just fiscal policy like the public works programs, rural and farm programs, the food stamp plan, or the WWI veterans bonuses. Those were also accompanied in the first wave (1933-34) by numerous other programs and reforms, including banking reform (introduction of FDIC, the Emergency Banking Act, and the Glass–Steagall Act), a huge monetary policy shift (suspension of the gold standard), new securities regulations (Securities Act of 1933, establishment of the Securities and Exchange Commission), trade liberalization (the Reciprocal Tariff Act), and housing sector reforms. There was also the National Recovery Administration. In the second wave there was more fiscal policy in the Works Progress Administration and Social Security, but there was also a labor reforms, including the Wagner Act, which gave workers collective bargaining and established the National Labor Relations Board, and the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for many workers and sharply restricted child labor. The New Deal was the firing of both barrels of policy buckshot, and each policy had it own degree of success or failure which is sometimes hard to tease out from the whole.
Notably, through the bulk of Roosevelt's presidency's Great Depression years, he had stayed at least somewhat committed to maintaining a balanced budget. It was only in 1938 that the government finally began significant deficit spending in response to the recovery stalling in 1937 and 1938. In that view, the New Deal was not Keynesian fiscal policy, at least, not enough so to be a good test case. It was only really with the onset of WWII and the unfunded wartime military spending that came with it that the US macroeconomic policy began to reflect Keynesian doctrine (even if that wasn't really the intention). Now getting into my own opinion: I believe that for this reason, while the New Deal was a net positive on the recovery out of the Great Depression, the impact it had on the US's long-term prosperity beyond the 1930's was greater than its short term recovery impact within the 1930s. The impact of taking the US off the gold standard was probably massive. The degree to which the money supply had been tightened in the US as the 1930's approached was pretty staggering.
I actually have to take a break here, so I'll cover "business cycles" when I get back.
Here's an article from the JEH which tries to track the timing of the recovery. Vernon finds that the majority of the output recovery happened between 1941 and 1942 (and could be ascribed to 'fiscal' policies, i.e. gov't spending, not central bank actions). You can contrast this with DeLong and Summers (Vernon is explicitly disagreeing with their analysis) [WARNING, that PDF is giant like woah, the section Vernon cites starts at page 167]. Though I would recommend reading Romer's 1992 JEH article alongside Vernon to judge the competing claims against each other. If you want someone else to attempt to do that for you (with new data, methods and a lot more technical bits), try Gordon.
If we're just comparing the New Deal and WWII military spending, I don't think the question of which worked is all that enlightening. Or at least it shouldn't inform too many policy debates. Think of it this way, the case for or against the new deal relies on reasoning about the fiscal multiplier. Keynesians say that the fiscal multiplier is >1 so government spending can produce a positive change in output. Monetarists argue it's <1 so that when the government spends a dollar to build a bridge output doesn't go up because they had to tax a dollar to do it. If we think the new deal failed because the fiscal multiplier was <1, we should likewise think that WWII military spending should fail to stimulate the economy. In fact, we should be more suspicious of WWII spending because it explicitly crowded out private investment and the like (see parts of Keep From All Thoughtful Men, I'm not happy with the book overall, but it has a lot of good info). If instead we imagine that the new deal failed but WWII spending succeeded (and we don't have an answer to the multiplier question) we have to conclude that if failed for being insufficiently large! We're not making a (small-c) conservative case about spending if we state that a total wartime mobilization is the government action necessary to wrest a country from a depression.
There are historical reasons why the new deal couldn't have approached the scale of WWII mobilization (again, see Keep From All Thoughtful Men for many of these), but from an economic standpoint they're both large fiscal shocks from the government.
Edit: Oops. > 1/2 of the recovery happened (according to vernon) 1941-1942, not post 1942. Doesn't materially change the answer but that's a dumb error on my part. Sorry.
Actually, most conservatives don't posit WWII as saving America's economy per se. Milton Friedman, who was a former key adviser to both Richard Nixon and Ronald Reagan, effectively popularized the Monetary School of Economic Thought.
