 Hi, this is Gerald Friedman, Professor of Economics, University of Massachusetts at Amherst. And we're here today to talk about the New Deal and its legacy in welfare policy and the limits of the welfare policies of the New Deal, the social welfare policies of the New Deal. Now, there were two reasons why the New Deal is, Franklin Roosevelt and his posse, wanted to promote government social welfare policies in the 1930s. The first was as part of the recovery from the Great Depression. As we talked about last time, they believed the Great Depression was caused by a lack of purchasing power. Workers didn't have enough money to buy the stuff they made. So we should try to redistribute income to the working class and to the poor so that they can buy more stuff. Straightforward, Social Security Act, minimum wage laws, support for unions, all designed for that purpose. The second is that a general bigger vision, that we should have more social insurance. That people would be happier if they had insurance against old age, against disease, against disability, against unemployment. This comes from a general sense that people have diminishing marginal utility of income. The more you have, the less you value an extra dollar. And when you're really down there, down on your luck, you're blind, deaf, and dumb, like Tommy in The Who, when you're really needy, a few dollars makes a big difference. This is why people will buy insurance. We buy insurance against accidental death. We buy insurance against auto accidents. We want to be protected in case bad things happen. And we'll give up some income now in order to have protection when those bad things happen. Roosevelt and his advisers felt, as most economists, if you push them, will feel, that private insurance markets don't work very well. And that's why we should have national insurance. That's what the Social Security Act of 1935 was about, which established old age, survive as insurance, unemployment insurance, and a system of national welfare program, aid to families with dependent children. Roosevelt wanted to promote social insurance, and he laid the groundwork for the social security system and the social insurance system that was to last in the United States. It's still down to today, although it's under a lot of attack right now in 2011. That said, it's interesting to look at this very sharp limits of Roosevelt's New Deal. And these limits come from the political context that Roosevelt was working in. And there's one very important thing to note about the politics of the New Deal. Roosevelt himself, as much as his wife wanted to extend American citizenship to all, regardless of race, religion, or even gender. Maybe not as much as his wife, Eleanor, but close to it. That said, Franklin, more than Eleanor, was a political realist. He knew he had to get his legislative program through Congress, and he knew how difficult that was. The central fact of American politics, then and now, is that about a quarter of the membership of the House and Senate comes from the South. And then, and to a large extent today, Southern politics are not driven by values, ideas, economic interests in a meaningful way, but are driven by the politics of race, which then, and to a large extent today, is used by the white power structure to perpetuate its hegemony over the Southern electorate. So the South elects, even when poor whites vote, they vote for politicians who do not represent their economic interests or their values. Instead, they represent rich landowners and rich factory owners and rich people in general. So the Southern politicians, who come from the South nations, who come to Washington, are representatives of rich Southerners, often in alliance with rich Northerners. And that's a quarter of the House, close to about a quarter of the Senate. Within the Democratic Party of Roosevelt's time, it's close to half the representation in Congress with these people. They controlled the committee structure in the House and Senate. They could filibuster measures that they didn't like like the anti-lynching law. Anything Franklin Roosevelt wanted to do on foreign policy, on domestic policy, he knew he had to get at least the acquiescence of powerful, racist, reactionary Southerners. That was not easy to do. And the way Roosevelt did it was he did two things. The first is he customized legislation so that it would not apply to the South and to blacks. Second, he avoided legislation whenever possible, establishing the America's welfare state outside of direct government appropriations. The first, a new deal member of Congress commenting at the very end of the debate in the House of Representatives on the Fair Labor Standards Act raised a question. I think it was Morris Dees of Texas, a new dealer from Texas. Not all Southern representatives are right-wing, only the great majority. I believe it was Dees who said, Mr. Speaker, I have one question. Could anybody tell me if there is anybody who will be covered by this law if we enact it? That was an overstatement. Industrial workers and large establishments were covered by the Fair Labor Standards Act. Workers in mines were covered by the Fair Labor Standards Act. But he did have a good point, which is that agricultural workers were exempt, domestic servants were exempt. Why? That's most of the South at the time. And it's virtually all of Southern blacks. Southern whites would be able to retain control over the labor of Southern blacks unimpeded by the Fair Labor Standards Act. That was the price they charged for letting the Fair Labor Standards Act of Congress. The same for the Wagner Act. Agricultural workers and domestic servants were not covered by the Wagner Act. They had no protection in their right to organize or to negotiate collectively. And it was the True Social Security Act. Agricultural workers, domestic servants, not covered, workers and small establishments not covered so that rich Southern whites would be still be able to control the labor of blacks. That was the price. And Roosevelt's New Deal came through Congress largely leaving out the South and blacks. That wasn't enough. And when the Republicans gained significantly in the elections in 1938, forming basically a conservative coalition that was to dominate Congress until 1965, Roosevelt had to basically give up on getting legislation through. He didn't give up on trying to extend the social safety net, but he did it increasingly outside of direct legislation. So to promote housing rather than getting Congress to appropriate money for housing, the Roosevelt administration pushed the Internal Revenue Service to exempt mortgage interest from the income tax. To promote health insurance, the Internal Revenue Service exempted employer contributions towards employer provided health insurance from taxes. It's not taxable income, still isn't. These measures made it cheaper to buy houses, made it cheaper for employers to provide health insurance. These are worthy, laudable national goals. More home ownership, more health insurance, fine. But it was done outside of legislation. Therefore, it only covers particular people. Doing it through the income tax means that those who don't pay income tax don't get any benefit. So poor people, even lower middle income people, the bottom half of the population who doesn't pay income tax because we have a progressive tax system, so they don't pay income tax. And the next 25% or 30% of the population that doesn't itemize their income tax, they don't get anything from the mortgage income tax deduction. They don't get anything from the tax subsidy to health insurance. If you don't have a job, you don't get any health insurance benefit from employer provided health insurance. So what the New Deal did was it established a truncated welfare state in America. Because of the politics of the New Deal, it established a welfare state that did not apply to most African Americans, did not apply to most Southerners, and did not apply to a great many of the poor people who in particular needed social welfare policies in America. So those are the problems in the New Deal. And we'll pick up and talk some more about progressivism and women next time. Thank you. Have a good day. Bye-bye.