The Great Depression The Great Depression of 1929-1939 _really

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The Great Depression The Great Depression of 1929-1939 _really Powered By Docstoc
					           The Great Depression
   The Great Depression of 1929-1939 (really
    1929-1945) was marked by
       A stock market decline reaching 90%
       Many business failures
       Big declines in GDP
       Massive unemployment, reaching 25%
       Over 9,000 bank failures
   Why? What happened?
             The stock market
   The Dow-Jones Industrial average (DJI) is an
    unweighted average average of 30 of the
    largest industrial companies
   Current companies:
        3M               Disney              McDonalds
        AT&T             DuPont              Merck
        Alcoa            Exxon Mobil         Microsoft
        American Express General Electric    Morgan (J. P.)
        Bank of America Hewlett-Packard      Pfizer
        Boeing           Home Depot          Procter & Gamble
        Chevron          IBM                 Travelers
        Caterpillar      Intel               United Technologies
        Cisco            Johnson & Johnson   Verizon
        Coca-Cola        Kraft Food          Wal-Mart Stores
   1929 DJI companies. How many of these
    companies still exist?

Allied Chemical      General Foods              Radio Corporation
American Can         General Motors Corporation Sears Roebuck & Company
American Smelting    General Railway Signal     Standard Oil (N.J.)
American Sugar       Goodrich                   Texas Company
American Tobacco B International Harvester      Texas Gulf Sulphur
Atlantic Refining    International Nickel       Union Carbide
Bethlehem Steel      Mack Truck                 U.S. Steel
Chrysler             Nash Motors                National Cash Register
Curtiss-Wright       North American             Westinghouse Electric
                     Paramount Publix
General Electric Company                        Woolworth
The stock market
         The Smoot-Hawley Tariff
   In 1930 Congress raised tariffs dramatically
   This measure helped make the depression
    worse than it would have been otherwise:
       Domestic exporters were hurt
       European countries, which were more
        dependent on exports than the U.S., suffered
        even more
       Tariff revenues failed to reach expected levels
       Although domestic agriculture and industry were
        shielded somewhat from competition, these
        benefits were limited.
     GDP during the Depression
   The 1920’s were boom times in the U.S.:
    steady increases in real GDP
   Then GDP began to fall
       9% in 1930
       another 8% in 1931
       another 14% in 1932
       another 2% in 1933
       by 1939, GDP was barely above 1929 level
   GDP sharply higher during World War II
    because of war spending
   Unemployment was severe, reaching 25% of
    the labor force (10% in 2009)
       Falling wage rates could have reduced
       Hoover “jawboned” business leaders about
        keeping wage rates up
       Roosevelt got legislation passed to give unions
        special privileges
             The money supply
   The Fed allowed the M2 to decline by 33%
       They may not have had good data
   The market could have adjusted to a lower
    money supply with falling prices and wages
   Legislation and jawboning kept prices and
    wages from falling enough to restore
                  Bank failures
   Over 9,000 banks failed during the Great
    Depression. Depositors lost some or all of
    their money.
   No banks failed in Canada
       Strong nationwide banks in Canada; prohibition
        of branch banking in the U.S.
       No central bank in Canada until the late 1930’s
   FDIC deposit insurance established
       Coverage to $5,000
       Current coverage $250,000
                 The New Deal
   Although the New Deal was the name given
    to Roosevelt’s programs, it was largely a
    continuation of policies started by Hoover
   Facts about Hoover (1929-1933)
       He was not a laissez faire president
       He raised income tax rates drastically
       He signed the infamous Smoot-Hawley tariff
       He started many government programs to “fix”
        the economy
       Roosevelt ran as a conservative against Hoover
        in 1932
           Roosevelt seizes gold
   Roosevelt seized people’s gold by executive
    order in 1933
       Exceptions for jewelers, dentists, numismatic
   Gold contracts were voided
   Gold holding legalized in 1974
                Social Security
   Social Security was established in 1936
       Provided retirement benefits at age 65
       Most blacks and many women were indirectly
        excluded from benefits, perhaps to appease
        Southern Democrats
       Roosevelt understood that people would come to
        see benefits as an entitlement
      Roosevelt’s court-packing
   The Supreme Court was in Roosevelt’s way,
    insisting (sometimes) that the Constitution
    actually meant something
   Roosevelt proposed to increase the number
    of justices from 9 to 15, “packing” the court
    with his friends.
   The proposal was defeated in Congress
          The National Industrial
           Recovery Act (NRA)
   Established cartels. Competition to be
       A tailor was sent to jail for charging 40 cents to
        press a suit instead of 35 cents
       Businesses were supposed to show the Blue
        Eagle emblem
       There were military parades
       Ruled unconstitutional
          Regime uncertainty
   Roosevelt like to badmouth business leaders,
    especially after five years had passed and
    the New Deal had not produced economic
   Business people did not want to take
    investment risks when they fear higher taxes
    or confiscation of their businesses
         Did World War 2 End the
   The U.S. got into World War 2 in 1941
   Unemployment was quickly ended as millions
    of men were drafted into the Armed Forces
    and millions more enlisted
       Good news: they had jobs
       Bad news: they were getting shot at
   GDP rose substantially
       Bad news: the increase was due to war materiel
       Many civilian goods were rationed
   The depression really didn’t end until 1946
    when Republicans took control of Congress
          New Deal Report Card
   Henry Morgenthau was Roosevelt’s
    Secretary of the Treasury and a trusted
    advisor said, after 5 years of the New Deal,
     “We have tried spending money. We are spending more
      than we have ever spent before and it does not work. I
      want to see this country prosperous. I want to see
      people get a job. I want to see people get enough to eat.
      We have never made good on our promises. I say after
      eight years of this Administration we have just as much
      unemployment as when we started, and an enormous
      debt to boot!”
   Sounds a lot like 2008-2009
   Contrary to common belief, Roosevelt’s New
    Deal was largely responsible for making the
    Great Depression more severe and longer
    lasting than it would have been otherwise.
   Roosevelt did massive and lasting damage to
    what was formerly a relatively free and
    productive economy
   Many New Deal institutions plague us to this