Fdr And New Deal

FDR and New  Deal

Abstract

The new deal was a strategy implemented by president Franklin Delano Roosevelt of the United States of America. The new deal was intended to bring changes to the way the Americans were living especially in terms of the economic reforms. This paper will analyze what the president hoped to accomplish and determine whether the project was a success or not. A lot of factors integrated through the process of reviving the countries economy including the Supreme Court controversy, the great depression and the Keynesian economics. President Franklin Roosevelt came to power amid economic downfall and at the time of the great depression. Since the US campaigns and economic polices are usually very enthusiastic, he had to come up with a viable plan; New deal as an effort to enable the country get jumpstarted to develop again fresh in relation to the economics – the great depression. Actually its important to note that he worn elections by a landslide because he seemed to be having a clearly set plan rather than being popular. The country was hoping for a serious change or transformation. The enthusiastic and charismatic president Roosevelt presented a plan of 15 bills to the congress for the first three months he was to join the office. And this was to mark the beginning of a new deal. His inaugural speech was remarkable as he pledged to the country and to himself to present a new deal to Americans. And pull them out of the economic strife.

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Introduction

Following Hoover’s failed economic policies, the American were very desperate for new policies that would enable them to survive the economic downturn as the country had just suffered a serious economic depression and the famous wall street crash. A hope was seen to come from Roosevelt as he seemed to be having a great plan for the Americans in order to boost their economy, and self esteem since the economic depression had a very negative psychological results on the people. Roosevelt introduced the new deal as his campaign too and a solution to the American problems. The new deal is actually a term that describes a complex package that contained a number of economic programs that were to be effected from the first 100 days he was to in office and a longer dedicated time to their implementation from 1933 to 1935. the new deal had three objectives as identified by historians and these objectives are commonly referred to s the 3Rs; the deal was to offer Relief

to the many people who were unemployed; offer Refor

ms to the many businesses that had failed and provide a

Recovery

Plan for the failed economy owing to the fact that this was the time America was experiencing the great economic depression.

The New Deal

When Roosevelt ascended to power and took office of the president of the United States of American, he was a troubled man. This is because during that time; the year 1933, many banks were closing doors on the people and people could not borrow money or take their savings. The rates of unemployment rates soared at about 25%. The prices of farm products fell by about 50%. It’s clearly that something ha to be done urgently and it ought to be smart and well thought otherwise the nation was headed for a very big downfall (Jonathan 2007).

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This is what inspired the creation of the new deal. Several economic programs and acts were designed and be implemented under these strategy of reviving the economy. According to historian analysts, the new deal had two phases branded the first new deal of the year 1933 and the second new deal which was implemented between 134 and 1936. Not all the Americans were happy with the new reforms proposed by the presidents and some of the programs were declared to be unconstitutional while others were revoked during the Second World War in that by the beginning of the year 1937 more or less no new programs were executed because due the great resistance of the new conservative coalition (Jonathan 2007).

Essentially, the First new deal concentrated on a variety of groups ranging from banking and financial institutions, to farming and to the manufacturing industries. The major polices instituted included banking reforms, industrial reforms, work relief policies and agricultural plans. The National Recovery Administration was to oversee these proposal being implemented and ending the gold standard. A second new deal was to be executed in 1934 and this included the institution of the Wagner act meant to support labor unions, the social security act, the work progress administration program and other programs to support farmers and other migrant employees (Rauchway 2007). The Supreme Court however stood in the way of implementation of certain programs terming them unconstitutional. This led to replacement of most of them with the exception of the National Recovery administration.

