By 1932, the economy of the United States was suffering. Rampant unemployment accompanied by a deflationary spiral led to hard times for laborers, lenders, and consumers. Hoover’s administration had overseen a ballooning of the national deficit in a failed attempt to stimulate spending, and subsequently economic growth. By the time the elections had rolled around, American voters had had enough of Hoover and craved a fresh administration.
Herbert Hoover would find himself running against New York Governor Franklin Delano Roosevelt. During his time as governor of New York, Roosevelt gained a reputation for government-backed assistance to the poor and unemployed. For his campaign, Roosevelt criticized Hoover’s deficit spending, seeing it as an irresponsible management of the Federal budget. However, Roosevelt did not run on any campaign promises, instead opting to give sufficient lip service to both the Wilson-era progressives and the fiscally conservative factions in order to build a suitable coalition.
Ultimately, the elections of 1932 ended in a landslide in favor of Roosevelt. Once in office, Roosevelt worked hard to implement his vision for the American economy, using both Congressional laws as well as Executive Orders so as to make his vision a reality. One of Roosevelt’s main (and still relevant) accomplishments was the creation of Social Security. Before then, retirement planning was left solely in the hands of private individuals.
Thanks to the quantitative easing policies of the Federal Reserve, however, private saving is discouraged as a result of lowered interest rates. This blatant intervention by the government leads to an unintended consequence, which is subsequently dealt with by the Roosevelt administration in the form of more government interventions. To fund the Social Security program, the payroll taxes were established, taking a relatively small but still significant amount of worker’s income and placing it in a government trust fund. Upon reaching certain age requirements for retirement, workers receive for the rest of their lives a monthly stipend equivalent to their highest earnings they received previously.
In keeping with President Hoover’s beliefs over labor stimulation, Roosevelt created, among many other programs, the Public Works Administration. This bureaucracy sought to promote public works programs that helped build and expand airports, hospitals, roads, schools, bridges, and dams. In two years, after a great excess in public spending, 34,599 projects of questionable economic value were constructed and completed.
Along with these, and countless other New Deal programs instituted by the Roosevelt administration, Roosevelt was working alongside the Federal Reserve in order to employ new theories regarding monetary policy. However, due to the gold standard, the power the Fed had over manipulating the supply of money was still relatively limited. In order to free up the power that the Fed could wield, Roosevelt passed Executive Order 6102, which made the private ownership of gold bullion, coins, etc. illegal. Penalties for violating the law included a potential 5-10 year long jail sentence.
While Congress went along with Roosevelt’s various schemes and legislative plans, around 1936-1937, the Supreme Court began to challenge the constitutionality of Roosevelt’s New Deal. Risking the repeal or heavy modification of his legislative achievements, President Roosevelt sought to pass through Congress the Judicial Procedures Reform Bill of 1937. This legislation would put an age limit on Supreme Court justices, and increase the number of justices in the Supreme Court to a maximum of fifteen.
This bill almost got passed were it not for the death of Senate Majority Leader Joseph Robinson, robbing the momentum that the bill was experiencing on the Senate floor. However, despite the failure of this bill, Roosevelt still managed to get his way, thanks to his reelection in 1938, buying him enough time to wait out the opposition in the Supreme Court and ultimately appointing eight of the nine Supreme Court Justices.
Despite all of Roosevelt’s efforts, the economy of the United States continued to struggle and stagnate, leading to many years of economic hardship, whereas other Western nations managed to avoid such prolonged difficulties, for various reasons. Amidst this climate, World War II would erupt, and America would find itself shifting from a civilian economy towards a war economy, alongside the eventual end of the Great Depression, which will be covered in our final part of the series.