This story is part of The Next New Deal, a series examining the coronavirus economic recovery.
Part 1: The original New Deal
Part 2: The worker
Part 3: The environment
In February 1933, the Senate Committee on Finance held a series of hearings to diagnose what had caused the Great Depression, and how best to fix it. By that time, a consensus was emerging: inflation, national debt, and other issues brought about by World War I had plunged the U.S. into an economic mess resulting in unemployment of nearly 25 percent and a 45 percent decrease in gross national product.
Titans of the publishing, steel, automotive, and finance industries informed senators that the solution was for the government to relax regulations and balance the federal budget. The need to cut spending was popular in the political realm, too; President-elect Franklin Delano Roosevelt campaigned on fiscal restraint. If the government got its house in order, the prevailing thought went, the private market would solve the nation’s ills.
One man in the hearings disagreed, though. Marriner Eccles certainly had the business acumen of his fellow testifiers; his portfolio included timber interests, sugar and dairy operations, a construction firm at work building the Boulder Dam, and the nation’s first interstate bank holding company, headquartered in Utah. From his vantage, Eccles saw that the issue with the U.S. economy was that consumers lacked the wages to purchase all the goods American companies were capable of producing. “We have a complete economic plant able to supply a superabundance of not only all of the necessities of our people, but the comforts and luxuries as well,” Eccles said. “Our problem, then, becomes one purely of distribution.”
Income and wealth, Eccles explained, had not been spread evenly enough during the boom times of the 1920s. “Hoarding” by people and banks alike took money out of productive use, and the only remedy was government intervention through massive expenditures on homebuilding, public works, and the like.
“It is a national disgrace,” Eccles said, “that such suffering should be permitted in this, the wealthiest country in the world. The present condition is not the fault of the unemployed, but that of our business, financial, and political leadership. It is incomprehensible that the people of this country should very much longer stupidly continue to suffer the wastes, the bread lines, the suicides, and the despair.”
The Utah Republican’s testimony catapulted him into key positions during the Roosevelt administration, none higher than as chair of the Federal Reserve. Few people played a greater role in shaping Roosevelt’s New Deal policies. The Federal Housing Administration, Works Progress Administration, an independent Fed — none of these would have happened without his involvement. Eccles championed equitable economics and the value of work. He recognized that government and business were players on the same team.
The coronavirus pandemic will have lasting implications for our economy. Eccles’ diagnosis of the Depression’s cause and his prescriptions for revival — progressive taxation, public works spending, and subsidized housing construction among them — deserve our attention today. For, if you look closely, our pre-pandemic economy had frightening similarities to the one that preceded the Great Depression. COVID-19 is blamed for our recession, but it’s quite possible we were headed for a downturn anyway.
Marriner Eccles was born to David and Ellen Stoddard Eccles in 1890. David Eccles emigrated to Utah from Scotland in 1863 after converting to the Church of Jesus Christ of Latter-day Saints; Ellen was his second, polygamous wife. Eccles established himself as a pillar of the business community, and fast became one of Utah’s richest men.
David Eccles’ sudden death, at age 65, left much of his business interests in the hands of Marriner, who was just 22 and had no college education. Eccles would oversee his father’s sugar and dairy operations. He helped run a timber firm and the retailer that sold the lumber. Eccles was president of the Utah Construction Company, which built the Boulder (later called Hoover) Dam in Nevada and the O’Shaughnessy Dam, which provides water to San Francisco. Eccles was most involved, though, in the family’s banking enterprises. Over time, he built the First Security Corporation, an interstate holding company with dozens of banks in Idaho, Wyoming, and Utah.
Managing First Security during the early stages of the Depression galvanized Eccles’ notion that the nation’s financial issue was one of underconsumption. Big companies, even during the Depression, were flush with cash, but it wasn’t being used to hire more people or build, as he would put it, “buildings and factories and roads and actual physical wealth.” Rather, companies and banks were loaning that money abroad, purchasing outstanding securities — thus driving stock prices up ahead of the 1929 crash — or stashing it in savings, where it had no productive value. From 1929 to 1933, for instance, DuPont’s cash holdings doubled as the broader economy tanked; General Motors’ cash balance increased sixfold.
Eccles joined a growing school of business leaders, academics, and economists that felt the Depression was caused by income inequality that left consumers with too little cash.
