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New Deal

  The New Deal was the name given to the policies enacted by President Franklin Roosevelt from 1933 onwards, to counter the depression. The Roosevelt administration adopted largely Keynesian macroeconomic policies (see Keynesian theory): the federal budget, which balanced in 1930 with spending of $3.6 billion, had a deficit of $5 billion in 1936 (and spending of more than $9 billion). The national debt roughly doubled, from $16 billion to $32 billion.

New Deal microeconomic policies were also more interventionist. Trade unions were encouraged; agricultural prices were raised and farmers were paid for the first time to restrict their acreage; the Securities and Exchange Commission was set up in 1934 to regulate American stock exchanges; and the National Industrial Recovery Act of 1933 established the Federal Trade Commission to enforce anti-trust laws.

The results of the New Deal will remain controversial as long as economists have breath in their bodies. Keynesians point to the 8 million rise in employment between 1933 and 1937 (though there were still 7 million unemployed in 1937), and the doubling of industrial production between 1932 and 1937. Non-Keynesians say that recovery was already beginning in 1932, before the New Deal started. Private investment in 1937 was still 8% below its 1929 level because, critics say, entrepreneurs were suspicious of the New Deal and profits were artificially held down. And the recovery ran out of steam in 1937, despite the continuing growth of the budget deficit, in the sceptics\' view, the fate of all Keynesian recoveries. TF



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