The New Deal

After Roosevelt became President he gave the term New Deal to a program, which took action to bring immediate economic relief as well as reforms for business and agriculture.

Within the first hundred days after the inauguration dozens of agencies were set up to dispense emergency and short-term governmental aid and to provide temporary jobs, employement and construction projects, and youth work in the national forests. The Tennessee River Valley Authority (TVA) undertook to provide flood control, hydroelectric power, and economic reconstruction for an entire seven-state area.

Congress authorized the creation of the Agricultural Adjustment Administration, the Civilian Conservation Corps, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Emergency Relief Administration, the National Recovery Administration and the Public Works Administration.

In 1935 the New Deal shifted to provide wider safeguards. The Social Security Act provided for nationwide systems of old age and unemployment insurance. Maximum hours and minimum wages were also set in certain industries in 1938.

Some New Deal laws were declared unconstitutional by the U.S. Supreme Court, but by 1937 Roosevelt had made enough new appointments to achieve a court majority favouring most of his measures.

In 1937 Roosevelt, under pressure from the business community, reversed course and curbed government spending drastically in order to balance the budget, which sent the economy plummeting back towards 1932 levels.

In the fall of 1937 the president inaugurated an Anti-Monopoly program, massive government spending began again, and by June 1938 the crisis was past.

Despite resistance from the business community most of the New Deal reforms became a permanent part of the U.S.A. For the last 60 years the social safety net of the New Deal has cushioned the severity of the cyclical business downturns and prevented a repetition of a full-scale depression, at least until 2008.

A renewed scepticism of large-scale government intervention led in the 1980's once more to far reaching deregulations. Like in the 1920's the slogan became again : ''Government is dumb, markets are smart'. Keynesian concepts got rejected, his warning about runaway money supply got dismissed and unregulated credit availabilties induced many people to get into unsustainable debts.

The crisis of 2008

Many banks, freed from the strict regulations of earlier times, offered loans and mortgages to people who could not afford repayements during an economic downturn.Unpayable loans became bad assets for banks and when such bad assets accumulated rapidily many banks were unable to offer any credit which led to a credit freeze in the fall of 2008 and severe economic difficulties. (California, for instance, warned of a looming state bankruptcy within a month, which would have meant state employes could not be paid their salaries)

Since most of the world had adopted the American economic model the financial melt-down of assets-poor banks led in October 2008 to a repeat of a depression-type financial panic. Suddenly economists of all stripes reputiated the economic philosophy of the last 25 years calling for a return to large government intervention and much tougher regulations.

In 1929 the US government had not reacted for three years. In 2008 governments acted more quickly with large financial government cash infusions to failing banks in order to make credit available to both the public and businesses. But the enormous accumulated government and privat debts since the 1980's made a repeat of a New Deal program more difficult and the outcome has so far been uncertain.

Ironically, many economists who heralded the deregulation period of 1982-2008 have now become gloomy forcaster of a long-lasting shrinking economy.