New Deal Study Guide

📖 Core Concepts Great Contraction (1929‑1933) – Manufacturing output fell ⅓; deflation ‑15 % and unemployment surged to 25 %. First New Deal (1933‑1935) – Rapid legislative “Hundred‑Days” push to stabilize banks, revive agriculture, and launch public‑works programs. Second New Deal (1935‑1938) – Expanded labor rights, created the Social Security system, and broadened relief through the WPA and Fair Labor Standards Act. Key Institutions – FDIC (deposit insurance), SEC (securities regulation), NRA (industry codes, later struck down), NLRB (union‑management disputes), TVA (regional development), REA (rural electrification). Political Realignment – Formation of the New Deal coalition (labor, urban voters, minorities) that kept Democrats dominant through the 1960s. Economic Impact – Average annual GDP growth 7.7 % (1933‑1941); unemployment fell below 15 % by 1937 but did not reach full employment until WWII. --- 📌 Must Remember Emergency Banking Act (1933) – Federal loans to banks; only “sound” banks reopened. FDIC – Insures deposits (original limit: \$2,500). Glass‑Steagall Act – Separates commercial from investment banking. Gold Reserve Act (1934) – Fixed gold at \$35/oz, allowing money‑supply expansion. Agricultural Adjustment Act – Pays farmers to reduce acreage → higher commodity prices. National Industrial Recovery Act (NRA) – “Blue Eagle” codes; declared unconstitutional 1935. Wagner Act (NLRA, 1935) – Guarantees collective bargaining; creates NLRB. Social Security Act (1935) – Old‑age pensions, unemployment insurance, aid to disabled/children; funded by payroll tax. Fair Labor Standards Act (1938) – 40‑hr week, minimum wage \$0.40/hr, bans most child labor. Works Progress Administration (WPA) – Largest federal employer; builds infrastructure & funds arts. Rural Electrification Administration (REA) – Cuts rural no‑electricity rate from 90 % to 40 % (1935‑1940). --- 🔄 Key Processes Bank Holiday → Emergency Banking Act → FDIC Creation Close all banks → Federal exam → Reopen only sound banks → Deposit insurance restores confidence. Agricultural Adjustment Assess crop surplus → Tax food processors → Pay farmers to leave land fallow → Reduce supply → Raise prices. NRA Code Adoption Industries draft “codes” → Set minimum wages & max hours → Businesses sign “Blue Eagle” → Supreme Court strikes down 1935. Social Security Funding Payroll tax (6.2 % employee + 6.2 % employer) on wages → Trust fund → Benefits paid out after 1939. WPA Project Implementation Federal funds → State/local contracts → Private contractors hire workers → Projects (bridges, schools, art) completed. --- 🔍 Key Comparisons FDIC vs. Pre‑1933 Banking – FDIC: deposits insured, bank runs end; Pre‑1933: no insurance, frequent closures. NRA (1933) vs. Fair Labor Standards Act (1938) – NRA: industry‑self‑regulation, temporary, unconstitutional; FLSA: permanent federal law, sets wage/hour standards. First New Deal vs. Second New Deal – First: banking, agriculture, emergency relief; Second: labor rights, Social Security, broader welfare. Gold Standard (pre‑1933) vs. Post‑1934 Gold Policy – Gold Standard: currency tied to gold reserves, limited money supply; Post‑1934: gold price fixed, money supply can expand. --- ⚠️ Common Misunderstandings “The New Deal ended the Depression.” – True that it mitigated collapse, but full employment arrived only with WWII mobilization. “All New Deal programs survived unchanged.” – Many (e.g., NRA, original AAA) were struck down or revised; Glass‑Steagall was repealed in 1999. “Social Security covered everyone.” – Farm workers and domestic servants were excluded from early coverage. “The NRA raised wages permanently.” – Its wage/ hour standards were later incorporated into the Fair Labor Standards Act, not the NRA itself. --- 🧠 Mental Models / Intuition “Safety‑net ⇢ Confidence ⇢ Investment” – Deposit insurance → public trust → banks can lend → businesses invest. “Supply‑side relief = higher prices = farm income” – Paying farmers to cut output reduces oversupply, automatically lifts prices (basic supply‑demand). “Public works = multiplier” – Every dollar spent on infrastructure creates >\$1 of economic activity via wages, materials, and downstream demand. --- 🚩 Exceptions & Edge Cases Agricultural Adjustment Act – Benefited large landowners; tenant farmers (especially Black sharecroppers) often lost work. FDIC Coverage Limit – Initially only up to \$2,500; larger deposits remained at risk until later increases. NRA “Blanket Code” – Minimum wage range 20‑45 cents/hr; many industries set higher standards, but enforcement was weak before the Court struck it down. Social Security Payroll Tax – Only applied to wage earners; self‑employed paid a combined rate (later added). --- 📍 When to Use Which Banking Crisis → Emergency Banking Act & FDIC – Immediate stabilization of the financial sector. Agricultural price collapse → AAA (or later CCC/FSI) – Use production‑control subsidies to raise farm incomes. Labor unrest → Wagner Act & NLRB – Protect workers’ right to organize and settle disputes. Mass unemployment → WPA vs. FERA – WPA for long‑term infrastructure; FERA for short‑term make‑work projects. Regional underdevelopment → TVA or REA – TVA for river basin power & flood control; REA for rural electrification. --- 👀 Patterns to Recognize “Hundred‑Days” → Rapid, omnibus legislation – Whenever a crisis hits, look for a flurry of bills covering finance, agriculture, and public works. “Court‑Packing → Judicial shift” – Political pressure on the Supreme Court often precedes a change in judicial composition (1937 retirements). “Recession‑followed‑by‑War” → Full employment – Economic upturns in the 1940s tied to wartime spending, not solely to New Deal policies. “Coalition‑building → Urban‑labor‑minority bloc” – Electoral maps showing strong Democratic votes in large cities and among labor unions. --- 🗂️ Exam Traps Distractor: “The NRA raised the minimum wage to 50 cents/hr.” – Wrong: NRA’s range was 20‑45 cents/hr; the 50 cents figure belongs to later statutes. Distractor: “Social Security was funded by a sales tax.” – Wrong: Funded by payroll taxes on wages. Distractor: “The New Deal eliminated all child labor.” – Wrong: Only the Fair Labor Standards Act (1938) heavily restricted, but not all child labor was abolished. Distractor: “Glass‑Steagall was enacted to create the FDIC.” – Wrong: Glass‑Steagall separated banking activities; FDIC came from the Banking Act of 1933. Distractor: “The 1937 recession proved the New Deal was a total failure.” – Wrong: It caused political backlash, but many programs persisted and the economy recovered with WWII spending.