A major legislation that took place at the period is the Labor Standards Act of 1938 which established the maximum working hours for employees and the minimum wages. The coming of the Second World War led to shutting of programs like the WPA (Dent 2009). The major player behind these setbacks that the New Deal was facing was the Conservative coalition; they literally opposed almost everything that was proposed by the president Roosevelt policies. However until today the successful programs that were proposed then are still running efficiently and even some still hold their original names like the Tennessee Valley authority, Fannie Mae, Securities and Exchange Commission among others (Hoffman & Gjerde 2002)

The implementation of the new deal used the first 100 days of office as a basis for the development of the new deal. Many issues were to be covered under the new deal ranging from economical and social and financial issues. Since Roosevelt had gained so much popularity from his strategic plan, many of the new deal parts were passed by the congress without a lot of scrutiny. Many parts of the new deal were enacted as laws and several agencies worked

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together with the federal government to implement the acts. The money to finance the new deal was obtained by implementing the economy act which claimed that every individual who worked for the government was to be cut some money as well as the army; a 15% cut was proposed from their salaries and government departmental expenditure cut by 25%; This lead to a lot of savings that went in the direction of funding the new deal (Rauchway 2007).

The new deal is known to have attained several accomplishments like stimulating the growth of the national economy, providing relief, restoring confidence in the government , helped the middle class, and also preserved democracy and capitalism the Americans. Despite all these accomplishments, there were several setbacks that were faced and the new deal strategy failed to meet some goals it had set (Rauchway 2007). They include failing at attain full economic recovery, the poor people did not benefit from this approach as such, the implementation of the programs created more urban problems and lastly discrimination was not alleviated. The deal had a very positive impact on Americans but still faced several failures (Jonathan 2007).

The Positive Impact of the New Deal on America

The times of the new deal and the reign of President Roosevelt are very critical to the American history. Bearing in mind that at this time about one quarter of the American population was not employed, it must have been a very difficult moment for the U.S economy. The major positive impact was that the new deal’s legacy changed the social and political scene and maintained the fundamental capitalist economy (Hoffman & Gjerde 2002).

It’s worth noting that it was at this time that the American citizens came to appreciate the importance and functions of the federal government in the local community. In simple terms, before the impact of the great depression, the people did not actually feel the impact of the government on the people directly. This is because the previous regime did not have programs like the social security, regulation of stock market by federal government, welfare and subsidies for farmers. The Advent of the new deal saw the beginning of the involvement of the federal government and the people of American actually changed their perspective about the government running the economy (Rauchway 2007). The principles of laissez faire were discarded during the time of the great depression. New legislations were put into practice like

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the securities act which came to be in charge of the stock market and this is the best example of an archetypal free market structure (Dent 2009). On the other hand, the Tennessee valley authority opened a way for the government to compete with the private sector in business, a concept that is actually revolutionary to the economy.

The financial and banking system become easy to regulate under the TVA social security and the SEC. These programs and others are still in operation even today and have been integrated into the policies of the US till they are just a way of life. No political party has even dared to revoke them since then. It’s also evident that the new deal instituted several stabilizers that have been very effective in preventing the occurrence f another depression. The Securities and Exchange Commission is in charge of supervising the stock market and currently it firms the backbone of the American monetary system. The Federal Reserve through the Glass-Steagall Banking act has gained enough authority to manipulate the interest rates and control provisional loans, thereby able to increase its efficiency in the implementation of the monetary policy (Meltzer 2004) The formation of the federal deposit insurance corporation appreciably reduced the bank collapses and assisted in the restoration of the American confidence in the financial and banking industry. These three examples are very critical in the running of the American economy though they are usually taken for granted by the majority of American who anticipate that the national government is supposed to deal with the economic issues (Hoffman & Gjerde 2002)

Several political and social changes are very evident as a result of the implementation of the new deal. Power had to be shifted from the Wall Street to Nation’s capitol and this also helped in re-organization of labor making it a practicable political tool and made it an important economic interest group meaning that American politics was to be revolutionized. Additionally, the new deal salvaged the farmers in America and helped the African- American more that the previous regimen had ever done since the end of civil war (Meltzer 2004). The disadvantaged groups could finally be heard by the government as they had equal chance of accessing the federal funds and invest in big businesses. The labor unions as interest groups gained a lot of popularity and their voices could be heard as the new deal supported labor rights and until today it has remained a very influential political force.