Currently, there are two main theories explaining the Great Depression: the First is Keynesianism, favored by Liberals, which argued that the Great Depression was caused by a drop in Aggregate Expenditures (also referred to as Aggregate Demand). The reasons for this were not entirely agreed upon. At the time, two major economists, Waddill Catchings and William Trufant Foster, promoted a theory that wealth inequality was a major factor as the wealth concentration at the top caused major capitalists and the wealthy elite to overinvest in luxury goods and heavy industry that quickly outpaced the demand leading to a contraction. This theory had a predominantly important impact on both the Hoover and Roosevelt Administrations, as they pursued policies to alleviate this perceived problem. However, new credence has been given to an alternative cause, namely debt deflation, or basically that most middle Americans were too heavily burdened with debt and they suddenly stopped buying goods after a string of defaults. In either case, Keynes suggested that the United States government pick up the slack by essentially air dropping vast sums of money into the economy. The Government should start major public works projects to compensate for the lack of investment, and it should create jobs--even meaningless jobs--to workers to prevent their skills from atrophying. Ultimately, this had some measure of effect; in Tennessee and Nevada, major dam projects were completed that were aimed at providing basic electricity. Other projects, such as the Civilian Conservation Corps, were aimed at doing largely public service initiatives that had little real addition to the United States' economy. The effects of these are largely debated.
In contrast to the Keynesian Viewpoint is the Monetarist Viewpoint. This viewpoint was largely spearheaded by Milton Friedman, along with his co-author Anna Schwartz, in their Magnum Opus A Monetary History of the United States, 1857-1960. In it, they argue that from 1860s onwards, the United States had a largely stable growth of the economy in large part because of the laissez-faire policies of the Federal Government, as well as a constant growth of the money supply, measured by M2. The growth in M2 was the result of firstly, a floating exchange rate for the US Dollar compared to Gold, and due to the issuance of Greenbacks, which helped the Money Supply grow rather rapidly. This was punctuated by the Long Depression (1873-1879), which saw a major decline in M2. The Government's response was to back the US dollar on the Gold Standard, which caused a number of very major recessions throughout the late 19th Century and sparked the Populist Movement that sought to either 1) remove the dollar from the Gold Standard entirely, or 2) alter the Gold Standard by added on a comparable amount of Silver. Both of these initiatives failed by the election of 1896, but the underlying problems of the Economy continued. The resulting monetary situation in the United States continued to be unstable into the 1910s, when Woodrow Wilson established the United States Federal Reserve, which was an attempt to Federate the various State-chartered banks and create a centralized monetary policy to govern the United States. During the 1920s, the Federal Reserve artificially lowered interest rates to boost the economy after a Post-WWI slump. However, according to Friedman and Schwartz, the Federal Reserve was heavily hamstrung not only by its own lack of knowledge, but also by Congress and its stricter regulations. In 1926, the United States Congress slapped on a regulation that prevented the Federal Reserve from issuing out more money than it had in its gold stock. Thus, in 1928, the Federal Reserve started to contract its previous policy of loose money to meet Congressional requirements. According to Friedman, this caused the Stock Market Crash in 1929. When Banks expected the Federal Reserve to bail them out, being the lender of last resort, the Federal Reserve also reneged, due to its legal obligations, and instead pursued a tight money policy of higher interest rates to stave off possible inflation. This had the result of contracting the Money Supply (M2) by roughly 33%. In Friedman's eyes, this completely explains not only 1) the reason why there was a catastrophic failure in the banking industry, 2) why there was a collapse in aggregate demand (investors, farmers, and homeowners were lured in by teaser rates by the Fed that the Fed ultimately reneged upon), and 3) explained why it was extremely difficult to get out of the Depression.
Friedman also notes that Roosevelt effectively eliminated the 1926 requirement by making it illegal to hoard gold and enabling the Fed to lend above the Congressional requirements. Almost immediately the American Economy started to recover. However, by 1936, the Federal Reserve once again pursued a tight money policy, afraid of inflation, and this caused another sharp recession.
Friedman codified this analysis to suggest that artificial manipulations of the Money supply by any government or private agency (either tight, or deflationary, or loose, or inflationary) would have negative repercussions proportional to their size in the economy. Instead, he suggested that if there was a government intervention, you should move to compensate for the contraction or expansion. Thus, during the late 1970s stagflation, the US should have reduced the size of the money supply to match up with the economy, which would require Austerity (this is exactly what Fed Chief Volcker did, and was an integral part of Reaganomics). Likewise, when there is a deflation, the government should expand the money supply, which is what happened during the 2008 recession and was carried out by Fed Chief Ben Bernanke under President Obama. This later Policy is known as Quantitative Easing.
