Building New Deal Liberalism: The Political Economy of Public Works, 1933-1956

Published by EH.NET (July 2007)

Jason Scott Smith, Building New Deal Liberalism: The Political Economy of Public Works, 1933-1956. New York: Cambridge University Press, 2005. xiv + 283 pp. $75 (cloth), ISBN: 0-521-82805-8.

Reviewed for EH.NET by Price V. Fishback, Department of Economics, University of Arizona.

Jason Scott Smith offers a very useful narrative history of the public works programs during the New Deal and World War II. In the introduction and conclusion he argues that most major historians have not sufficiently appreciated the importance of public works programs like the Public Works Administration (PWA) and Works Progress Administration (WPA) when they evaluate the New Deal. Most historians treat the public works programs as failures because they did not succeed at ending unemployment during the 1930s. Smith contends that his is the first historical study that treats the public works programs as the centerpiece of the New Deal. By reevaluating the New Deal in this light he highlights the central importance of the WPA and PWA in determining the development of the national highway system and the large-scale public and military works built to support America’s Cold War policy at home and abroad.

Smith starts by making a case that major historians of the New Deal have not sufficiently appreciated the importance of the public works programs. He then develops extensive discussions of the development of the PWA run by Harold Ickes. He does a fine job of documenting the internal bureaucratic struggles in the PWA about how best to develop the organization and what role the PWA should play. He extends the discussion developed by Arthur Schlesinger, Jr. about the battles between Harry Hopkins of the WPA and Ickes of the PWA to obtain resources within the administration. Hopkins’ philosophy was to put people to work quickly while Ickes was more focused on the long-term success of the project, which led to longer lead times. The PWA has long been noted for being well run and relatively free of political patronage activity and internal corruption. Ickes ran the PWA with an iron fist and established an investigative division that worked to limit corruption. But there still remained problems as Smith describes the patronage nature of a number of appointments, chicanery in expense accounts, a number of administrative oversights, and various officials’ use of their PWA position for their own ends. He suggests that the PWA was overstaffed and not very effective in evaluating programs. Similarly, he talks about boondoggling in the WPA and the efforts by the WPA to combat the boondoggling image with their own investigative division. Harry Hopkins has been charged with saying that the WPA was designed to “tax and tax, spend and spend, and elect and elect,” which fits the boondoggling image. Although Hopkins claimed that he had never made the statement, Smith has carefully gone through the historical record and makes a reasonable case that he did. At any rate many people at the time thought of the WPA in those terms. Smith provides a fine discussion of the factors leading to the passage of the Hatch Act. He uses the charges and countercharges about the misuse of power in the WPA to influence the results of the Senate race between Alben Barkley and A. B. “Happy” Chandler in Kentucky as a case study that illustrates many of the issues and then provides extensive inside information about Roosevelt’s and his advisors’ thinking about whether to veto the act or sign it.

One of the most fascinating chapters deals with the winding down of the WPA during World War II and the efforts of PWA administrators during the War in seeking funding for public works projects that would prevent a recurrence of the Depression upon the end of the War. Although Smith doesn’t specifically emphasize the lessons I draw from the chapter, his work shows well how administrators of programs that have outrun their usefulness actively seek new ways to keep the programs alive and make them relevant. The WPA shifted towards training workers during the War and even was involved in providing workers to help manage the procedures for placing Japanese-Americans in internment camps, certainly a sad end to such a major emergency program. Given that the unemployment rate had fallen below 5 percent by April 1941, it seems ludicrous that the WPA was paying relief workers 50 to 70 percent of a market wage to be trained for employment at that time. Similarly, the head of the PWA was running around the country in 1944 seeking to make a case for the necessity of a major push toward government works to stave off the possibility of a return to the Depression after the War. Robert Higgs (1999, 2004) has recently shown quite well how the private sector broke free at the end of the War and such government spending was not needed.