“When he wrote about the Great Depression, and the problems of the American economy, he focused on the issue that the wealthy don’t spend. It’s the middle class, working class, and poor who need the money,” Robert Reich, a University of California, Berkeley professor and Labor Secretary under President Bill Clinton, told me. “Eccles understood that widening inequality created a fragility in the American economy that came to fruition with the crash of 1929.”
Mass unemployment, Eccles felt, was not just an economic hindrance — it was a moral and political failure. “If we leave our ‘rugged individual’ to follow his own interest under these conditions, he does precisely the wrong thing,” Eccles said in 1933. “Each corporation for its own protection discharges men, reduces payrolls, curtails its orders for raw materials, postpones construction of new plants and pays off bank loans, adding to the surplus of unusable funds. Every single thing it does to reduce the flow of money makes the situation worse for business as a whole.”
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Thus, when the market failed to put folks to work, it was the role of the government to step in. This guided his prescriptions as an assistant Treasury secretary and as Fed chairman, a role in which he was unusually active in shaping the Roosevelt administration’s policies. As Mark Wayne Nelson wrote in his book about Eccles, Jumping the Abyss, the Utahn would go so far as to draft speeches for FDR — a level of involvement unthinkable from a modern Fed chair.
Eccles’ almost singular goal, Nelson wrote, was to “increase the purchasing power of the nation” by getting money in the hands of consumers. That was accomplished during the New Deal primarily through public works projects undertaken by the Civilian Conservation Corps, Public Works Administration, and Works Progress Administration. Eccles wanted to pay for these programs — and, in effect, redistribute wealth — initially through federal borrowing, but in a more sustained fashion by implementing progressive income taxes on the wealthy (the latter never fully materialized).
Lesson number one of the New Deal is to “invest in people,” Richard Walker, director of the Living New Deal project and a specialist in economic geography, said in an interview. “Just throwing money out there is good in an emergency to help people, but the biggest thing is putting people to work on things that matter to them, and matter to the country.”
By 1929, consumers bogged down by income inequality tried to maintain spending in a most precarious fashion. In his early speeches, Eccles often equated the situation to a poker game, in which fewer and fewer players held larger amounts of chips. As the game went on, the only way for smaller players to remain at the table was to borrow. “And when their credit ran out,” Eccles would tell audiences, “the game would stop.”
There’s reason to believe our modern poker game was nearing its end even before the coronavirus shut down vast swaths of the economy. Consumer spending was driving an unprecedented period of growth, but, as during the Depression, corporations and wealthy individuals were hoovering up much of that wealth. Today’s companies stack up nicely with the Depression-era cash hoarders; Apple, Microsoft, and Alphabet each have more than $100 billion in cash on hand. Despite low levels of unemployment, wages have remained mostly flat, and Americans, like Eccles’ poker players, are hitting their lines of credit to maintain spending: credit card, auto loan, and overall consumer debt are at all-time highs.
All of that means wealth has flowed primarily to the richest Americans. Income inequality, according to University of California, Berkeley economist Gabriel Zucman, is at its greatest level since — you guessed it — 1929, and it’s driven by the richest people both making and saving more money.
“The economy we had in February looked like it was a strong economy because unemployment was low,” Reich said. “But if you examined it closely, you would see that it was fragile. A large portion of the benefits of economic growth had gone to the top. Most Americans were living paycheck to paycheck. So any kind of economic shock” — say, a pandemic — “would plunge the economy into a deep recession or depression, not unlike 2008 or 1929.”
COVID-19 has only widened the gulf. Systemic racial and gender inequality means a disproportionate number of people who lost jobs are women and people of color, most of whom had low-wage work to begin with. The Labor Department’s April jobs report offered perverse evidence of this: The 20.5 million people who lost their jobs that month earned so little money that the country’s average wages actually increased once they were off payrolls.
Eccles’ modern counterpart, Federal Reserve Chair Jerome Powell, is among those saying the economy is unlikely to bounce back to normal. “Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African-Americans, Hispanics and women have been greater than that of other groups,” he testified to Congress this week. “If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”
In the early days of the pandemic, Congress acted relatively swiftly to get aid to American consumers. Most people received a one-time $1,200 payment, and unemployment benefits have increased by $600 a week, courtesy of the federal government. Paycheck Protection Program loans were designed to keep employees on small businesses’ payrolls.
