Impact of Economic Act Within The New Deal Program
The Banking Holiday and the passing of the Emergency Banking Act merely represented the symbolic beginning of Roosevelt’s attempt to rejuvenate the economy. The President continued to produce and submit an array of conservative financial recovery measures to Congress, as he was determined to reduce expenses and balance the federal budget. An example of this was the Economy Act which was created by the director of the budget, Lewis Douglas. The bill reflected Roosevelt’s initial animosity to deficit spending which was pursued further by Julian Zelzier who suggests that most of the existing scholarship on the New Deal downplay the importance of fiscal conservatism in Roosevelt’s administration.
Zelzier demonstrates the importance of conservatism and liberalism to the New Deal, as Roosevelt pursued a new policy of moderate fiscal conservatism that enabled the New Deal to thrive. The bill, entitled “To Maintain the Credit of the United States Government,” was intended to dispel the growing fear that the country was heading towards bankruptcy because of high federal departmental costs. The act called for the reorganisation of federal agencies and also significantly lowered federal spending, as it cut nearly $400 million from federal payments. This received widespread criticism from within the Democratic Party, as many were wary that the bill could ostracise the veterans and federal employees who would suffer as a direct consequence of the bill, and cause a similar political backlash to that of the Bonus Army a year earlier.
In response, the act was unsurprisingly opposed by many liberals, but Roosevelt insisted on the necessity of the deficit budgets due to the state of the economy and the failings of the Hoover administration. This led Roosevelt to turn to Conservative Democrats and Republicans for support in order to pass the act. The Economy Act was then placed into law on the 20th March 1933 and subsequently produced political mobilisation by military veterans. Groups such as the Veterans of Foreign Wars (VFW), who had previously backed Roosevelt, now blasted his administration for supporting the right and big business over the ordinary citizen. The veterans later appealed against the Economy Act with Lynch v. United States in which the Supreme Court overturned the bill and ruled that Congress had illegally terminated insurance guarantees offered to the veterans prior to their registration in the military.
In truth, the Economy Act had little impact on the federal deficit and lacked longevity due to the expansive creation of the alphabet agencies by the Roosevelt administration. Nonetheless, this piece of financial legislation figuratively represented Roosevelt’s desire to persevere with the conservative approach of limited government spending, as he initially believed increasing government expenditure would be damaging to the nation’s economy.
