When Franklin Roosevelt assumed the presidency in January of 1933, he came into office with arguably the strongest electoral mandate in American history: Do something about the damn economy!
When only half the workforce can find a full-time job, people want politicians to fix it. But what to do?
The U.S. economy had been dominated by laissez-faire policy sine the 1870s, and while it would be an oversimplification to say that the hands-off approach led directly to the Great Depression, there’s no doubt it contributed to it. For starters, the lack of Wall Street regulation certainly caused the levered trusts, margin loans, and the associated crash that started it all.
FDR was not a laissez-faire ideologue who thought the economy would simply fix itself if government would just leave well enough alone. He realized nothing was well enough. And with that attitude, he ushered in the New Deal, an onslaught of new government programs that on the whole had three major goals:
- Alleviate the very real human suffering of the Depression.
- Stimulate the economy in the hope of ending the Depression.
- Implement new government regulations to prevent the Depression from ever happening again.
Roosevelt wasn’t a socialist, far from it. He was an old Progressive intrigued by the new ideas of John Maynard Keynes, though his first attempt to end the Depression, the 
1934 National Industrial Recovery Act, was inspired more by Mussolini’s corporatism than Keynes. FDR’s overarching goal was to save capitalism from itself, not to destroy it.
But you wouldn’t know that judging by what his critics said about him.
Voices on the right such as The American Liberty League and Father Charles Coughlin lambasted the president. They called him a socialist and claimed his programs were not just bad policy, but downright immoral. Many critics framed their attack in moral terms because to them, government debt and most public expenditures on the poor were just that: immoral. None other than former President Herbert Hoover railed against the New Deal as immoral and called for Americans to, “re-establish morals as the first objective of government.”
Even though FDR rejected laissez-faire as a do-nothing, accomplish-nothing mistake in the face of history’s worst economic calamity, he was actually a fiscal conservative, especially by today’s standards. In fact, he had campaigned on a promise to balance the budget. Thus, when the economy showed signs of improving after his first term, he tried to pay down the debt by raising taxes early in his second term. It crippled the recovery and prolonged the Depression.
So what finally did end the Great Depression if not the New Deal? It was a catastrophic event that forced everyone to put aside their qualms about the supposed immorality of 
public debt and the federal government’s role in the economy: World War II.
When you’ve got Nazi Germany on one side and the Empire of Japan on the other, you do what you need to do, and debates about the supposed morality of various economic policies will just have to wait.
As the nation mobilized, federal spending skyrocketed to levels that absolutely dwarfed the New Deal. The net federal debt reached nearly 30% of GDP. The gross federal debt was 120% of GDP. And the federal government’s direct involvement was so intrusive that it oversaw what can fairly be described as a nationalized economy. It rationed commodities, set price controls, and directed private corporations to produce what it needed to fight the war.
Almost no Americans advocate these kinds of policies during normal times, but those were not normal times. And guess what? America’s moral compass didn’t go haywire. In fact, today we like to brag about the morality of the period. Fighting the Good Fight, The Greatest Generation: pick your moral cliche. And what’s more, those policies actually played a major role in ending the Great Depression.
Of late, there’s been a lot of hand ringing about Japan’s sovereign debt. Its gross debt is more than 200% of GDP, and its net debt is 120%. The moralists are worried about what it all means.
But then came the earthquake, followed by the tsunami, and good lord, the pending melt-down of nuclear reactors.
Once again, there’s no more time for these kinds of misplaced moral debates about economic policy, and Japanese planners know it. Given what’s going on at the moment, it’s indulgent to fret about debt.
That’s why this past Monday Japan’s Central Bank pumped $184 billion into the money markets. And what was the result? After two days of staggering losses, Japanese markets began to rebound.
Real world tragedies cast aside theoretical debates and force people and nations to do what is necessary. They also make clear that some form of Keynesian management is needed during times of crisis. At least ten thousand people are dead, a nuclear nightmare scenario might be unfolding in front of our eyes, and no, the magic of free markets isn’t going to fix it anytime soon. Natural disasters and warfare make ideological concerns about government regulations or the supposed immorality of debt seem trite by comparison.
For Americans, the question is, are we going to wait for a natural disaster or man made crisis before we dispense with the faux moralism and take the steps necessary to fix the economy?