But the rollout of these programs has been bumpy. Backlogs in state unemployment systems mean some people have gone months without receiving benefits, and PPP funding has been slow to reach businesses without established bank connections. Plus, there are growing concerns about relief longevity. PPP funds must be distributed by December 31 or 24 weeks after receipt, whichever is latest. A COVID-19 vaccine probably won’t be available until 2021, so businesses could go through another round of layoffs later this year, after their PPP funds dry up. The timing could be disastrous: federal unemployment assistance is scheduled to expire in August, leaving laid-off folks with dramatically less money to survive on.
The Republican-led Senate has shown little interest in another round of coronavirus stimulus, given some $2.4 trillion has already been allocated in four bills. After the House approved a fifth, $3 trillion relief package, Senate Majority Leader Mitch McConnell said the measure was dead on arrival, opting instead to wait and measure the impact of the earlier relief bills.
Speaking this week, Powell, the Fed chair, struck a different chord. “The shock we received — the economy received — was the largest in living memory,” he said. “The question we will all have to answer over time is: Is it enough?”
One can reasonably guess what Powell’s Depression-era predecessor would say: It hasn’t been enough.
Eccles argued in his day that it was much safer to err on the side of over-spending. The nearly $45 billion in New Deal spending — more than $860 billion in today’s dollars — wasn’t enough, in Eccles’ opinion. “Fighting a depression is like jumping over an abyss,” he wrote in his first memo as a Fed governor. “If the cleft is ten feet wide, even a nine foot jump is worse than no effort at all.”
A program Eccles admired, and helped administer, was the Civil Works Administration, one of the more unheralded yet remarkable pieces of the New Deal. From November 1933 to March 1934, the program employed 4.2 million people — a whopping 8 percent of the country’s labor force — in public works jobs. That winter, CWA workers built 350 public pools, 44,000 miles of new roads, 469 airports, and 400 sewage and water pumping stations. In Ogden, Utah, Eccles’ home turf, CWA workers built the clubhouse at the El Monte golf course, one of numerous municipal courses built around the country. Thirty-three thousand out-of-work teachers taught adult education courses to 800,000 people.
“For Marriner Eccles,” Nelson wrote in Jumping the Abyss, “the best part of it all was that 4.2 million people were now earning a decent income and were wasting little time in spending it.” Reports from the Wall Street Journal and other publications credited the CWA with robust retail sales during the Christmas season; private employers chided the program for luring workers away with better wages.
The program was expensive — it cost $834 million — and had a few instances of graft, but it otherwise exemplified Eccles’ notion of fast, tangible government spending during a recession. It was immensely popular both nationally and in Utah, where the editorial boards of The Salt Lake Tribune and the Ogden Standard-Examiner waxed about the accompanying boosts of economy and morale.
It would be wise for us to consider a program of similar ambition now, and Eccles’ own plan for a CWA successor could be a place to start. In 1935, as Fed chair, Eccles sent a memo to FDR laying out his suggestion for a second public works program. These discussions eventually heralded the famous Works Progress Administration, but Eccles was pushing for something far larger in scope. FDR’s predetermined $4 billion budget, Eccles wrote, was “totally inadequate.” The country, he argued, should make massive and sustained investments in housing construction (that never happened) and a public works program.
“In this case the safest policy is the boldest policy,” the memo reads. “If we spend some every year, but not sufficient to give the required stimulus to provide expenditures, we can build up a large debt and still not be out of the depression.”
Eccles was disappointed with the resulting WPA, which he felt created too few jobs that paid too little. Even though Roosevelt’s New Deal policies put the country’s economy back on its pre-Depression trajectory heading into World War II, unemployment remained around 10 percent.
Public works and housing could be destinations for stimulus funding today. President Donald Trump has floated spending as much as $2 trillion on infrastructure, and now might be a good time to finally start. Meanwhile, the nation has a dire shortage of affordable housing. Harvard researchers say slow home construction has led to price spikes that far outpaced income growth, particularly in Western metros. It’s no surprise, the authors write, that California, Washington, Oregon, and Colorado have seen the nation’s largest increases in homelessness since the Great Recession. It’s not inconceivable to think that folks could be hired to build the very homes they’d eventually live in.
