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===Fiscal Conservatism===

===Fiscal Conservatism===

Fiscal conservatism was a key component of the New Deal, as Zelizer (2000) demonstrates.  It was supported by Wall Street and local investors and most of the business community;  mainstream academic economists believed in it, as apparently did the majority of the public. Conservative southern Democrats, who favored balanced budgets and opposed new taxes, controlled Congress and its major committees.  Even liberal Democrats at the time regarded balanced budgets as essential to economic stability in the long run, although they were more willing to accept short-term deficits.  Public opinion polls consistently showed public opposition to deficits and debt.  Throughout his terms, Roosevelt recruited fiscal conservatives to serve in his administration, most notably [[Lewis Douglas]] the Director of Budget from 1933 to 1934, and [[Henry Morgenthau Jr.]], Secretary of the Treasury from 1934 to 1945.  They defined policy in terms of budgetary cost and tax burdens rather than needs, rights, obligations, or political benefits.  Personally, the president embraced their fiscal conservatism.  Politically, he realized that fiscal conservatism enjoyed a strong wide base of support among voters, leading Democrats, and businessmen.  On the other hand, there was enormous pressure to act–and spending money on high visibility programs attracted Roosevelt, especially if it tied millions of voters to him, as did the WPA.   

Fiscal conservatism was a key component of the New Deal, as Zelizer (2000) demonstrates.  It was supported by Wall Street and local investors and most of the business community;  mainstream academic economists believed in it, as apparently did the majority of the public. Conservative southern Democrats, who favored balanced budgets and opposed new taxes, controlled Congress and its major committees.  Even liberal Democrats at the time regarded balanced budgets as essential to economic stability in the long run, although they were more willing to accept short-term deficits.  Public opinion polls consistently showed public opposition to deficits and debt.  Throughout his terms, Roosevelt recruited fiscal conservatives to serve in his administration, most notably [[Lewis Douglas]] the Director of Budget from 1933 to 1934, and [[Henry Morgenthau Jr.]], Secretary of the Treasury from 1934 to 1945.  They defined policy in terms of budgetary cost and tax burdens rather than needs, rights, obligations, or political benefits.  Personally, the president embraced their fiscal conservatism.  Politically, he realized that fiscal conservatism enjoyed a strong wide base of support among voters, leading Democrats, and businessmen.  On the other hand, there was enormous pressure to act–and spending money on high visibility programs attracted Roosevelt, especially if it tied millions of voters to him, as did the WPA.   

 

Douglas proved too inflexible, and quit in 1934.  Morgenthau made it his highest priority to stay close to Roosevelt, no matter what.  Douglas' position, like many of the [[Old Right]] was grounded in a basic distrust of politicians and the deeply ingrained fear that government spending always involved a degree of patronage and corruption that offended his Progressive sense of efficiency.  The Economy Act of 1933, passed early in the Hundred Days, was Douglas' great achievement. It  reduced federal expenditures by $500 million, to be achieved by reducing veterans’ payments and federal salaries.  Douglas cut government spending through executive orders that cut the military budget by $125 million, $75 million from the Post Office, $12 million from Commerce, $75 million from government salaries, and $100 million from staff layoffs.  As Freidel concludes, "The economy program was not a minor aberration of the spring of 1933, or a hypocritical concession to delighted conservatives. Rather it was an integral part of Roosevelt's overall New Deal."<ref>Freidel 1990, p. 96</ref> Revenues were so low that borrowing was necessary (only the richest 3% paid any income tax before 1942.)  Douglas, therefore, hated the relief programs, which he said reduced business confidence, threatened the government's future credit, and had the "destructive psychological effects of making mendicants of self-respecting American citizens."<ref>Zelizer</ref> Roosevelt was pulled toward greater spending by Hopkins and Ickes, and as the 1936 election approached he decided to gain votes by attacking big business.   

Douglas proved too inflexible, and quit in 1934.  Morgenthau made it his highest priority to stay close to Roosevelt, no matter what.  Douglas' position, like many of the [[Old Right]] was grounded in a basic distrust of politicians and the deeply ingrained fear that government spending always involved a degree of patronage and corruption that offended his Progressive sense of efficiency.  The Economy Act of 1933, passed early in the Hundred Days, was Douglas' great achievement. It  reduced federal expenditures by $500 million, to be achieved by reducing veterans’ payments and federal salaries.  Douglas cut government spending through executive orders that cut the military budget by $125 million, $75 million from the Post Office, $12 million from Commerce, $75 million from government salaries, and $100 million from staff layoffs.  As Freidel concludes, "The economy program was not a minor aberration of the spring of 1933, or a hypocritical concession to delighted conservatives. Rather it was an integral part of Roosevelt's overall New Deal."<ref>Freidel 1990, p. 96</ref> Revenues were so low that borrowing was necessary (only the richest 3% paid any income tax before 1942.)  Douglas, therefore, hated the relief programs, which he said reduced business confidence, threatened the government's future credit, and had the "destructive psychological effects of making mendicants of self-respecting American citizens."<ref>Zelizer</ref> Roosevelt was pulled toward greater spending by Hopkins and Ickes, and as the 1936 election approached he decided to gain votes by attacking big business.   

Morgenthau shifted with FDR, but at all times tried to inject fiscal responsibility; he deeply believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment.  The Wagner Act met Morgenthau's requirement because it strengthened the party's political base and involved no new spending.  In contrast to Douglas, Morgenthau accepted Roosevelt's double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the WPA, PWA and CCC, that would be temporary until full recovery was at hand.  He fought against the veterans’ bonus until Congress finally overrode Roosevelt's veto and gave out $2.2 billion in 1936.  His biggest success was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees.  It was Morgenthau who insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.<ref>Zelizer 2000; Savage 1998</ref>

Morgenthau shifted with FDR, but at all times tried to inject fiscal responsibility; he deeply believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment.  The Wagner Act met Morgenthau's requirement because it strengthened the party's political base and involved no new spending.  In contrast to Douglas, Morgenthau accepted Roosevelt's double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the WPA, PWA and CCC, that would be temporary until full recovery was at hand.  He fought against the veterans’ bonus until Congress finally overrode Roosevelt's veto and gave out $2.2 billion in 1936.  His biggest success was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees.  It was Morgenthau who insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.<ref>Zelizer 2000; Savage 1998</ref>