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Pres. Franklin D. Roosevelt’s New Deal was a response to a crisis in America’s economy. Stock prices were crashing, businesses were failing, and unemployment was soaring. FDR’s popularity was engendered by his ability to generate hope that there could be relief, recovery, and reform that could bring us out of our straitened circumstances, and keep us out. His policies were aggressive and his uncanny paternalistic communication skills -- such as his fireside chats on the radio -- endeared him to the masses. When he said “we have nothing to fear but fear itself,” he highlighted the deep-seated fear of tomorrow in the hearts of the citizenry.
FDR introduced “socialism-lite” into American politics and economics with the implementation of Keynesian or demand-side economics, as it is sometimes called. However, the economic theories created to justify increased governmental spending were advanced by John Maynard Keynes, a British economist who did not portray himself as a socialist. Instead of a balanced budget goal, deficit spending by government was justified by Keynes. Government expenditures were increased, which required increased borrowing of funds and increased printing of money (we went off the gold standard in 1933 which enabled greater printing of currency). The increase of the money supply led to an increased rate of inflation. With more dollars chasing fewer goods, prices rise. But this inflationary trend was offset by the multiplier effect whereby the number of economic transactions produced by the increased supply of money more than offset the inflationary problems. Government spending could thus bring about a stability in economic markets that regular supply and demand curves in a laissez-faire market could not by themselves achieve. This influx of money into the economic system is still called “priming the pump.” However, modern critics of Keynesian deficit spending will now suggest that deficit spending...
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