[The Editors' Verdict] The Real Lesson of the New Deal Policy

[Asia Economy Reporter Choi Il-kwon] If it were not for the COVID-19 pandemic, the name "Franklin D. Roosevelt," who endured the Great Depression of the 1930s, would not have been frequently mentioned in the United States and Europe. As economic growth rates plunged into the negative and unemployment soared, the New Deal policy is reemerging in the West.

British Prime Minister Boris Johnson likened his large-scale infrastructure investment plan announced at the end of last month to the New Deal, stating that "the Roosevelt moment has come to the UK." Ursula von der Leyen, President of the European Union (EU) Commission, promised a Green New Deal for the EU's economic revival. In the US, Democratic presidential candidate and former Vice President Joe Biden emphasized the need for "Roosevelt-style" federal government intervention to save America’s broken economy. US President Donald Trump also announced an infrastructure investment plan similar to the New Deal concept. Like former President Roosevelt, who stimulated the economy through large-scale projects such as the construction of the Hoover Dam and the Tennessee Valley Authority development, the goal is to overcome difficulties through massive monetary injection. Johnson’s slogan for promoting the New Deal, "Build, Build, Build," is a typical example.

However, the New Deal policy remains controversial in terms of economic performance. While some argue that large-scale civil engineering projects positively stimulate the economy, negative evaluations that it failed to achieve significant results are more prevalent. According to "The Balance," a US financial advisory site, the unemployment rate in the US soared to 24.9% in 1933 and then slightly decreased to 21.7% the following year. Despite the implementation of massive economic stimulus measures, the unemployment rate did not drop sharply. When the government reduced fiscal spending in 1937, the unemployment rate, which had fallen to the mid-teens, surged back to 19%.

Academics generally view World War II, rather than the New Deal, as the direct cause of the sharp decline in US unemployment. According to the US Bureau of Labor Statistics, the unemployment rate fell below 10% starting in August 1941, when World War II was in full swing. In 1944-1945, as the war neared its end, the US unemployment rate hovered between 0% and 1%.

Rather, the lesson of Roosevelt’s New Deal lies not in economic terms but in the opportunity for institutional reform. This period marked a historic turning point from laissez-faire to expanded government intervention and was the starting point of modern macroeconomics represented by Milton Friedman and John Maynard Keynes. Social security systems such as protection for the elderly poor and minimum wage laws were introduced at this time, and in the US, the foundation of the mortgage market was laid, opening the way for homeownership with small amounts of money. Of course, Roosevelt’s progressive policy will also strengthened labor protection policies such as labor unions. It was an opportunity to reorganize various parts of society alongside measures to overcome the crisis.

Through this New Deal, the UK has expressed its commitment to institutional reform. It declared that it would use large-scale investment as an opportunity for social structural change. Foreign media have evaluated that Johnson, a "Thatcherite" symbolizing strong liberalism, wants to switch to a public policy program. This reflects his intention to change even his political convictions to turn the crisis into an opportunity. He also said he would not hesitate to raise taxes to achieve this.

South Korea recently announced its Green New Deal. The core of the plan is to invest a total of 160 trillion won by 2025 to create 1.9 million jobs. However, it has been criticized for focusing only on industrial development. It has become clear that the government is not interested in a grand vision to change the flow of Korean society. A senior Blue House official said, "If the policy direction is right, it will continue regardless of the administration." To gain sincerity, the first thing that must be presented is institutional reform, the true lesson of the New Deal.