Working Paper: NBER ID: w21925
Authors: Price V. Fishback
Abstract: The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact,although the banks were aided when the RFC took ownership stakes.
Keywords: New Deal; microeconomic impact; federal spending; state income multipliers
JEL Codes: H5; N42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| New Deal public works and relief spending (H84) | state income (H79) |
| New Deal spending (H56) | consumption activity (E20) |
| New Deal spending (H56) | internal migration (F22) |
| New Deal spending (H56) | crime rates (K42) |
| New Deal spending (H56) | mortality rates (I12) |
| New Deal farm programs (Q18) | benefits for large farm owners (Q15) |
| New Deal farm programs (Q18) | negative impact on sharecroppers and farm workers (J43) |
| Home Owners' Loan Corporation activities (R31) | stabilized housing prices (R31) |
| Reconstruction Finance Corporation's loans (G28) | minimal positive effects (D91) |
| New Deal spending (H56) | private employment levels (J23) |