Monthly Archives: November 2012

New Deal Legacies

The new deal era extends from the beginning of the Roosevelt administration in the depths of the great depression through the Truman administration where it had been renamed the fair deal. The policies that were implemented along the way brought major change to American economic and social policy, but it is important to have an accurate picture of what actually happened and what did not happen.

By the 1930s the US was divided into major divisions in subcultures. The former confederate states were an agrarian oligarchy operating on a system of racial subjugation. The Midwest and mountain states were similarly agrarian and generally conservative. The northeast stood in sharp contrast to most of the rest of the country. There was a box that could be drawn from Boston to Baltimore to St’ Louis to Minneapolis. This had already become the world’s most developed urban industrial complex. It had been developed by the labor of successive waves of European immigrants. There was a very large proletarian working class that floated in an intermediate cultural region between white protestant middle class respectability and the various people of color who had long been branded as not worthy of American citizenship.

When FDR took office in 1933 the depression had been raging for over two years and there was serious unrest in the ranks of the industrial proletariat. The challenge for the nation’s economic elite was to keep the lid on. A process of trial and error was launched that over the span of the next 20 years worked a significant socioeconomic transformation. It was not the fundamental revolution that is often claimed by both supporters and detractors of the policies. What it did do was to move a sizable portion of the industrial proletariat into an expanded white middle class. The resulting political culture has endured into the 21st C. It goes a long way to explain why Americans have generally confronted the great recession with passive grumbling more than anything else.

I have written before on how racial minorities were systematically cut out of most of the benefits of new deal programs The New Deal Designed For Jim Crow.

I am focusing here on the benefits of the affirmative action program that was created primarily for white men. The programs passed in the 1930s were a combination of immediate economic relief like the WPA and more fundamental change like the Social Security Act and the Wagner Labor Relations Act. The economy had pulled out of free fall and returned to slight growth by 1936. Cutbacks imposed in 1937 resulted in a return to recession. The country essentially limped along until the runup to WW II began to provide the sort of strong stimulus that politicians had been unwilling to accomplish with spending on social programs. The Wager act was opening doors to more militant union organization. The eventual entry of the US to the war put major social change on hold for the duration. Millions of men joined the fighting forces and the bulk of able bodied adults were pressed into the work force to support the war efforts. Unions made patriotic no strike pledges.

At the end of the war there was widespread concern that demobilization and shutting down war industries would have major economic consequences with the possibility of a return to depression. Major unions began a series of strikes in an effort to raise wages that had been frozen during the war. The establishment took what amounted to a two pronged approach. There was the sticks used to suppress labor militancy. These included the Taft-Hartley Act and the cold war anti-communist witch hunts. These eventually resulted in a labor movement that was considerably pacified and launched on the long slow path of its eventual decline.

There were however some substantial carrots passed out to the people who seemed most likely to pose a threat to prosperity and stability. At the end of the war much of the productive capacity of the industrial world had been bombed to dust. The US was in a supreme position as the only country with a fully intact economic structure. The powers that did be were willing to buy off the people who might demand a share of the power with a piece of the pie. Fairly generous wage settlements were reached with unions in key production industries. People such as skilled manufacturing workers were able to move into income levels that could qualify as lower middle class. Of more sweeping importance were the settlements that were made with the returning white veterans. The military during the war had been racially segregated and the black veterans through various means were for the most part cut out of the post war spoils.

The two post war programs that have had the most for reaching impacts were those to promote housing and education. While they were given strong focus for veterans, both had extensive ripple effects that reverberated through a broader population. The Federal Housing Administration FHA was established before the war. The Veterans Administration also established an extensive housing finance program and the FHA was greatly expanded for non-veterans. These programs provided long term loans for the purchase of housing with low down payments and subsidized interest rates. There were related programs to subsidize and stimulate the construction of residential housing. The FHA had established the practice of red lining which restricted its funding to all white real estate developments. The VA followed the same policy. This made it essentially impossible for racial minorities to take advantage of these programs. The housing programs brought about the boom in the development of white middle class suburbs.

The VA also established an extensive program of subsidized educational benefits. These ranged all the way from trade school programs to advanced academic degree programs. These benefits made it possible for millions of veterans who came from working class families to gain educational credentials that allowed them to advance into occupational fields with higher income and social status than those that had been available to their families. There were also extensive government funding for the expansion of existing educational facilities. Racial discrimination through out the educational system closed doors for minorities.

The mass movement to the new socially constructed restrictive suburbs was an important step in creating a new industrial middle class. People left their inner city immigrant working class neighborhoods and moved into a homogenized world. Many workers from what have been traditionally viewed as blue collar occupations were by virtue of higher wages and housing subsidies sharing cultural space with people in a variety of white collar fields. They were participating in the same civic, educational and recreational institutions. Of even more enduring significance was the fact that the ownership of appreciating real estate began to create a trail of wealth accumulation that could be passed on to subsequent generations. This did not happen for people who remained as renters in inner city neighborhoods.

The expansion of educational opportunity continued through the 1960s. The vastly expanded system of public universities and colleges provided education at modest rates of tuition thanks to extensive tax subsidies and educational grants to students. People typically picked up their diplomas with little or no debt attached to them. They also provided a card that guaranteed a fairly decent job somewhere for all college graduates. Being a member of the white middle class was a good deal and people who were born to or acquired that status wanted to hold onto it. The people who are so fond of telling you about how they pulled themselves up by their own bootstraps seem to generally be unaware of how much government they had in the process.

Let us now jump to the eve of the great crash of 2008. From the 1970s there had been a gradual erosion of the post war labor settlement. Private sector unions were representing a very small percentage of the work force. Most of them were putting their energies into trying to hold onto what they could for older and retired workers. The housing market had been turned into a casino feeding on bizarre predatory lending schemes that were about to bring the global financial to the brink of collapse. The same predatory debt schemes had taken over the arena of educational finance. The past four years have been dominated by the economic fallout from the neoliberal brave new world. Much of the middle class wealth created by real estate and other investments has evaporated in the crash of the housing and stock markets. Tax subsidies to educational institutions have been drastically reduced. For most college students getting a degree means acquiring a mountain of debt that can’t be discharged in bankruptcy. For many of them paying it off will take much of their working lives, when and if they can find a job.

The most accurate description of the public reaction to all of this is dazed shell shock. The economic pundits offer double talk that is unintelligible to most people. The concentration of income and wealth at the very top becomes greater with every year. What is not happening is any suggestion that the elite have anything to really worry about. The fears of revolution that brought about the extended new deal response are no where to be found. They seem convinced that they have created a permanently passive middle class. It seems likely that a majority of Americans still cling to the belief that this will somehow all go away. The value of their investments will rebound and there will be some bountiful source of new jobs. It does appear as though they are willing to wait for Godot.

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