Some New Deal experts are skeptical that grand projects are called for today. Price Fishback, an economist at the University of Arizona who has found that New Deal public works projects and FHA-backed mortgages had positive effects on local retail spending, said now is not the time for such sweeping programs. For one, he told me, we’ve already spent a tremendous amount of money; Congress would be better served shoring up contact tracing and coronavirus testing. Plus, many folks who have lost jobs during the current recession weren’t working in the trades. “The people with problems are the ones who do in-close work with constant contact — retail, restaurants, that kind of thing. You can’t put them to work building roads,” Fishback said.
Walker, the Living New Deal director, argues that a little imagination can remedy that issue. A Public Health Corps, if you will, could deploy former bartenders, waiters, and housekeepers as coronavirus contact tracers.
The push to curtail spending rests on the idea that, once we get virus life figured out, everybody can return to work and be relatively prosperous. But, given that our economy was already looking an awful lot like it did during the 1920s, that assumption could amount to Eccles’ dreaded 9-foot jump into the chasm.
Evidence of the New Deal’s impact abounds in the West. The region was hit particularly hard by the Depression — incomes fell most in South Dakota, Arizona, and Idaho, and Interior West states lost 5 to 10 percent of their population during the downturn. In return, per capita New Deal spending was highest in our region. From forests planted by the Civilian Conservation Corps to our region’s signature dams, it’s clear the New Deal continues to shape Western life.
This is certainly the case in Utah. Call it the Marriner effect. “Utah got the eighth-most New Deal spending of any state, and I think it had a lot to do with Marriner Eccles,” Walker, of the Living New Deal, said. Take the Cottonwood Canyons, the recreational playgrounds east of Salt Lake City: “They’re part of the municipal water supply, so they got water projects. You have all this National Forest land, where they put in campgrounds, Boy Scout camps, amphitheaters … some beautiful stuff you wouldn’t even know is there. And all the trails, of course!”
Capitol murals, schools, playgrounds, parks — New Deal projects are all over the Wasatch Front. But urban areas weren’t the only benefactors. “Go down to Moab, and you find one damn thing after another,” Walker said. “City hall, the parks — it’s just full of New Deal stuff.”
Even Walker continues to be surprised by the volume of New Deal projects he uncovers during road trips. Numerous farms and ranches, he said, would be out of business today had the New Deal not fixed prices and helped restore Dust Bowl soil conditions. If you went to school in Los Angeles, there’s a good chance the building was a New Deal product. “I remember as a kid being taken by my parents to see Shasta, Grand Coulee, and Bonneville [dams], and just being gobsmacked by what had been done,” Walker said.
Perhaps today’s New Deal wouldn’t look like this; after all, there’s not much appetite for building new dams. But to dismiss the need for some form of grand national project, to assume the economy will return to normal, to ignore the very conditions Marriner Eccles flagged 90 years ago, could prove a generational folly on our part.
In 1940, Eccles delivered a speech to the Economic Club of New York that blended economics and moral responsibility in a fashion seldom heard today. The talk, delivered to some of the nation’s wealthiest men, is worth quoting at length:
“It is imperative to meet now the needs of those who, through no fault of their own, have no jobs, no security, no tangible stake in the society we wish to preserve. As a democracy we can’t afford to take the position that because economic conditions are satisfactory for many of us, others who are less fortunate can be shunted aside, or merely kept alive by handouts, until economic revival develops at some unpredictable future time. Aside from humane considerations, it is not good government, good democracy, or good economics to lose the productivity of millions of workers. Those of us fortunate enough to have property sometimes forget that for millions of our people their only possession is a job. When that is gone, they have but slight reason to remain loyal to our institutions and our economic system. You and I know very well that fine phrases about the inalienable right to work are a meaningless mockery to a man who cannot find a job.
“Then, why shouldn’t we declare as a national policy that we will, collectively, through government, offer the security of a job to all who are able and willing to work but are unable to find private employment? Why not provide assurance of employment, not merely insurance for unemployment? Is this a radical idea in a democracy? Is it in any way inconsistent with our professed ideals and aspirations? Is there any better way to make democracy work? Can’t we afford it?
“I think we cannot afford,” he concluded, “to adopt any other course.”
