New Deal

The New Deal (from English, “New Agreement”, “New Deal” or “New Pact”) was a set of economic and social measures to resolve the Crisis of 1929.

The plan articulated state and private investments, reforms to adapt various sectors of the economy and stimulate consumption, thus reheating the country's economy.

The New Deal was carried out between 1933 and 1937 in the United States, with a view to recovering the American economy from the crisis of overproduction and financial speculation that occurred in 1929.

The measures taken during this period sought, above all, the generation of jobs. With that, the government intended to increase the consumption of salaried workers, creating a virtuous cycle of development.

Characteristics

We can highlight some measures of the New Deal :

• Huge investments in public infrastructure works, especially in the construction of roads, railways, hydroelectric plants, bridges, hospitals, schools, airports and popular housing;
• Granting subsidies and loans to small producers;
• Control of currency issuance, in parallel with the devaluation of the dollar;
• Surveillance and control of the activities of banks and other financial and economic institutions, in order to hinder fraud and speculation;
• Control of agricultural and industrial production and prices;
• Legalization of trade unions;
• Reduced working hours to eight hours a day;
• Creation of Social Security and the minimum wage.

Historical Context

In 1929, the crisis of overproduction and financial speculation plunged the United States into a deep economic crisis. As the country was one of the main importers in the world, the other countries were also economically harmed.

This impasse has shaken the principles of classical economic liberalism and capitalism itself.

This situation lasted until 1933, when millions of North Americans found themselves in poverty, with unemployment rates around 30%.

In turn, in 1932, Democrat Franklin Delano Roosevelt (1882-1945) was elected President of the United States.

To elaborate the "New Deal", he was inspired by the ideas of the British economist John Maynard Keynes (1883-1946), who defended the interference of the State in the economy in order to guarantee social welfare. Later, this thinking would be known as Keynesianism.

Thus, the American president creates dozens of federal agencies to organize various programs to fight poverty and revive the economy.

As early as 1935, the measures of the new economic pact already had an effect, pointing to a decrease in unemployment and an increase in workers' income. In turn, industrial production and the generation of new jobs were boosted.

However, opposition to the New Deal slowed down the program from 1937 onwards, alleging that excessively high public spending and tax breaks would increase the public debt.

In the early 1940s, the New Deal it was a success, as it brought the US economy back to where it was before the crisis.

However, unemployment still reached 15% of the population. It was only with the outbreak of the Second World War that the condition of full employment reigned again, with an impressive 1% unemployment rate. After all, the war effort and the mobilization of the male population guaranteed work for everyone.

The New Deal guidelines will last until the end of the 1960s and 1970s, when economic neoliberalism comes into force in the main capitalist economies of the world.

Curiosities

• The US government even destroyed the stocks of agricultural products to contain the fall in prices (deflation).
• John Maynard Keynes published the "General Theory of Employment, Interest and Money" (1936) based on the effects of the New Deal.
• The Welfare State (welfare state) emerged after the implementation of the New Deal.