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15.07.2008

The New Deal: Savior from the Great Depression or Creator of the Welfare State?

IUF Research Associate: Jonathan Hessling

Looking back over the history of not only the United States, but the history of most of the now modern world, the Great Depression was a defining moment in many people's lives. This was a time when the world economy came to a grinding halt for some, or slowed down so significantly that the people were desperate for any means possible to get out of their economic depression. The evils of capitalism would not and could not allow for the economies of the world to rebound as fast as the people wanted or needed and thus drastic measures were required. At least that is how the political figures in-charge defined their arguments for such "New Deal" policy and legislation. The famed creator and promotor of New Deal legislation in the United States, Franklin Roosevelt, believed that a greater presence by the US Federal government was required to get the US economy out of the Great Depression and back on the road to recovery. Europe, over the years has seen this New Deal legislation as something to model after because it was the national government of a country taking control for the betterment of the country, society, and economy. So what are the benefits and costs of this new legislation and did it help, hurt, or do nothing for the US's place in the Great Depression? Then looking at Europe's desire to model itself after New Deal type policies, we look at the US and its drives to create a single payer health care system similar to Canada's, Britain's, and several in Europe. Can we and should we market and attempt to model ourselves after policies that have not shown any real success in practice when it comes to market oriented people and economies? Is the single payer system just a new off shoot of New Deal policies?  

 

The New Deal brought about the new age of Federal government control in the United States. Franklin Roosevelt campaigned on the initiative of bringing a "new deal to the American people." The idea was for the government to take control of the economy and enact legislation and policies to direct the country in the right direction, which was towards recovery and a future without another Great Depression. Several of these policies included: banking reform laws, emergency relief programs, work relief programs, and agricultural programs. These programs were to help give the country a footing to stand on so that it could recover faster than the pace it was before for implementation. Several bodies created were the Federal Deposit Insurance Corporation, Federal Housing Administration, The Tennessee Valley Authority, and two that are still working today which are the Social Security System and the Securities and Exchange Commission. In his famous speech, the line President Roosevelt became famous for was borrowed from a book written by Stuart Chase. The full speech part reads,  

 

"Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth.....I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms."  

 

Now, this sounds like a rally cry to get the people excited at the prospects of getting themselves out of a economic depression that had caused them problems for years now. But looking at this in the historical context that we have today, as an American I am alarmed by the language used by President Roosevelt. The line that is most disturbing is the one that speaks of "more equitable opportunity to share in the distribution of national wealth." Channeling the "nation's wealth" sounds good to those in need, but does it actually benefit them in the long term? If it does not benefit them, then the next question to ask is were the New Deal policies meant to be permanent or were they meant to be temporary to get the country out of an economic slump in a shorter period of time than the market was showing it would get it out of? If this is true, then should other governments and people model their system after New Deal policies? The Social Security System is the US version of the welfare state set to provide assistance to the elderly, the handicap, unemployment insurance, universal retirement pensions, and welfare benefits for the poor. Roosevelt was quoted as saying that , "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program." Many advocated that the social security program should be paid for out of the general fund, but his argument was that if people pay in they have an investment to look forward to later on. What he did not and many did not see is that the system was never meant to handle such a large load as we have now. Currently the average person pays in to support more than just one person and by the time I am old enough to collect on my Social Security, there will not actually be enough in there to receive my full benefits because the system will be so far in the red. So why support a system that should have been temporary? Was it because it was a political scheme that Roosevelt saw as necessary for the people of that time but did not look far enough into the future? Was it because Roosevelt found an idea that worked and was a pet project for him that he did not want to see it destroyed by a politician while he was in office? We will never know, but the fact of the matter is that the Social Security System puts a large strain on the US economy every year adding in more payroll taxes and taking more money from the average tax payer to support people who cannot support themselves in an effort to redistribute the wealth in America. The progressive taxes are setup to "protect" the lower income earners in the country, but this means that higher income earners are forced to pay a disproportionate share of the expense which means that individuals and companies are forced to pay extra expenses that would normally not be incurred in a flat tax system where taxes are equitable and force responsibility.  

 

The New Deal was an advantageous scheme to help the people out in a immediate fashion, but was that necessarily the right move to make? Would it have been better for the people to find their own way out of the depression and come out fetter and more dependent of themselves instead of the government? World War II was ultimately what turned the country around and create the United States that would be a super power in the world with only on rival for decades. The New Deal, while it was working to create much needed jobs, and streamline laws that were inefficient, also created a bureaucracy that was unparalleled in US history. The US had never placed this much trust or power in the affairs of the National government, relying more on State governments to take of many of the citizens needs. In the end, the federal government latched onto its newly acquired power and has not let go since this time. So from the social security system to a single payer healthcare system should not be that much a stretch right? Many in Europe and across the world adopted similar pieces of legislation and policies like the New Deal in an attempt to get their country out of the effects of the Great Depression. Thus, socialism in Europe began its hold and many countries took these idea much further than Roosevelt imagined. The single payer healthcare system, like the system in Canada, is a source of contention in the US but a given part of life in parts of Europe.  