The book provides a series of narratives that help flesh out the work on the New Deal by economic historians. The information on the patronage and politicking issues associated with the public works projects fits in well with the large cliometric literature on the role of electoral politics in determining the geographic distribution of funds written by Gavin Wright, Robert Fleck, John Wallis, Jim Couch, William Shughart, and a host of others. For a survey of that literature with additional results see Fishback, Wallis, and Kantor (2003). The collection of quotes from luminaries by Harold Ickes, Harry Hopkins, and John Kenneth Galbraith on the purposes of the public works projects provides a narrative background for some recent studies that I have done with Shawn Kantor, William Horrace, Ryan Johnson, and Michael Haines on the impact of public works and relief programs on various measures of socioeconomic welfare. These studies came out while the book was in press, so were too new to be considered in Smith’s book. We find that an additional dollar of New Deal public works and relief spending in a county during the 1930s raised 1939 income by nearly a dollar; not a large multiplier effect but a pretty strong flypaper effect. In addition, relief spending in the cities contributed to lower crime rates, higher birth rates, lower infant mortality, and lower death rates due to suicide, disease, and diarrhea. Greater public works and relief spending also contributed to greater in-migration from other parts of the country (see Fishback, Horrace, and Kantor (2005, 2006), Fishback, Haines and Kantor (2007), and Johnson, Kantor, and Fishback (2007)).

Smith makes one major claim that I don’t believe that he has documented very well. He argues that the WPA and the PWA, despite their status as temporary emergency agencies, led to major changes in the way that the federal government built public works in the United States. He argues that the building of the interstate highway system, many military projects, and public works in foreign lands after World War II were strongly influenced by the New Deal public works agencies. My sense is that had the Depression and New Deal never occurred the later projects would have been built in pretty much the same way as they were built. The federal government had been building forts and other military facilities throughout the nineteenth century. The Bureau of Reclamation was actively building dams before the New Deal and the federal grants to states for highways were more active before 1930 than Smith suggests. No one was following the WPA practice of using work relief and the PWA was more of an extension of past federal building practices than the development of a new way of doing things. Smith notes that the contractors who cut their teeth on the PWA projects built many later projects, but I see that more as path dependence that would have taken place under any regime. I do agree that the PWA and WPA had long-lasting effects in that they built a huge array of public works, many of which are still standing today. Robert Leighninger (2007) has documented this nicely in both words and pictures for the PWA in Louisiana.

I was surprised at how little discussion Smith offered of the public works projects run under the Civil Works Administration (CWA) from November 1933 through March 1934 and the Federal Emergency Relief Administration (FERA) from 1933 through the middle of 1935 (with some trailing expenditures through March 1937). While Smith devotes a chapter to the struggle for resources between Hopkins’s fast hiring WPA and Ickes’s slower moving PWA, he only briefly mentions the FERA and CWA as predecessors of the WPA. This is a significant oversight because a large part of the battle for resources was fought in 1933 and 1934 when Hopkins used the FERA and CWA to rapidly put people to work and grab a large share of the funds for public works projects. Spending on the FERA and CWA programs from 1933 through 1935 exceeded the loan and spending totals for the PWA for the entire period from 1933 through 1939 and both built a large number of public works. For a more extended discussion of how the organization of the WPA developed as a response to problems that arose under the FERA and CWA, see Wallis, Fishback, and Kantor’s (2006) recent paper on corruption and reform during the New Deal.

Smith’s literature review in the introduction suggested that major historians had considered the public works projects to be a failure in dealing with unemployment during the 1930s. It is true that the public works, like most New Deal policies, failed to prevent unemployment rates from staying above 10 percent through 1939. The historical literature has been almost entirely narrative and based on impressions and quotes from contemporaries. There is a statistical economic history literature related to the issue of the impact of the public works programs on employment and unemployment by Robert Fleck (1999), John Wallis and Dan Benjamin (1981, 1989), and Todd Neumann, Shawn Kantor and Fishback (2007). Wallis and Benjamin (1989) find the highest degree of marginal crowding out in the form of the loss of one private job for every two relief jobs created. In that sense we can say that the provision of millions of public works and relief programs did soak up a great deal of unemployment. Since Roosevelt did not follow John Maynard Keynes’s advice and run large deficits, it is possible that he might have reduced unemployment still more had more public works been built. In making such an argument, however, there are several factors to consider. Maybe by running larger deficits Roosevelt could have made the WPA jobs real jobs that paid full wages, like the PWA jobs instead of the low-paying survival jobs under the Federal Emergency Relief Administration (FERA) and the WPA. Since the WPA employed far more people than the PWA, there might have been much stronger ripple effects through the rest of the economy as WPA workers would have had much higher incomes and could have purchased a much broader array of consumer items. On the other hand, given the crowding out going on even at the low levels of relief pay, an improvement in WPA pay might have led to more crowding out of private employment by making it harder to attract workers to the private workforce. It might have been the case that no level of public works would have been enough to eliminate unemployment during the 1930s. Remember that there were other New Deal policies contributing to higher unemployment. Harold Cole and Lee Ohanian (2006) suggest that the National Recovery Administration cartel-like policies and high-wage labor policies contributed a great deal to the inability of the economy to eliminate unemployment during the New Deal. In the agricultural sector, the rental and benefit payments to farmers to take land out of production likely contributed to an increase in unemployment among farm workers.

