Misunderstanding the New Deal has encouraged ideological overreach. Two years ago, President Biden's inauguration was accompanied by excited talk that his administration represented a revival of the New Deal. The president proposed a sweeping package of public-works and new entitlement programs, which would have added a further $7.5 billion to the projected $12 billion federal deficit over the coming decade. As inflation surged, the Democratic Congress was forced to abandon most of those ambitions, repeating the frustrations experienced by Presidents Obama and Clinton. This ideological overreach has become a recurrent feature of American politics, typically costing newly elected presidents control of Congress, and owes much to a misunderstanding of the New Deal.
Biden is the latest in a long line of Democrats who dreamed of transforming America as Franklin Delano Roosevelt once did. But the New Deal's legacy was more modest than many Republicans and Democrats suppose.
The ideologically controversial elements of FDR's New Deal didn't last; what did endure was built on broad bipartisan support. Roosevelt didn't dare significantly to raise taxes during the 1930s, for example, and most of the era's higher federal expenditures displaced spending previously undertaken at the state and local levels. The twentieth century's great expansion of the federal government came only with the Second World War, which prompted huge tax hikes and fueled the postwar growth of government.
The National Industrial Recovery Act was the New Deal's centerpiece and subject to the fiercest controversy. It passed the Senate by a vote of 46 to 39; President Roosevelt signed it into law on June 16, 1933. The legislation created significant exemptions from antitrust rules, allowing industrial businesses to set up legal codes of "fair competition," empowering them to fix prices with the force of law in return for establishing collective-bargaining rights and employment standards. Vast sectors of American business were cartelized as a result, crushing small competitors; inflating the market power of, and prices charged by, the largest firms; and unleashing violent strikes, as unions struggled to claw inflated profits from employers.
But the legislation would expire after two years and was already unlikely to be reauthorized before the Supreme Court struck it down as an unconstitutionally broad delegation of congressional power.
The Roosevelt administration sought to salvage elements of the NIRA with sweeping reforms to labor law. But it watered these down greatly to avoid business opposition. The Fair Labor Standards Act of 1938 set a minimum wage of 25 cents (below the entry-level wages of 95 percent of unskilled workers at the time), banned child labor (which had already largely disappeared), and inaugurated working-hour regulations that applied to only a fifth of jobs.
The Wagner Act of 1935 established broad legal privileges to collective bargaining for trade unions. But following waves of strikes, Congress enacted the Taft-Hartley Act of 1947 over President Truman's veto, outlawing unions' most potent instruments of coercion.
Much of the New Deal was an ideologically incoherent "chaos of experimentation," which, as Richard Hofstadter suggested, left genuine planners "floundering amid the cross-currents." The Roosevelt administration initially promoted industrial cartelization, but then took an anti-monopoly line. In its early years, it was protectionist; then it flipped to promote free trade.
The New Deal's public-works programs may have helped upgrade the nation's infrastructure and were valued by many who were out of work, but even advocates were embarrassed by the extent of waste and make-work, which added the term "boondoggle" to the American lexicon. The alphabet soup of New Deal relief agencies (WPA, CWA, CCC, FERA, FSCC, PWA) would largely be abolished by Roosevelt's third term, and future administrations would be wary of retreading that road. Farm price supports would endure, but they did little to slow that sector's decline.
Yet, the administration's spending was more restrained than many imagine. In his first month as president, FDR cut pay for federal workers. He repeatedly vetoed bonus payments for veterans (before claiming credit for a bonus in 1936). His predecessor Herbert Hoover had already hiked taxes considerably, especially at the state and local level, and Roosevelt was unwilling to push things too far. A thirst for new excise-tax revenue encouraged the repeal of alcohol prohibition, but the New Deal did not otherwise raise taxes substantially. Nor, to the frustration of Keynesians, was Roosevelt eager to inflate peacetime budget deficits greatly.
Congress wrote the New Deal legislation in an era of decentralized parties, and its overriding priority is best understood as an attempt to bail out state and local governments. Indeed, most major New Deal programs (and 75 percent of the resulting increase in federal expenditures) were set up as grants-in-aid for states. Of the seven major programs launched by the Social Security Act of 1935, six would be structured as split state-federal arrangements.
When Congress provided extra funds, however, state and local governments often reduced their own expenditures. Thus, total spending by all levels of government was in fact lower as a share of GNP under Roosevelt in 1936 (20.3 percent) or 1940 (20.5 percent) than it was under Hoover in 1932 (21.4 percent). Expenditures were largely designed to support those who had previously been employed, rather than to aid those whose needs preceded the Depression. As a result, average public assistance benefits fell from 31 percent of unskilled wages in 1929 to 28 percent in 1940.
Despite huge congressional majorities and fierce partisan controversy, the Roosevelt administration's most enduring reforms were enacted with broad bipartisan support. The 1933 Banking Act creating federal deposit insurance passed the House 191 to 6 and the Senate by voice vote. Administration officials noted that the Securities Act of 1933, ushering in the modern regime of financial regulation and disclosure requirements for tradable assets, passed into law with "virtually no dissent." The most significant fiscal intervention of the New Deal was arguably the expansion of federal credit programs for farms and home mortgages, along lines established under Hoover–again without a contested vote.
Large bipartisan majorities in both chambers (373 to 33 in the House and 77 to 6 in the Senate) also approved the Social Security Act of 1935. Conservative Republicans, led by Senator Arthur Vandenberg, typically voted for the legislation, though they were wary of surplus payroll-tax revenues accumulating to yield a politicized slush fund, as had occurred with Civil War pensions. In 1939, bipartisan legislation accelerated the distribution of benefits and halted the phase-in of payroll taxes to accommodate Vandenberg's concerns.
The New Deal's constitutional revolution did more to eliminate restrictions on the rights of states to regulate commerce than to increase the authority of the federal government. Throughout the nineteenth century, Congress had distributed funds for all kinds of purposes, but it was constrained more by the paucity of federal revenues than by a narrow construction of the general-welfare clause.
The Sixteenth Amendment, authorizing a federal income tax in 1913, did not immediately expand federal power, as broad-based tax hikes remained unpopular. As late as 1940, John Maynard Keynes lamented that Americans refused to boost overall public spending to the levels he desired, noting: "It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiment which would prove my case–except in war conditions."
World War II entirely transformed the situation. From 1939 to 1945, the share of households paying income taxes surged from 6 percent to 72 percent, driving federal revenues up from 7 percent to 20 percent of GDP. As defense spending gradually declined following the conflict, funds became available for politicians to boost spending on domestic programs without hiking taxes, a dynamic that helped Democrats control Congress without interruption from 1955 to 1981.
The postwar generation would rapidly expand Social Security benefits while instituting Medicare, Medicaid, disability benefits, food stamps, housing vouchers, federal funding for K-12, college loan subsidies, and hundreds of federal grant-in-aid programs for states. Whereas non-defense government spending fell from 20 percent of GNP in 1932 to 14 percent in 1946, by 1977 it had risen to 31 percent. It is mistaken to trace the rise of modern big government to the enactment of a partisan agenda during the New Deal. Successive administrations have erred by supposing that they could similarly transform the nation simply by capturing control of Congress.
Chris Pope is a senior fellow at the Manhattan Institute.