Since the major factor that inspired the establishment of the new deal is the Great economic depression, it’s imperative to deal in more detail on this subject and critically understand what

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exactly ended this difficult time in the American history (Dent 2009).

The Impact of the New Deal on The Great Depression

The great depression describes a period that the world experienced a serious economic hardship that lasted from about 1929 through the Second World War period. There are several factors that are considered to be the causes of the crisis. In the early 1920s everything was running smoothly in the American economy with many American growing rich as they could purchase commodities and business was booming, the Wall Street became a craze for some people and banks offered loans generously to stock market business as it had become the smartest and hottest deal around. Many analysts believed that the American economy had entered a new era (Hoffman & Gjerde 2002). However, October 1929 came a serious event in history that left many American shocked. At this time the famous house of cards of New York stock exchange collapsed in what was to be described as the greatest market crash ever seen during that time. It came as a surprise that the crashing of the stock market itself did not results in collapsing of the rest of the economies. However since many of the banks in American had lent out their money heavily to the stock buyers, they became greatly endangered as the stock prices kept on falling and many of the borrowers who had invested in the stock market started to default on repayment of the loans.

Analysts tend to classify the possible causes of economy in several categories, however the three most important include;

1. There was too much over speculation of the use of the borrowed money in stock and could not be repaid following the crash in 1929 as stock prices fell.

2. the federal reserve was unable to control the extensive fall down of the American financial and banking systems early enough (late 1920s and early 1930s) resulting in serious slimming down in the country’s money supply (Meltzer 2004)

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3. There were strict protective tariffs like the Hawley-Smoot Act (also described as the Tariff at of 1930) which caused retaliatory tariffs in other nations and this strangled the world trade completely. (Meltzer 2004)

Speculation involves purchasing a commodity at lower prices in anticipation that the price would go up and then resell it at later on a greater profit. This is the way people make a lot of money in the stock markets. During the period from 1920 to 1929, the prices of stock market were very much on the increase and the stock market was a booming business. People could borrow money from banks invest in the stock market where they could earn enough to repay the loan and remain with considerable profits. The stock investors had to sell more stock leading to drop in prices (Meltzer 2004). As the market crashed in 1929, the Federal Reserve which was acting as the American central bank was completely unable to control the great depression from spreading further to many organizations. The speculators could not repay loans. Banks started collapsing and American lost their confidence in the American banking system. Many people at the moment went for their investment from their banks before they could collapse and this put more pressure on the commercial banks of America (Rauchway 2008). As a consequence, the first three years f economic depression led to collapse of about five thousand banks while over nine million people lost their savings.

There are fur serious problems that came with the great depression; first was the rates of unemployment skyrocketed and also many American lost their homes (homelessness became a serious problem after unemployment); second, the country’s financial system was paralyzed as many banks were closing down; third, many businesses became bankrupt causing unemployment to increase as many workers were laid off as businesses closed and eventually there was political unrest. The labor unions became more militant and even started ganging against capitalism in the U.S. fourth, many firms were also closed down and many families were also migrating from their birth places in search for employment which in fact was non existent. These problems were blamed on president Hubert Hoover failed policies and lack of plan. It was at this time that American were desperate for a change then came president Roosevelt with his 3 R’s; Relief for unemployment like Works progress administration which offered pay for those with emergency needs. Recovery program targeted improving businesses (Hoffman & Gjerde 2002).

The new deal did not effect changes immediately or rather end the great depression

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immediately but it was a source of hope for the Americans as the problems were solved at the end of the second world war (Cole & Ohanian 2004).

