See also: Unemployment and the New Deal and Effects of the Great Depression
Government spending increased from 8.0% of gross national product (GNP)
under Hoover in 1932 to 10.2% of the GNP in 1936. Because of the depression, the
national debt as a percentage of the GNP had doubled under Hoover from 16% to 33.6% of the GNP in 1932. While Roosevelt balanced the "regular" budget, the emergency budget was funded by debt, which increased to 40.9% in 1936, and then remained level until World War II, at which time it escalated rapidly. The national debt rose under Hoover, held steady under FDR until the war began, as shown on chart 1.
Deficit spending had been recommended by some economists, most notably by
John Maynard Keynes of Britain. Some economists in retrospect have argued that the
National Labor Relations Act and
Agricultural Adjustment Administration were ineffective policies because they relied on price fixing. The GNP was 34% higher in 1936 than in 1932 and 58% higher in 1940 on the eve of war. That is, the economy grew 58% from 1932 to 1940 in 8 years of peacetime, and then grew 56% from 1940 to 1945 in 5 years of wartime. However, the economic recovery did not absorb all the unemployment Roosevelt inherited. In his first term, unemployment fell by three-sevenths from 25% when he took office to 14.3% in 1937 but then increased further in 1938 when it hit 19.0% ('a depression within a depression'), 17.2% in 1939 because of various added taxation (
Undistributed profits tax in Mar. 1936, and the
Social Security Payroll Tax 1937, plus the effects of the
Wagner Act; the
Fair Labor Standards Act and a blizzard of other federal regulations), and stayed high until it almost vanished during
World War II when the previously unemployed were forcibly
drafted, also known as 'conscription', taking them out of the potential
labor supply number.
During the war, the economy operated under such different conditions that comparison with peacetime is impossible. However, Roosevelt saw the New Deal policies as central to his legacy, and in his 1944
State of the Union Address, he advocated that Americans should think of basic economic rights as a
Second Bill of Rights.
The
U.S. economy grew rapidly during Roosevelt's term. However, coming out of the depression, this growth was accompanied by continuing high levels of
unemployment; as the median joblessness rate during the New Deal was 17.2%. Throughout his entire term, including the war years, average unemployment was 13%. Total employment during Roosevelt's term expanded by 18.31 million jobs, with an average annual increase in jobs during his administration of 5.3%.
Roosevelt did not raise
income taxes before
World War II began; however
payroll taxes were also introduced to fund the new
Social Security program in 1937. He also got
Congress to spend more on many various programs and projects never before seen in American history. However, under the revenue pressures brought on by the depression, most states added or increased taxes, including sales as well as income taxes. Roosevelt's proposal for new taxes on corporate savings were highly controversial in 1936–37, and were rejected by Congress. During the war he pushed for even higher income tax rates for individuals (reaching a marginal tax rate of 91%) and corporations and a cap on high salaries for executives. In order to fund the war, Congress broadened the base so that almost every employee paid federal
income taxes, and introduced
withholding taxes in 1943.
<TABLE class="wikitable">
<TR> <TD colspan=3 align=center>
Unemployment (% labor force)</TD> </TR>
<TR> <TD>
Year</TD> <TD>
Lebergott</TD><TD>
Darby</TD> </TR>
<TR> <TD>
1933</TD><TD QP::NUMFORMAT:="97,-1,24.9">
24.9</TD><TD QP::NUMFORMAT:="97,-1,20.6">
20.6</TD> </TR>
<TR> <TD>
1934</TD><TD QP::NUMFORMAT:="97,-1,21.7">
21.7</TD><TD QP::NUMFORMAT:="97,-1,16">
16.0</TD> </TR>
<TR> <TD>
1935</TD><TD QP::NUMFORMAT:="97,-1,20.1">
20.1</TD><TD QP::NUMFORMAT:="97,-1,14.2">
14.2</TD> </TR>
<TR> <TD>
1936</TD> <TD QP::NUMFORMAT:="97,-1,16.9">
16.9</TD><TD QP::NUMFORMAT:="97,-1,9.9">
9.9</TD> </TR>
<TR> <TD>
1937</TD> <TD QP::NUMFORMAT:="97,-1,14.3">
14.3</TD><TD QP::NUMFORMAT:="97,-1,9.1">
9.1</TD> </TR>
<TR> <TD>
1938</TD> <TD QP::NUMFORMAT:="97,-1,19">
19.0</TD><TD QP::NUMFORMAT:="97,-1,12.5">
12.5</TD> </TR>
<TR> <TD>
1939</TD> <TD QP::NUMFORMAT:="97,-1,17.2">
17.2</TD><TD QP::NUMFORMAT:="97,-1,11.3">
11.3</TD> </TR>
<TR> <TD>
1940</TD><TD QP::NUMFORMAT:="97,-1,14.6">
14.6</TD><TD QP::NUMFORMAT:="97,-1,9.5">
9.5</TD> </TR>
<TR> <TD>
1941</TD> <TD QP::NUMFORMAT:="97,-1,9.9">
9.9</TD><TD QP::NUMFORMAT:="97,-1,8">
8.0</TD> </TR>
<TR> <TD>
1942</TD> <TD QP::NUMFORMAT:="97,-1,4.7">
4.7</TD><TD QP::NUMFORMAT:="97,-1,4.7">
4.7</TD> </TR>
<TR> <TD>
1943</TD> <TD QP::NUMFORMAT:="97,-1,1.9">
1.9</TD><TD QP::NUMFORMAT:="97,-1,1.9">
1.9</TD> </TR>
<TR> <TD>
1944</TD> <TD QP::NUMFORMAT:="97,-1,1.2">
1.2</TD><TD QP::NUMFORMAT:="97,-1,1.2">
1.2</TD> </TR>
<TR> <TD>
1945</TD> <TD QP::NUMFORMAT:="97,-1,1.9">
1.9</TD><TD QP::NUMFORMAT:="97,-1,1.9">
1.9</TD> </TR>
</TABLE>