After the Great Depression, Franklin D. Roosevelt (FDR) famously promised to give the United States a great "New Deal". The GDP of the country was decreasing, money was inflating madly, and people were frustrated and afraid. Riding on this fear, Roosevelt implemented a large number of federal programs to redesign the American economy and fix all of the problems. Selfish private businessmen had gotten out of control, he said, and needed to be reigned in.
It is a classic tale for democracy and central governance: a problem is there, so we elect the person who says he will change everything around and try to fix things. Enough time has passed now that it is becoming possible to evaluate how it all worked out. Let me just toss out a few aspects that interest me.
First, there is a lot to the New Deal. There is an interesting debate going on right now between EconLog and Brad DeLong on whether the New Deal as a whole caused a net improvement. Arnold Kling of EconLog rightly points out that you should really evaluate the individual programs of the New Deal, because there is just too much of it. I started to try and list a summary here, but even that defies me. The New Deal was truly a vast redesign of the American economy, centralizing many aspects that were previously managed privately. Americans of today grow up under a different culture of governance than 100 years ago; we take it for granted now that the central government is allowed to control anything it wants and, indeed, should attempt to fix any problems we can think of.
To get there, FDR pushed to the limits of what the Constitution allowed. FDR went so far as proposing to increase the number of justices on the Supreme Court, presumably so that he could appoint the new members and swing the judicial branch in his favor. I often wonder how things would have gone without these constitutional limits. Would we have followed Russia's path into outright communism?
Finally, we know now that FDR's justification for the New Deal was incorrect. FDR described the problem as private industry behaving excessively in some way, as if businessmen became greedier during the depression than during periods before and after it. Study since then suggests that the main reasons we had a Great Depression, instead of a normal recession, were deflation of the currency and cut backs in international trade. Maybe the New Deal has been an improvement on its own merits, but there was a simple and direct solution to the stated problem if only the economics had been better understood.
This last point is something I dwell on frequently. The science at the time was undeveloped, but nonetheless we elected people to make sweeping changes to our economy, just to try something. That grand something brought us an inch away from communism, which, while we did not know at the time, we can now through history see is economically fatal. As a legacy, we have a far more intrusive government, and our status as a nation of individual freedom is diminished. I hope we move more carefully in the future, and I hope people remain aware of their bias to "just do something".