Can the New Deal’s three Rs be rehabilitated? A program-by-program, county-by-county analysis

Abstract

We examine the importance of Roosevelt’s “relief, recovery, and reform” motives to the distribution of New Deal funds across over 3000 US counties, program by program. The major relief programs most closely followed Roosevelt’s three Rs. Other programs were tilted more in favor of areas with higher incomes. For all programs spending for political advantage in upcoming elections was a significant factor. Roosevelt’s successful reelections were based on developing specific programs for a broad range of constituents, delivering on his stated goals, but also spending more at the margin for political purposes.

Introduction

During the New Deal the federal government distributed unprecedented amounts of grants and loans to state and local governments, leading to the federal government’s share of GNP to rise from about 4 to 9% during the 1930s (Wallis and Oates, 1998, p. 157). Economic historians and public choice scholars have long acknowledged the wide variation in the federal government’s per capita spending and lending across the United States and have devoted significant research to understanding the determinants of this relatively uneven distribution.¹ Over the past three decades a number of scholars have used econometric analysis to test whether New Deal administrators followed Roosevelt’s high-minded public goals of “relief, recovery, and reform” or whether they used federal spending and patronage to achieve their political goals of maintaining support for Roosevelt and building a lasting Democratic political coalition.

To date, research on New Deal spending provides only partial support for the notion that the New Deal was designed to promote relief, recovery, and reform. Regression coefficients on the relief and recovery variables—drop in income from 1929 to 1933, unemployment, and the number of relief cases—have the expected sign two-thirds of the time, but in half of those cases the null hypothesis of no effect cannot be rejected. Most tests find very little evidence of any reform aspect of the New Deal. We revisit the determinants of New Deal expenditures in this paper by examining the distribution of funds in a comprehensive and disaggregated fashion, focusing program-by-program across over 3000 US counties.²

To better understand what motivated New Deal administrators, it is important to focus on the individual programs because each was designed to address specific and varied problems. Politicians typically do not publicize their largesse by discussing government spending in general terms; instead, they boast of the programs that address specific problems and benefit specific constituencies. For example, when President Roosevelt was asked what his administration was doing for the unemployed, he pointed to the Federal Emergency Relief Administration (FERA), Civil Works Administration (CWA), and the Works Progress Administration (WPA), agencies that put the unemployed back to work and provided relief for the destitute. Roosevelt responded to the depression in farming with the Agricultural Adjustment Administration (AAA), the Farm Credit Administration (FCA), and the Farm Security Administration (FSA), and each had its own subsets of programs. Given this programmatic emphasis, it would be inappropriate to expect the major relief programs, for instance, to have been responsive to agricultural needs.³ Focusing our attention on individual programs allows more precision in understanding how the New Deal dealt with distinctly different policy problems in relief, agriculture, public works, and public loan programs. Table 1 shows the amount of spending or lending in each of the New Deal programs we consider in this paper.

Refocusing the analysis of New Deal spending from the state level to the county level is equally important. First, the New Deal programs involved multiple layers of political administration. The ultimate success of each program was determined as much by what happened within states as it was by what happened across states. Second, there is ample documentation in the New Deal qualitative literature that state politicians sometimes viewed the New Deal much differently from the federal government. Some actively sought New Deal funds in various programs, while governors in Oklahoma, Virginia, North Carolina, and others seemed to disdain the New Deal.⁴ Only Wallis, 1984, Wallis, 1987, Wallis, 1998, Couch and Shughart (1998), Fleck, 1999b, Fleck, 1999c, Fleck, 2001a, and Strömberg (2001) have tried to control for the impact of state and local government decision-making on federal spending explicitly.⁵ We are able to control for the attitudes of state governments explicitly in our county-level analysis by including state dummy variables that account for state attitudes that were common to all counties within each state.

A third reason the county-level data can be superior to the state data lies in the adage “all politics is local.” Whether the monetary benefits of the New Deal reached their local communities would have ultimately determined voters’ assessments of the economic and political effectiveness of the New Deal. Had the Roosevelt administration simply sought to use the New Deal for re-election purposes, voters would have had to witness the spending locally, not simply at the federal or state levels.⁶ County-level data, therefore, afford more precise testing of the determinants of New Deal spending.