How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s

Abstract

The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently, there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases, the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners' Loan Corporation's purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation's loans to banks and railroads appear to have had little positive impact, although the banks were aided when the RFC took ownership stakes. (JEL D72, E61, L52, N41, N42)

Summaries of Doctoral Dissertations

“…I show that the Veterans’ Bonus benefited WWI veterans on both the home ownership and home value margins, which is consistent with recent analysis on several New Deal housing programs summarized in Fishback (2017). I expand on prior work by using an observable individual variation, which allows me to analyze both the direct and spillover effects of cash shocks on housing markets during the 1930s.…”

“…2See Fishback (2017) for a recent review on the recovery from the Depression, particularly for the role of government policy.…”

Summaries of Doctoral Dissertations

“…1Fishback (2017) provides a rich, comprehensive survey of recent research on the New Deal using microeconomic data sets.…”

What's Policy Got to Do with It? Race, Gender & Economic Inequality in the United States

“…7 The New Deal of the 1930s offers especially pertinent lessons on how policy can create, maintain, and exacerbate racialized and gendered economic inequality. 8 One of the centerpieces of the New Deal-Social Security/OAI (Old Age Insurance)included provisions that disqualified workers in the agricultural and domestic industries. 9 These provisions meant that nine out of ten African American women workers were automatically rendered ineligible.…”