The New Deal Still a Good Deal

Commentary
June 23, 2008By Juan Carlos Ordóñez

The bronze statue atop the Oregon Capitol celebrates the pioneer era, but the building itself is a testament to the New Deal’s Public Works Administration, born 75 years ago this month in the midst of the Great Depression. The New Deal also bequeathed to Oregon many other superb structures, including Mt. Hood’s Timberline Lodge and the Yaquina Bay Bridge. But all of them pale in comparison to the New Deal’s greatest creation: a broad middle-class society.

No blueprint existed when President Franklin Delano Roosevelt set out to rebuild the nation after its economic collapse. Yet legislation enacted over the course of several years laid the foundation for an economy in which the fruits of prosperity were widely shared.

It did so, first, by fostering the creation of good-paying jobs. Besides instituting work programs to address the massive unemployment of the time, the New Deal established a national minimum wage and a standard for overtime pay. And crucially, it protected workers’ right to organize. As union jobs multiplied, so did the wages of millions of Americans.

Second, the New Deal invested heavily in the public sector, generating big returns. New roads, bridges and schoolhouses sprung up. The newly created Federal Housing Administration (FHA) insured mortgages, making homeownership affordable for a majority of Americans, while the GI Bill opened college doors to returning war veterans.

Public investments were financed through a strongly progressive tax system, a third way in which the New Deal fostered the creation of a broad middle class. “Taxes shall be levied according to ability to pay,” Roosevelt declared. “That is the only American principle.” Progressive taxation nurtured a broad middle class by inhibiting extreme concentration and entrenchment of wealth and power.

Finally, with pain from the 1929 market crash still lingering, the New Deal strengthened the government’s role in the economy. In doing so, it protected the economy and the public from the excesses of unfettered markets and corporate power. The unemployment insurance system created by the New Deal, for instance, is a model program that benefits workers and employers alike.

For sure, the New Deal had its flaws. One of the most glaring was that its benefits did not flow equally to minorities. The FHA’s promotion of homeownership, for example, largely excluded African Americans.

Critics often deride the New Deal by contending that it took World War II to pull the country out of the Great Depression. But that argument ignores that the New Deal set the stage for shared prosperity. It pulled a vast swath of the population aboard the ship, so that when the rising economic tide arrived, they all floated up together.

Sadly, that is no longer the case. Nearly 30 years of misguided economic policy have hammered away at the foundations of the New Deal, enabling inequality to return to levels last seen just prior to the start of the Great Depression.

Last year, for example, the highest paid hedge fund manager in the U.S., John Paulson, made $3.7 billion. An Oregonian working full-time at the state’s median hourly wage would need to work for about 119,000 years to equal Paulson’s take last year. That time span is about as long as modern humans have roamed the Earth.

To make matters worse, middle-class workers can pay higher total tax rates than hedge fund managers and others who speculate for a living, given that income from capital gains gets preferential federal tax treatment compared to income from work and that payroll taxes proportionally take a bigger bite out of the income of middle-income families than that of the well-off. Billionaire Warren Buffet, for one, disclosed last year that he paid a lower tax rate than his secretary.

In today’s topsy-turvy America, the National Labor Relations Board undermines worker efforts to organize, the Securities and Exchange Commission looks the other way while Wall Street peddles dangerous investments, and domestic programs that invest in America’s infrastructure and opportunities for people get the budget ax.

Americans yearning for a better future should heed the lessons of the New Deal. They offer not just concrete principles for building a society of shared prosperity, but also confidence that it can be achieved.


Juan Carlos Ordóñez is the communications director at the Oregon Center for Public Policy, which does in-depth research and analysis on budget, tax, and economic issues with the goal to improve decision making and generate more opportunities for all Oregonians.

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