The Political Economy of New Deal Spending: An Econometric Analysis

Abstract

T HE New Deal years offer a laboratory for testing the hypothesis that political behavior a democracy can be understood as a rational effort to maximize the prospects of electoral success. This hypothesis is central to the theories of politics developed and elaborated since the publication of Downs' An Economic Theory of Democracy 1957, but systematic empirical verification has been meager.' One of the reasons for this paucity is that the United States political parties are rarely in power unambiguously, and actual policies result from the interaction of many competing objectives. But the 1930's the Democratic party had control of both houses of Congress, and during much of the period Congress was willing to follow Presidential lead on economic policy. At the same time federal spending rose to unprecedented levels, and considerable discretionary allocative authority was concentrated the executive branch. Most of the spending was carried out by new agencies under new programs which were clearly identified with the New Deal administration. At a time of grave economic distress, this Presidentially-dominated environment provided a stark simplification of the interaction between political and economic forces. This article focuses on the allocation of government expenditures among the states and argues that interstate inequalities per capita federal spending can be explained large part as the resultant of a process of maximizing expected electoral votes. Two recent articles (1969, 1970) by Leonard J. Arrington have raised this issue. Upon examination of a newlydiscovered set of figures for the years 19331939, Arrington was struck by the fact that the per capita distribution of loans and expenditures was not at all equal across the country, and furthermore that these inequalities seem perverse that they favor states with high income. In particular, the West seems to have received far more than its per capita share of benefits, while the South -far behind income received little.