Economics Evolving: The New Deal Era

Government responses to financial crises in the United States of America have evolved over time through different economic circumstances and events. One instance of this change occurred during the Great Depression in the 1930s. The Great Depression caused hundreds of banks to falter and close, forced millions of Americans to homelessness, unemployment, and starvation, and even triggered a global financial crisis. The severity and despondency of the Great Depression led Roosevelt to drastically alter the American government’s response to economic downturns. Specifically, he turned his back on the policies and the traditional economic model followed by former presidents, such as Grant and Hoover. In doing this, he adopted and tentatively followed new economic theories at that time, most notably, Keynesian economics. There was a sense of desperation behind Roosevelt’s actions; he did not necessarily believe in his relief policies and the concepts behind the New Deal. Some of his policies were even contradictory, but nevertheless, his actions caused an economic paradigm shift that has been followed for many decades.

In order to fully understand the radical change in Roosevelt’s political response to economic downturns, one must look at earlier administrations’ response to economic downturns. Before the New Deal era, governments followed a rigid concept that the government had no place in the economy, and when there was a severe economic decline, “budget-balancing” would take precedence over any other economic policy. The Panic of 1873 is one economic downturn that evidently illustrates this economic model. The panic stood as the first global depression that led to the collapse of 18,000 businesses and 89 railroads in America, and se...

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