Two Democratic presidents. Two mass unemployment crises. Two federal spending plans to rescue the economy. So how does Biden’s stimulus stack up to Roosevelt’s New Deal? Maybe it’s bigger.
President Joe Biden’s large-scale federal spending has already earned comparisons to the New Deal, but a behavioral economics professor says the plan is setting its own precedent.
“People think of the New Deal as this really, really aggressive response to the Great Depression. But part of the reason the Great Depression lasted so long was that Roosevelt and the country, the political leaders were really concerned about deficits,” Leonard Burman, the Paul Volcker Chair of Behavioral Economics at Syracuse University’s Maxwell School, told Insider.
The New Deal packages yielded some historic measures – like Social Security and modern unemployment insurance (UI) – but didn’t actually bring the Great Depression to an end. Part of the proof of this is that FDR rolled out multiple New Deals, including a so-called Second New Deal, but high unemployment wasn’t really put to bed until wartime mobilization set in.
According to Burman, the New Deal “limited some of the pains by creating jobs for some people that needed them and providing other assistance, but it was way too small.”
Roosevelt’s New Dealers “spent much less than would have been appropriate for the size of the economic downturn at that point,” he said, “and we didn’t really recover until there was a massive infusion of spending in World War Two.”
When you contrast that with Biden’s American Rescue Plan, he said, “we’ve never done this.”
Biden’s big spending looks set to continue. He is due to roll out his next multitrillion-dollar package tomorrow, on infrastructure, which could come in anywhere between $3 trillion and $4 trillion, as The Washington Post reported.
Showing that deficit concerns remain a consideration, the package, which will be split into two parts, will include a large tax hike. However, that may be more to calm the inflation fears that have been roiling the markets since Biden took office, instead of the deficit specifically. The movement in Treasury yields indicates market concerns over future runaway inflation that hasn’t arrived yet and not on indicators of it happening at present.
Burman reiterated that this is something new, and should be useful to economists in the future. “I’m an economist. I like data,” he said. “I mean, this has got to be a new data point, and it will be helpful for us to calibrate future response to future economic downturns.”
The White House did not respond to a request for comment.
Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
In this week’s episode, Hanauer spoke with Bharat Ramamurti, deputy director of the incoming Biden administration’s National Economic Council who recently coauthored ‘A True New Deal’ that details a plan for inclusive economic recovery during the pandemic.
The plan promotes canceling student, housing, and medical debts, guaranteeing universal childcare, and restrengthening antitrust laws.
Ramamurti says the plan isn’t about redistributing existing American wealth; it’s about changing the patterns of wealth pre-distribution and ensuring that “every American creates wealth of their own.”
If we want to fundamentally repair the economy so it works for everyone, Nick Hanauer says at the beginning of the latest episode of Pitchfork Economics that we must fully recognize that “the neoliberal era was a disaster and that we need to, in deep structural and ambitious ways, replace those ideas and that policy framework with something new.”
Of course, that’s easier said than done. You can’t simply raise a tax by a couple of percentage points and expect everything to be fine. Over 40 years of trickle-down economics – that is, the aggressive pursuit of tax cuts for the rich, deregulation for the powerful, and wage suppression for everyone else – has left America’s economy in a critical condition, with income inequality nearing historic highs. Our economy desperately needs deep structural reform, but what does that even look like? The last time we overhauled our economy, when FDR created the New Deal to counteract the damage done by the Great Depression, is quickly passing out of living memory.
Luckily, a progressive think tank called the Roosevelt Institute is stepping up to carry on the legacy of its namesake. The group recently published the details of what it calls A True New Deal, a suite of policies to repair the economic damage caused by the pandemic, bridge the income inequality gap, and build a more inclusive and diverse economy.
The policy proposal calls for nine major areas of reform. In the Roosevelt Institute’s own words, these nine reforms are:
Canceling student, housing, and medical debts – and implementing structural change to address the accumulation of debt;
Creating a federal jobs guarantee;
Federalizing and expanding unemployment insurance;
Building a modern Reconstruction Finance Corporation;
Guaranteeing universal childcare;
Mandating sectoral bargaining;
Ensuring corporate accountability through federal chartering;
Reinvigorating antitrust law for real trust-busting; and
Rebalancing political power through institutional reform.
Bharat Ramamurti, a coauthor of the True New Deal, joined Hanauer to discuss the big ideas behind the plan.
Ramamurti isn’t some dilettante in the world of economics: He’s served as an economic advisor to Senator Elizabeth Warren, and he recently left his position as the managing director of the Roosevelt Institute’s Corporate Power Program to serve as the deputy director of the incoming Biden administration’s National Economic Council. He’ll have a direct hand in shaping America’s economic policy in the months ahead.
Ramamurti says the team at Roosevelt wrote the True New Deal “to reorient the role of public power in the economy, reassert that role, and, in doing so, fundamentally change the way that money flows through the economy.”
To those who accuse the authors of the True New Deal of redistributing wealth, Ramamurti says they’ve got it exactly backwards: It’s not about redistribution, it’s about changing the patterns of wealth pre-distribution.
Much of the Democratic agenda over the last few decades has been redistributionist, focusing on “taxing the wealthy and big corporations, and then reinvesting that money into programs that help lower income and middle-class families,” Ramamurti explained.
While redistribution is an important tool in the economic toolkit, it still largely subscribes to the discredited theory of trickle-down economics, in which wealth is created by the wealthy.
What the True New Deal seeks to do is “reconceive the rules of our economy,” to “swing the pendulum back” to a time when everyone created our nation’s wealth.
This was when workers’ wages were high, corporations didn’t “exist solely to maximize the returns that they send to their shareholders rather than having any obligations to their workers or their community,” and everyone owned a share in the American dream.
These pre-distributionist concepts, Ramamurti explains, enjoy sweeping bipartisan support.
“Changing the antitrust rules so that smaller businesses have a better opportunity to compete against bigger businesses is really popular,” he concluded, “and it opens up opportunities not only for consumers, but also for workers who have more potential employers.”
Ramamurti believes the True New Deal “has an opportunity to speak to a really broad set of people who understand that there’s something fundamentally unfair about the economy that they’re living and working in.”
“Twenty years after graduating, the median white student loan borrower has paid off 95% of their loan,” he said, “and the median Black borrower still owes 95% of their loan.”
That’s why the True New Deal works to eliminate some of the structural racism and sexism in the economy by addressing decades’ worth of conditions that created huge intergenerational wealth gaps between white and nonwhite populations, even as it also levels the playing field between the haves and the have-nots.
The goal isn’t to redistribute pre-existing wealth, but to ensure that every American creates wealth of their own.
“As we make these types of structural changes to the economy and rebalance some of the power dynamics that exist in society and in the economy, it’s important to recognize that we do that in a way that empowers Black and Hispanic families and communities that have too often been cut out of those power structures before,” Ramamurti explained.
The end result is an economy that works for everyone – not just the privileged few.