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Cautionary Lessons from the Great Depression
...In considering this view, it's worth recognizing that many of the massive, decisive government interventions that FDR and the New Deal Congress enacted actually made the situation worse. As I discuss in in this article, the administration and various interest groups used the crisis of the Great Depression to enact sweeping legislation that benefited themselves at the expense of the general public, sometimes in ways that made the crisis worse than before. In these efforts, they were abetted by voters' sense of desperation and widespread ignorance of economics and public policy. This made it easy to portray measures that benefited narrow interest groups at the expense of the general public as "emergency measures" needed to address the crisis.

Perhaps the most egregious example was the National Industrial Recovery Act, the centerpiece of FDR's 1933 "First New Deal" (discussed at pp. 649-55 of my article). The NRA (not to be confused with the National Rifle Association) established a system of cartels to raise prices and wages throughout nearly the entire nonagricultural economy. This benefited certain big business interests and unions, which were able to suppress their competitors. But it also had the predictable result of greatly reducing economic output and increasing unemployment, especially among the poor and unskilled who were already suffering greatly. Economists estimate that it reduced GDP by as much as 6 to 1l percent (pg. 650). Co-blogger David Bernstein points out in his book Only One Place of Redress that the NRA particularly harmed low-wage black workers and that it was supported by some white labor unions in part because they hoped it would stifle black competition. The NRA - the biggest and most ballyhooed of FDR's early New Deal policies - made the Depression significantly worse than it would have been otherwise.

The NRA was the biggest and most damaging of the New Deal's harmful interest group power grabs. But it was far from the only one. For example, all law students study the Supreme Court's decision in Wickard v. Filburn, which upheld the Agricultural Adjustment Act requirement that farmers limit their production in order to raise prices. Like the NRA, the AAA was a cartel scheme intended to raise prices in order to benefit big producers (AAA production quotas and subsidies were based on the amount of farmland each farmer owned, thus benefiting bigger producers who owned more land) at the expense of consumers and smaller competitors. The predictable and intended effect of the AAA was to raise food prices - this in the midst of a Depression when many people were already suffering from malnutrition and could not easily tighten their belts further....