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Roosevelt's 'New Deal' Resurfaces in US Economic Stimulus Debate


President Barack Obama's massive economic recovery package has sparked debate on the effectiveness of large-scale government attempts to jumpstart a failing economy. In particular, it has provoked a re-examination of America's most ambitious expansion of the government's role in society - the so-called "New Deal" crafted by President Franklin Delano Roosevelt during the Great Depression of the 1930s.

Central to President Obama's call for the biggest economic stimulus plan in U.S. history is his belief that, when the private sector is imploding, the government must act.

"With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back into life. It is only government that can break the vicious cycle where lost jobs lead to people spending less money, which leads to even more layoffs," he said.

It was a similar belief that, during the Great Depression of the 1930s, led President Franklin Roosevelt to champion numerous public works projects. When he entered office in 1933, roughly one-in-four Americans was unemployed.

"Our greatest primary task is to put people back to work," President Roosevelt said.

Roosevelt also led the fight to create America's social safety net.

"We have tried to frame a law that gives some measure of protection to the average citizen and his family against the loss of a job, and against poverty-stricken old age," he said.

Although controversial at the time, many Roosevelt-era initiatives are now mainstays of the U.S. economy, including government-provided unemployment compensation and Social Security benefits for retirees.

But debate continues as to whether the New Deal rescued the United States from the depression, merely cushioned its blow or made matters worse. That debate resurfaced during congressional deliberations over President Obama's economic recovery package.

Republican Senator John Ensign of Nevada opposes the bill, arguing that government spending cannot reverse economic contraction.

"History has proven that formula is a failure. We saw it in the Great Depression. You cannot simply spend your way out of a recession or a depression," he said.

Ensign's contention did not go unnoticed by President Obama at a recent news conference.

"There are several who have suggested that FDR [i.e., Franklin Delano Roosevelt] was wrong to intervene back in the New Deal [era]. They are fighting battles that I thought were resolved a pretty long time ago," said President Obama.

Although unemployment moderated after enactment of New Deal reforms, there is basic agreement among economic historians that it was World War II that ultimately revived America's economy in the early 1940s.

An economist at Washington's CATO Institute, Dan Mitchell, says the New Deal actually made the depression longer and more severe by saddling the nation with a heavier government burden.

"The New Deal policies extended the Great Depression by seven years. We should not follow that model of failure," said Mitchell. "The 1930s are a roadmap of what not to do, because all the [government] interference, all the intervention, the higher tax rates, the increases in government spending kept our economy from recovering. Politicians got in the way of the private sector."

Mitchell says government is incapable of generating economic growth by itself, because any revenue spent comes from taxation or borrowing from the private sector.

But others draw a different conclusion - that the flaw of the New Deal was that it was not big enough or bold enough to overcome the dire challenges of the time. Adherents of this view note that government spending during World War II dwarfed that of the New Deal, and virtually eradicated U.S. unemployment in a matter of months.

Historian Alan Brinkley of Columbia University has written extensively on the New Deal and its lessons for today.

"The [New Deal] spending was never large enough to compensate for the loss of wealth that the depression had created," said Brinkley. "If you want to counteract a severe recession, you have to take big measures to generate economic activity. And I think that is what the stimulus package is designed to do."

Boosting government spending during economic downturns was advocated by British economist John Maynard Keynes, whose writings were published at the time of the Great Depression. For decades, the New Deal stood as America's biggest experiment in the theory.

President Obama's economic recovery package clearly draws from Keynesianism. Should the plan become law, economists and people of all philosophies will be watching results with a keen eye.

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