9.6 New Deal regulations

The New Deal marked a turning point in American business history, introducing sweeping regulations to combat the Great Depression. Roosevelt's administration implemented programs like the NRA and WPA, reshaping the relationship between government and the economy.

Banking reforms, labor policies, and agricultural regulations fundamentally altered the business landscape. The Glass-Steagall Act, National Labor Relations Act, and Agricultural Adjustment Act exemplify how New Deal policies aimed to stabilize markets, protect workers, and support farmers during economic turmoil.

Origins of New Deal

• New Deal emerged as a comprehensive response to the economic crisis of the Great Depression, marking a pivotal shift in American business and government relations
• Represented a significant expansion of federal power and intervention in the economy, setting precedents for future regulatory frameworks
• Aimed to provide relief, recovery, and reform through a series of programs, agencies, and legislation

Great Depression context

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• Stock market crash of 1929 triggered widespread economic collapse and unemployment rates reaching 25%
• Banking system failures led to loss of savings and credit freeze
• Agricultural sector suffered from overproduction and plummeting commodity prices
• Industrial production declined by nearly 50% between 1929 and 1932

Roosevelt's economic vision

• Advocated for a "New Deal" during his 1932 presidential campaign, promising bold action to address the economic crisis
• Emphasized the need for government intervention to stabilize the economy and provide social welfare
• Sought to balance capitalist principles with increased regulation and social programs
• Implemented a series of experimental programs, often referred to as "alphabet soup agencies"

Key New Deal agencies

• National Recovery Administration (NRA) established industry codes to regulate wages, prices, and competition
• Works Progress Administration (WPA) created millions of jobs through public works projects
• Reconstruction Finance Corporation (RFC) provided loans to banks, railroads, and other businesses
• Federal Emergency Relief Administration (FERA) distributed aid to state and local governments for unemployment relief

Banking and finance reforms

• New Deal banking and finance reforms aimed to restore confidence in the financial system and prevent future economic crises
• These regulations fundamentally reshaped the structure of the American financial industry for decades
• Established new regulatory bodies and mechanisms to oversee financial markets and protect consumers

Glass-Steagall Act

• Separated commercial and investment banking activities to reduce conflicts of interest
• Created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits
• Prohibited commercial banks from underwriting or dealing in securities
• Remained in effect until 1999, when it was partially repealed by the Gramm-Leach-Bliley Act

Securities Exchange Act

• Established the Securities and Exchange Commission (SEC) to regulate securities markets
• Required companies to disclose relevant financial information when selling securities to the public
• Implemented regulations to prevent fraud and market manipulation
• Introduced registration requirements for securities exchanges, brokers, and dealers

Federal Deposit Insurance Corporation

• Insured bank deposits up to $2,500 initially (later increased)
• Aimed to prevent bank runs by assuring depositors their money was safe
• Conducted bank examinations to ensure financial institutions' stability
• Granted authority to act as receiver for failed banks

Labor and employment policies

• New Deal labor policies sought to improve working conditions, strengthen workers' rights, and provide social safety nets
• These regulations fundamentally altered the balance of power between employers and employees in American business
• Established key principles of modern labor law and social welfare programs

National Labor Relations Act

• Also known as the Wagner Act, passed in 1935
• Guaranteed workers' right to form unions and engage in collective bargaining
• Established the National Labor Relations Board (NLRB) to enforce labor laws
• Prohibited unfair labor practices by employers (discrimination against union members, interference with union activities)

Fair Labor Standards Act

• Introduced the federal minimum wage, initially set at $0.25 per hour
• Established the 40-hour work week and mandated overtime pay for additional hours
• Prohibited most forms of child labor in interstate commerce
• Created the Wage and Hour Division within the Department of Labor to enforce these standards

Social Security Act

• Established the Social Security system to provide old-age pensions
• Introduced unemployment insurance programs administered by states
• Created Aid to Families with Dependent Children (AFDC) for single mothers
• Implemented various public health and welfare programs

Agricultural regulations

• New Deal agricultural policies aimed to stabilize farm incomes and promote conservation practices
• These regulations significantly impacted the structure and economics of American agriculture
• Addressed the dual challenges of overproduction and environmental degradation in rural areas

Agricultural Adjustment Act

• Paid farmers to reduce crop production to raise commodity prices
• Established parity pricing system to ensure fair prices for farmers
• Created marketing agreements to regulate the sale of agricultural products
• Initially declared unconstitutional in 1936, but later revised and reintroduced

Soil Conservation Act

• Established the Soil Conservation Service (now Natural Resources Conservation Service)
• Provided technical assistance and funding for soil conservation practices
• Implemented programs to combat soil erosion and improve land management
• Encouraged crop rotation, contour plowing, and other sustainable farming techniques