Ultimately, Friedman's explanation, largely a critique of Keynesianism, meets all of the major criteria for explaining the phenomena witnessed during the Great Depression.
Recommended Texts
General Theory of Employment Interest and Money John Maynard Keynes
A Monetary History of the United States (1857-1960 Milton Friedman and Anna Schwartz
After reading the replies (some of which have been deleted), how are we even defining economic health in answering this question? Umployment/unemployment rates? Stock prices? GDP/GNP? Etc?
Comment I was replying to was deleted but I have a few sources worth looking at.
I'd like to suggest a paper if anyone's interested in a particular test of the monetarist thesis. Test of loose monetary policy on bank failures across Federal reserve border districts Do check the source papers if you're curious about the history. C Romer has a lovely article.
I'd also add that you should probably be checking out Barry Eichengreen's Golden Fetters if you're curious about the gold standard bit.
Lastly, you're looking for the great contraction. That's chapter 7 of Friedman and Schwartz's seminal book advancing the theory that the FED bears a great deal of responsibility for the crisis (along with some historical accident resulting in "new guys" being thrown into the hot seat.)
I hope everyone is taking these answers with a grain of salt. They all feel a pinch incomplete (and understandably so). My APE lectures emphasized the idea that by 36/37, the US seemed to be on a recovery track when FDR eased up the gas (parallels to the history of the 90s in Japan[Adam Posen's work is an excellent history of purely the 90s from an econ policy perspective.). Unfortunately, I can't quite remember the particular source for the story that the need to moderate and check the deficit severely crimped the recovery. I'd also throw out that some of our mobilization work for WWII began surprisingly earlier than I would have expected. Very cool stuff.
C Romer's Encyclopedia Brittanica summary Think it's pretty fair according to what I've read. Galbraith's another easy read on the matter. These are all pretty general. Bernanke has a very cool paper from the 80s where he talks about the "balance sheet" effects of the recession.
edit: Man the monetary policy discussion is really fun. Looking back real bills is so insane yet that sort of moral thinking seems to still influence people. IMO both the Keynesian and Monetarist takeaway have value and aren't mutually exclusive.
What some of the other answers have started to get at is that there were many parts to the New Deal, and different parts had very different effects. The most commonly discussed parts are the increases in government spending from new programs like the CCC, WPA, and Social Security. This goes under the heading of "fiscal policy", which standard* macroeconomics suggests helps fight recessions.
Another set of New Deal policies were regulations intended to increase prices and wages, or otherwise affect the behavior of firms. These include the Agricultural Adjustment Act and the National Recovery Administration. Destroying crops, reducing competition between firms, and trying to raise wages above market levels all have negative effects on employment and production in standard microeconomics. Repealing prohibition isn't always considered part of the New Deal, but it was one positive supply-side regulatory change by the FDR administration.
While historians and ordinary people who have taken history classes mostly focus on the new programs and agencies of the New Deal, economists mostly see that the largest effect came from the suspension of the Gold Standard in 1933. In A Monetary History of the United States (1962), Milton Friedman and Anna Schwartz argued that the Great Depression was triggered and prolonged by monetary policy. The Federal Reserve reduced the money supply, and did not react when bank failures led the overall money supply to fall by 1/3. One of the main reasons the Fed did nothing was over concern about their gold reserves. Leaving the gold standard allowed the money supply to expand again (by 53% during the 1933-1937 recovery), which standard macroeconomics says is an expansionary policy which causes GDP and employment to increase.
While the relative importance of fiscal and monetary policy continues to be debated (about the Great Depression and today), economists lean towards thinking that monetary policy is more important, especially in the Great Depression when the increase in total net government spending (government spending minus taxes for all levels of government) was small. Then there is the international context, where Barry Eichengreen showed in a 1992 paper that most countries began their recovery from the Great Depression just after leaving the gold standard.
*Standard economics in terms of Principles of Macroeconomics textbooks. This is hotly debated among researchers.
Can I ask a followup on the main question? How did the loss of so many working men affect the economy? I would assume their would be a void in labor skills.