So did the new deal actually assist? There are two possible answers that can be used to explain the impact of the government spending under the new deal. First, the expenditure of the new deal was a boost to consumption and hence increased production and decreased unemployment rates leading to termination of the great depression. Second, the new deal helped the people who would otherwise been poor during that period of economic crisis (Cole & Ohanian 2004)

The new deal was ideated as an economic stimulus so that the economy of the US could be revived in the first sense. Second sense is that the welfare programs were intended to help the poor people. A look at the achievement of the new deal will have to analyze the gross domestic product of the US during the time Roosevelt was president. Basically when the government increases its spending, there is increased money supply. Analysts have been able to study the effect of the new deal from 1929 up to date. During Hoover’s reign, the government spending was about 10 billion US dollar, after the new deal boom, the spending increased to 13.2 billion US dollars, however throughout the post second world war period the government expenditure growth was very low hence this raises concerns as to whether the deal was the real stimulus (Wright 1974). However since this was the only tool for improving the economy, it earn the credit.

Impact of New Deal Implementation on GDP

It’s important to note that after the Second World War it was time for many nations to focus on development since many had lost money, property and human resources in r5the war. Building up new plans had to be done. For this reason, the US invested in many industries and peace time jobs which were uncalled for. The country however was able to get out the economic crisis. The policies instituted by F.D Roosevelt seem to have terminated the depression, the monetary stimulus suggested were very efficient. The economic state of the nation improved during this period though very gradual (Cole & Ohanian 2004)

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There is always contention as to whether the new deal actually inspired the economic growth in the US or it was by chance that the Second World War had just ended and automatically resulted in the ending of the depression. It’s very difficult to ascertain since there were no agreed standard to be used fro evaluation. However it’s important to note that there are several factors that actually contribute to the development of economies. There are several changes that are only characteristic of this period. For instance the average rates of unemployment were about 25% in 1933 at the time Roosevelt was taking office and five years later, this had dropped to about 14%. Basically to explain this is difficult to exclude the new deal initiative (Hoffman & Gjerde 2002).

The US domestic product was estimated to be about 635.5 billion UD dollars by the time Roosevelt was being sworn in as the new president, however, in 1937, the GDP had increased to about 911.2 billion US dollars. It decreased slightly in 1938 but rose again to up to 1.2 trillion UD dollars in 1941. It’s also important to note that though the Second World War was being fought, the US did not get involved until in very late in the year 1941 (Rauchway 2007). This means that contrary to what some critic say that the changes were actually as a result of the war, there is no way to attribute that changes before 1941 to the domestic war. The increased GDP and reduced unemployment rates during this time can only be linked to the new deal though US production for other countries already in war could have counted to the growth from 1940 to 1941(Wright 1974).

The New Deal and American Lifestyle

The year 1938 was also very significant in the economy as the GDP decreased drastically, the unemployment rates increased raising concerns as to what really happened (Black 2005). A very important eco0nomist in the US clarified this by asserting that this at a tine when the new deal programs were being reversed and hence the changes observed in 1937 to 1938 recession. The government had reduced its spending in 1936 and increased taxation and this cased the economy to face a downturn again. However it’s evident that the situation was reversed as the president reinstituted the changes in 1938 (Edsforth 2000). The new deal was however not a compressive and unified tool for achievement, the president is reported to have sought different methods for recovering the economy and continuously changed tactic (Cole &

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Ohanian 2004)

The Negative Impact of the New Deal

Conservatives were very much against the new deal initiative set by the Roosevelt regime. They believe that the history of American is a continuity not c reflection of social class stratification or ideology conflict but unity and stability. The new deal is hence considered a new disappearance of the traditional American values leading to a change in their social policies to the intervention of the federal government. The new deal is accused of giving excessive power to the executive branch of government especially the president and the federal balance due. The new deal is considered as a response to pressure and it was practically lack of a sound and thoughtful monetary plan. (Edsforth 2000) FD Roosevelt was a speculator and pragmatic in the events of serious crisis.