In the final analysis Jason Scott Smith provides us with a well-written narrative history that offers a tremendous amount of new information carefully gleaned from archival sources. Economic historians, general historians, and students of the New Deal will learn a great deal from reading it.

References:

H. Cole and L. Ohanian. 2004. “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis,” Journal of Political Economy 112 (August): 779-816.

J. Couch and W. Shughart III. 1998. The Political Economy of the New Deal. New York: Edward Elgar.

P. Fishback, M. Haines and S. Kantor. 2007. “Births, Deaths, and New Deal Relief during the Great Depression.” Review of Economics and Statistics 89 (February 2007): 1-14

P. Fishback, W. Horrace and S. Kantor. 2005. “The Impact of New Deal Expenditures on Local Economic Activity: An Examination of Retail Sales, 1929-1939.” Journal of Economic History 65 (March): 36-71.

P. Fishback, W. Horrace and S. Kantor. 2006. “Do Federal Programs Affect Internal Migration? The Impact of New Deal Expenditures on Mobility During the Great Depression,” Explorations in Economic History 43 (April 2006): 179-222.

P. Fishback, J. Wallis and S. Kantor. 2003. “Can the New Deal’s Three R’s Be Rehabilitated? A Program-by-Program, County-by-County Analysis.” Explorations in Economic History (October): 278-307.

R. Fleck. 1999. “The Marginal Effect of New Deal Relief Work on County-Level Unemployment Statistics.” Journal of Economic History 59 (September): 659-87.

R. Higgs. 1999. “From Central Planning to Market: The American Transition, 1945-1947.” Journal of Economic History 59 (September): 600-23.

R. Higgs. 2004. “Wartime Socialization of Investment: A Reassessment of U. S. Capital Formation.” Journal of Economic History 64 (June): 500-520.

R. Johnson, S. Kantor and P. Fishback. 2006. “Striking at the Roots of Crime: The Impact of Social Welfare Spending on Crime During the Great Depression.” National Bureau of Economic Research Working Paper.

R. Leighninger. 2007. Building Louisiana: The Legacy of the Public Works Administration. Oxford, MS: University Press of Mississippi.

T. Neumann, P. Fishback and S. Kantor. 2007. “The Dynamics of Relief Spending and the Private Urban Labor Market during the New Deal.” Working paper.

J. Wallis and D. Benjamin. 1981. “Public Relief and Private Employment in the Great Depression.” Journal of Economic History 41 (March): 97-102.

J. Wallis and D. Benjamin. 1989. “Private Employment and Public Relief during the Great Depression.” Department of Economics, University of Maryland working paper.

J. Wallis, P. Fishback and S. Kantor. 2006. “Politics, Relief, and Reform: Roosevelt’s Efforts to Control Corruption and Manipulation during the New Deal” in Corruption and Reform, edited by E. Glaeser and C. Goldin. Chicago: University of Chicago Press.

G. Wright. 1974. “The Political Economy of New Deal Spending: An Econometric Analysis.” Review of Economics and Statistics 56 (February): 30-38.

Price V. Fishback is the Frank and Clara Kramer Professor of Economics at the University of Arizona and a Research Associate at the National Bureau of Economic Research. He recently published a chapter that summarizes much of the cliometric research on the New Deal in P. Fishback, R. Higgs, G. Libecap et. al, 2007, Government and the American Economy: A New History. Chicago: University of Chicago Press. A shorter summary will soon be available in the new edition of the New Palgrave Dictionary of Economics. It is currently available as a working paper at the University of Arizona.