Rural Electrification Act

• Created the Rural Electrification Administration (REA) to bring electricity to rural areas
• Provided low-interest loans to rural electric cooperatives
• Dramatically increased the percentage of farms with access to electricity (from 10% in 1930 to 90% by 1950)
• Stimulated economic development and improved quality of life in rural communities

Infrastructure and public works

• New Deal infrastructure programs aimed to create jobs, stimulate economic activity, and modernize American infrastructure
• These initiatives left a lasting impact on the physical landscape of the United States
• Demonstrated the potential of large-scale government investment in public works

Tennessee Valley Authority

• Created as a federally-owned corporation to provide navigation, flood control, electricity generation, and economic development in the Tennessee Valley region
• Built dams, hydroelectric plants, and transmission lines
• Implemented soil conservation and reforestation programs
• Served as a model for comprehensive regional development projects

Public Works Administration

• Focused on large-scale public works projects (dams, bridges, hospitals, schools)
• Allocated $3.3 billion for public works projects between 1933 and 1939
• Aimed to stimulate the economy through increased government spending
• Contributed to the construction of over 70% of the nation's new educational buildings between 1933 and 1939

Civilian Conservation Corps

• Employed young men in conservation and development of natural resources
• Planted over 3 billion trees and constructed trails and shelters in more than 800 parks nationwide
• Provided education and vocational training to participants
• Helped support families by requiring most wages to be sent home

Business regulation measures

• New Deal business regulations aimed to promote fair competition and protect consumers
• These measures significantly expanded federal oversight of private enterprise
• Established new standards for business conduct and market practices

National Industrial Recovery Act

• Created the National Recovery Administration (NRA) to establish industry codes
• Aimed to eliminate unfair competition and set minimum wages and maximum work hours
• Suspended antitrust laws to allow industries to cooperatively set prices and production quotas
• Declared unconstitutional by the Supreme Court in 1935 (Schechter Poultry Corp. v. United States)

Robinson-Patman Act

• Prohibited price discrimination between different purchasers of the same product
• Aimed to protect small retailers from unfair competition by large chain stores
• Required sellers to offer the same price terms to customers at a given level of trade
• Enforced by the Federal Trade Commission (FTC)

Wheeler-Lea Act

• Amended the Federal Trade Commission Act to expand the FTC's authority
• Prohibited "unfair or deceptive acts or practices" in commerce
• Gave the FTC jurisdiction over false advertising of food, drugs, and cosmetics
• Allowed the FTC to seek temporary injunctions against unfair or deceptive practices

Criticisms and challenges

• New Deal regulations faced significant opposition from various quarters, challenging their constitutionality and economic wisdom
• These criticisms shaped the implementation and evolution of New Deal programs
• Highlighted tensions between expanded federal power and traditional interpretations of the Constitution

Supreme Court battles

• "Court-packing" plan proposed by Roosevelt to appoint additional justices favorable to New Deal legislation
• Several key New Deal programs initially struck down as unconstitutional (NRA, AAA)
• "Switch in time that saved nine" - Justice Owen Roberts' shift in position upholding minimum wage laws
• West Coast Hotel Co. v. Parrish (1937) marked a turning point in judicial acceptance of New Deal programs

Business community opposition

• Many business leaders viewed New Deal regulations as excessive government interference
• American Liberty League formed to oppose Roosevelt's policies
• Concerns about increased labor costs and reduced profitability
• Some industries resisted compliance with new regulatory standards

Constitutional concerns

• Debates over the extent of federal power under the Commerce Clause
• Questions about the delegation of legislative authority to executive agencies
• States' rights advocates argued against federal encroachment on state powers
• Concerns about the expansion of presidential authority during the New Deal era

Legacy of New Deal regulations

• New Deal regulations fundamentally reshaped the relationship between government, business, and society in the United States
• Many New Deal programs and agencies continue to influence American economic policy today
• Set precedents for government intervention in times of economic crisis

Long-term economic impacts

• Established a more robust social safety net (Social Security, unemployment insurance)
• Increased unionization rates and strengthened collective bargaining rights
• Reformed financial markets and banking system, promoting stability and investor protection
• Expanded federal role in infrastructure development and regional economic planning

Evolution of regulatory agencies

• Many New Deal agencies evolved into permanent government institutions (SEC, FDIC, NLRB)
• Regulatory frameworks adapted to changing economic conditions and technologies
• Shift towards deregulation in some sectors beginning in the 1970s and 1980s
• Ongoing debates about the appropriate balance between regulation and market forces

New Deal vs modern regulation

• New Deal established principle of countercyclical fiscal policy, still debated today
• Environmental regulations built on New Deal conservation programs
• Modern financial regulations (Dodd-Frank Act) echo some New Deal-era reforms
• Continued tension between federal and state regulatory authority in various policy areas