Those individuals, who were very much inclined to business, thought of recession and economic recovery in very different terms from what the supporters of new deal or Keynesian economist thought. Their argument was that the new deal was very hostile to the extension of businesses during the period between 1934 and 1937. They cite the substantial employee strikes that marked and characterized the period indicating that they had a very harmful impact on the most important businesses in the US. The automobile industries, was threatened by such cases like the anti-trust lawful attacks. Interestingly, these attacks stopped in 1938. For instance the anti-trust attempt sizzled out with no serious case. The CIO and AFL unions’ were more involved in fights than corporations and the taxation policy became more favorable to long term growth (Hoffman & Gjerde 2002). A survey by Gallup in 1939 asking whether the American thought that the New deal was delaying business in America, the response was over two – to – one yes. The business community was greatly convinced that the new deal was a setback to business (Cole & Ohanian 2004).

Some believe that the new deal sheltered the trust more that the common people. Currently, it seems like the poor are getting poorer and the trusts are growing very rich. There in increasing evidence that the poor were actually disadvantaged by the new deal and were the victims of eth deal. Several economists have analyzed this strategy and can affirm that it was actually very

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expensive undertaking (Hoffman & Gjerde 2002).

First, considering the funding of the program, the government did not have enough money to do it so it had to collect revenue from the people. As a result the government increased the federal taxes by a rate of 300% from 1.6 billion dollars in 1933 to about 5.3 billion dollars by the end of 1940. Other takes were greatly increased. For instance the Excise taxes, inheritance tax, personal income taxes, company holding taxes, excess profits tax, and also corporate income tax all went up. The most critical source of revenue for the new deal was from the alcoholic beverages on which very high excise taxes were levied and also on cigarettes, candy, soft drinks, chewing gum, electricity, radio, telephone and matches (Black 2005).

These are commodities that were being used on daily basis among others. Since the people would strife to obtain them, the new deal was considerably funded and mostly by the poor and middle class people (Black 2005). Basically it’s as simple as having to pay for radio and electricity at the same time just to listen to Roosevelt’s Fireside Chats. Most economic analysts and even the treasury admit that the excise taxes fell disproportionately on the poor people.

The amount of money the federal government was getting fro the new deal was more than that obtained from corporate income tax and personal income combined until 1938. In 1942, for the first time income tax exceeded excise tax on domestic products; the consumers did not have enough money for spending and employers could not create more jobs or expand as they also lacked finances (Cole & Ohanian 2004).

The taxes introduced during the time of implementing the new deal were very detrimental to employment in the 1930s. They prolonged the rates of unemployment at an average of 17%. By imposing very high taxes on businesses, the employers were very restricted in terms of expansion and creation of new jobs. Furthermore, the social securities taxes on the payroll discouraged hiring because it would have been very expressive (Edsforth 2000).

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There are other new deal programs that are spoiled employment too, for example the National Industrial Recovery act of 1933; it reduced production and caused salaries to raise above market levels making it very expensive for the employers to hire people. There estimated job loss among the African American also was about a half a million due the implementation of the national industry recovery act. The farm produce were cut down so much devastating the black tenant farmers (Black 2005). The labor unions gained power to bargain for their rights at work places and this grew into a monopoly, strikes were more common and more violent, above market salaries led to major layoffs and this resulted in the 1938 depression.

The spending that the new deal introduced on their projects was actually coming from the tax payers who as a consequence did not have enough money to spend on essential commodities like food, clothing, education and few luxuries which would have stimulated economic growth. Most of the people concentrated they thinking on the number of job the new deal spending was creating and no attention was given to the other side of the coin where the new deal taxation system was destroying jobs (Black 2005).

Most of the new deal projects were in the west and east states while the south which were very poor did not benefit from the projects. The consumers on the other hand were also hammered seriously. They had to spend a lot of money, above market price for commodities. Furthermore discounting was banned by the anti-chain store act and also to maintain the prices by the signing of the retail price maintenance act (Edwards 2005). Actually the negative consequences came just as a reality of implementing the program and not as the intention of the president.