 

Many in Europe see it as the governments duty to provide for the people and to make sure that all people are taken care of with equal access and performance from the system. In the more market oriented US, the government does help out in the same manner but relies on the private insurance companies to provide aid to those in need of medical care. Individuals purchase or are provided by an employer healthcare insurance so that they can see the doctor at a reduced rate from what would be considered the market value of a visit. In Canada, an individual and their employer pay into a centrally located fund which is then used to pay the hospital, staff, etc to provide citizens with healthcare no matter their income, age, illness, etc. While this sounds nice, one of the draw backs is that even though you are allowed to see any doctor anywhere, waits to see the doctor can be long. In a recent conversation with a Canada citizen, I learned that she had to wait 3 months to see a specialist to run tests. After the test were ran she has to wait another 3 months to get to see him so he can tell her what the test results are in her case. Now I will say, for those that are alarmed by this, that this is for elective or optional visits. Emergency care is not part of the "waiting" lines in general. Now like in the US, if you enter an emergency room you still have to wait based on the seriousness of your issue but you do not have to wait months to see a doctor. This same wait time works for prescription drugs as well. You might have to wait in line all day to get your medicines. The idea here is that even though you are covered for anything, no matter your condition, being able to see a doctor when you have the cold is impossible in most instances because it is not an "emergency situation." Also, when the government doles the money out to the doctors and hospitals the government has to ability to tell the doctors was is "medically necessary" is what they are giving them money for their practice. So that means that if the government deems something is not medically necessary then your universal healthcare insurance does not cover it. And in most cases, a single payer healthcare system does not allow for private healthcare insurance coverage because it makes the system ineffective. So if it is not covered, you have no other fight except if the doctors fight to get that condition deemed coverable by the government. So the idea that a universal healthcare system would do away with "pre-existing conditions" is not necessarily true in the total sense of the word. Yes, people with pre-existing conditions will be covered, but other people that are covered with private insurance could end up without coverage because it was deemed medically unnecessary. Something to consider when people place this argument at your feet for consideration. In Germany, their healthcare system is setup so that the money that is paid in by its citizens is immediately used to pay for someone's healthcare needs. Thus, the system does not have a fund to support it for future needs. All the money is dependent upon what people pay into the system so for the system to be efficient and prepare for a population that is increasing daily, then several things have to be completed. Either taxes have to be increased so that more money is put into the system, the floor for which people are allowed to purchase their own private insurance must be increased so that more people are paying into the system, or more government subsidization. If the floor is increased, then the ability for the population to have some free will in the choice is limited and at some point for the system to continue as planned the floor will have to disappear and the private healthcare system will be eliminated all together. The system is somewhat efficient at the present time, but in the future the system will fail to provide the healthcare benefits people currently receive.  

 

There is not a single system that is perfect because utopia is an unachievable goal. The best you can do is create a system where people have an equal opportunity to acquire assistance and when push comes to shove if you are not covered people can receive the medical aid the need to live. But you should not reward people for not being able to provide for themselves when they have the means to support themselves. Do not get me wrong, there truly are people that cannot afford insurance but there are organizations and ways for them to receive help but no one ever tells them this. They just tell them that since they have no insurance they cannot receive medical aid because they do not have the money to pay for it. Many private hospitals have funds and means to help those in true need make extended payment plans or completely write off their debt because they know it is better for them to do this than fight to get pennies from people that will not be able to pay in in the first place. There are those however that abuse the system when they are capable of paying for insurance because they use their money inappropriately when setting up their budget. Should a society reward such action or force them to take responsibility for their actions? And why is responsibility such a bad thing when it comes to people's decisions in life?  

Like the New Deal, a single payer system is great in theory and provides for the masses but does not prepare for a future where the government is incapable of paying for the system or the people are incapable of being taxed enough to pay for the populous of their country. More important issues at hand should be concerned with tort laws in the US, with reducing cost of medical malpractice insurance, using more market incentives to make insurance cheaper and more affordable with tax incentives. Lowering doctor costs would allow for the price of visits, surgeries, and hospital stays to be decreased, which in turn would decrease costs on medical insurance and would make it more affordable. Little things and changes in the current system could have a trickle affect that would be felt by everyone, but we are like work horses with blinders on with only a destination in sight. We end up missing the forest for the trees and miss other alternatives because we see examples from around the world and forget we are just an innovative as they are. We also forget that there are circumstances in that country that allows them the ability to have a system like they do. In Europe, most of their defense is subsidized by the American government and NATO. If each European country was forced to protect itself to the fashion that the US and NATO protects them, than that money that typically goes to their healthcare system would not be there, same with Canada. The US is in essence subsidizing their healthcare at the detriment of our own so why now make changes in our own system that is sufficient for us instead of using Europe and Canada as a model when they are not the perfect model.  

 

In conclusion, healthcare is something that every society should strive to provide for its populous and citizenry but the methods in which this system is employed is still in question. Whether it is provided by a private source or from a public entity is still in debate. Each country, each system has its own merits but understanding what is appropriate for each situation and each people is important. As stated before, no system is perfect but understanding the differences between the systems of private and publicly funded healthcare could potentially show us a system that is far better than what either of us have at the present time. This should be the goal of both communities in an effort to make the world a better place for all people. As much as America and Europe look to each other for policies and principles on how to govern themselves, they should learn from each other instead of fighting for their positions. The question then is, what generation will learn this lesson and begin to learn from each other? When will we get past our arrogance and egos and create something better than either of us have at the moment? That is a world worth working towards and fighting for, at least in my opinion.  

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The following link will take you to the IUF English blog for this article and others concerning issues of a free market economy and society.  

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