Was the New Deal too small?
A lesson from Great Depression, historians say, is that Roosevelt didn't spend enough to jolt economy into recovery.
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Model, because the programs put paychecks into workers' pockets and laid a concrete and electrical foundation for America's postwar boom. Cautionary tale, because the effort did not jolt the Depression economy back to health.
One big reason is that President Roosevelt didn't spend enough to really boost the economy, historians say. But US history offers no guide on how much stimulus is too much, especially since the timing of today's crisis and the Depression are so different.
The Great Depression had been in full swing for three years when Roosevelt came into office and proposed his massive work relief program. Obama will enter the White House as the economy is still unraveling, which may help him.
"This time we're trying to have the bailout and rescue as the crisis is unfolding before our eyes; there's a sense that 'Can we prevent this before it really gets rolling?' " says Jason Smith, author of "Building New Deal Liberalism." "The Roosevelt administration was experimenting – they were kind of operating blindfolded and in the dark – they didn't have the kind of economic expertise that's available to us today."
The infrastructure component of the still-evolving Obama economic-recovery plan would inject billions of dollars into repairing old roads and bridges and constructing new ones, upgrading the nation's schools with new technology, and making public buildings energy efficient.
When Obama announced those "few key parts" of his plan on Saturday, he called them "the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s." That's when the federal government invested $25 billion and built more than 41,000 miles of roads, highways and bridges over a 20-year period. In today's dollars, that would be the equivalent of $197 billion investment.
How much Obama will spend on infrastructure is unknown. His economic team is still "crunching the numbers," in his words, on the economic-recovery package, which would include far more than infrastructure and could end up costing $700 billion or more. Much will depend on Congress.
But US governors say they already have $136 billion dollars in projects that are "shovel ready," which means they could be under way within months of the new administration taking office. Each $1 billion of infrastructure is expected to create 25,000 to 40,000 jobs.
Still, some critics point to the Depression and note that infrastructure spending did not create enough of a stimulus to revitalize the economy. It took World War II to get it back on track. Depression historians contend that's because the Roosevelt administration didn't spend enough.
"There was a kind of crude sense that generating economic activity was what you needed to do to get the economy going," says Alan Brinkley, a professor of history at Columbia University. "But they didn't spend nearly enough. They were constrained by all kinds of traditional ideas about balanced budgets and austerity."
There is a consensus today among economists, even many conservative ones, that the government needs to inject some Keynesian stimulus to keep the economy from spiraling further downward. But some conservatives do disagree.