On the whole the negative impacts of the new deal were not what the new deal was designed for but it was a failure of analyzing the other side of the coin. The issue of concern is the benefits that came with the new deal versus the cost of implementing it. Economist concur that spending can become very onerous at times (Edwards 2005). The following is a summary of the cost-benefit analysis;

The cost of extraction: for the government to be ale to spend more, it must earn more. Every

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option is used to obtain the money and the outcomes are usually not very good. As the taxes are increased, lending to private sector is decreased and interest rates on land also go up.

Behavioral Penalty cost: productive alternatives are discouraged by government increased spending. Savings are very critical as they result in investment; however when the government subsidizes this retirement, education and housing, people won’t be inspired to save if the government is taking care of such expenses. Medicaid for instanced can cause people to depress their incomes for eligibility; the income is the misallocated (Edsforth 2000).

The cost of Displacement: as the government increases spending, the private sector is displaced. This actually cuts productive development and the economy is dampened as political bureaucrats are the ones deciding on where the money is channeled rather than allowing free market forces to work. The government as a consequence does not use the resource efficiently hence very little economic output (Edsforth 2000).

The stagnation cost: when the government spends more, innovation is inhibited in a free market, there ns always competition to be the best and increase income and economic discovery is enhanced. Government programs on the other hand are usually rigid due to centralization and political bureaucracy. Devoting government programs can greatly reduce this effect (Edwards 2005).

The cost of behavior subsidy: as the government spends more, it may encourage destructive choices like subsidizing cost-effective objectionable programs. Welfare programs can lead to focusing on leisure rather than working. The unemployment insurance can encourage people to remain unemployed (Edsforth 2000).

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Cost of Market Distortion: when the government spends more, resource allocation is distorted; the suppliers and buyers decide the prices in a competitive market through a process that guarantees the most effective allotment of resources, however government programs interferes with this dynamics brining in the problem of third payer. Education am healthcare are such interferences as it reduces out of pocket expenses (Edwards 2005).

The negative Multiplier cost: the government spends on some potentially harmful interventions. Some part of the federal budget is dedicated to fund activities that create a distinctively negative impact on economy. For example the small budget that the regulatory agencies have yet they impose very large expanses on the productive economic sector.

Inefficiency cost: the government expenditure has been proved to be a very ineffective way of delivering services to the people. The government can offer many services at once like education, infrastructure among others. Nonetheless there is proof that the private sector could provide these crucial services a much higher quality and cheaper cost. Additionally Improvement is like to be effected because of privatization (Kennedy 1999 & Heale 1999)

The Keynesian Theory in New deal

Keynesian school of though or the Keynesian Economics is founded on the belief that the government is very decisive in determining and controlling the inflation of a nation and the only the state intervention in the market and establishment of monetary polices can be effective in making sure that economic growth is achieved and that there is also economic (Gordon 1990) Keynesian economics is named after a British elitist economist known for controversial stances in his studies, Maryland John Keynes. He gave a simple explanation for the economic problem, to be specific the great depression which made him very famous. His ideas revolve around the state intervention of the economic polices and the money supply (flow of money) (Blanchard & Gali 2007). When one person spends, another person in turn earns. This circle is what is repeated and assists in supporting the normal function of economy. In the event of a depression, Keynes suggested that it is the responsibility of the government to intervene and increase expenditure by printing more money (increase money supply) or it should actually buy the products on the market by itself. In the event of great depression, this is logically not

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accepted solution. Nonetheless, the defenders of this thought claim that the US president Franklin D. Roosevelt used this method to get the US economy back on track (Kennedy 1999).

Keynesian model suggests that in the event of an aggregate spending below 45 degrees for any economic line, which is representing the equilibrium of expenses to income; the government should then start spending more money. This is what is termed as economic recession. When governments spends more, the income of the citizens will increase as more people will be working on the government projects and consumption will also go up as the government employee have money to spend. This on the other hand will increase demand and the companies will be forced to increase their production as well and hence investment. This sequence of events will improve the aggregate spending and will the equilibrium will increase towards 45 degrees line. This is perceived to have been very effective during the great depression in the US (Gordon 1990).

Keynesian model does seem not to have many disadvantages or drawbacks, during the reign of Nixon. During the economy problems like inflation, or depression, this can be used for intervention, when an expansionary phase in economy is experienced; the state needs to save the people. Nonetheless, during Nixon administration the government did not intervene this way and the consequences were hyperinflation (Blanchard & Gali 2007) So it seem that during the period of terrible necessity Keynesian economic model can be used for intervention but it should not be taken to the extreme as it might really affect the economy in a very bad way. The other side of it should also be considered (Expansion Phase) the people need to save money for recession.

Since Keynesian economist suggest the use of public sector to intervene and assist the economy in general, it’s an important arrival from the popular economic thought which came before it- – the laissez fair Capitalism. This type of capitalist economist supported leaving out the public sector in the marketplace. The concept is that an unregulated market will attain equilibrium on its own (Gordon 1990)

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According to Keynesians effects aggregate demand be it in expectation or not in expectation have a great short term impact on the actual output and employment and not on pricing. The ideology depicted here for instance when employment is low; the Phillips curves indicate that inflation is on the rise. According to Keynesians, whatever is true for the short term cannot automatically be inferred from what has to take place in long term and yet we are living in short term (Gordon 1990)

Keynesians are more interested in solving unemployment than addressing inflation. From previous evidences, they have drawn conclusions that cost of low inflation is minimal. But still there are several of anti inflation Keynesians. Most of the central bankers are anti-inflation Keynesians (Blanchard & Gali 2007). The perception of relative significance of inflation and employment greatly affect policy advices from economists the ones policy makers take in.

The US is known to be a supporter of the capitalist economist type of approach to many deals; The Keynesian economic approach has saved it from lots of trouble in economic policies over the past year when the aggregate spending fell lower than the national income. During the periods of very high inflation when the consumers cannot afford to buy products, the standard that the government increases its expenditure works (Edwards 2005). For instance the great depression incidence, the government increased expenditure on projects like public works and created jobs as well. When more people earn, this is likely to incline towards (consumption) expenditure and eventually investments. The only mistake is when the government still implements these rules after the recession. Nonetheless, the Keynesian approach does not support increased governments expenditure when the aggregate spending is on expansion phase (Blanchard & Gali 2007).

Roosevelt was not afraid to implement the suggestion made by Keynes and Stuart Mills. Many people believe that these economic principles helped to bring America out of the great depression. The then president Roosevelt involved the government in finding the solution to the economic problems by using the National Recovery Administration (NRA) which was later to be termed unconstitutional by the Supreme Court. The president sought a new plan; with the same idea still in his mind (creation of employment) he was able to convince other organizations to his ideas for instance, the civilian conservation corps (Blanchard & Gali 2007). Creating jobs is very critical since the consumers are given money to spend and this directly affects demand and supply. As they earn more money, they spend more and this leads to a cascade of reactions

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that pull the economy back together. By the end of the 1930s, the rates of unemployment had been lowered to about 17.2 percent.

Conclusion

A depression in economy is a lowest part of the business lifecycle. The booms and bust that businesses through describe the business cycle. The US faced a great depression in 1930s and consumers reduced their spending and businesses also cut down investments. There was very little money in circulation and the economy was paralyzed. The best remedy to be thought of was the Keynesian model which suggests that when there if such problems, it’s the duty of the government to intervene and spend more so that the people get money to spend. With this in mind, the new deal was born. Basically it had to identify the new deal with any ideology but it’s closely related with the theories of Keynes and Stuart mill. Importantly, its worth noting that this represented a country’s political maturity and attempt to regulate cooperate and incorporate solutions to problems rather than imposing predetermined resolution to the problems. by asserting that the history of America is founded on intuitive common sense, the new deal is a blended of logical judgment, A refusal of philosophy, expediency and simplicity.

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Hoffman, E. & Gjerde J. (2002). Major Problems in American History, Vol 11 Boston, Massachusetts Houghton Mifflin Co.

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