Slide 1

CRASH, DEPRESSION, AND NEW DEAL 1920's had been a period of good economic times 1920's had been a period of good economic times Tues. Oct. 29th, 1929 - NYC Stock market crashed, triggering a depression that would last until 1942 Tues. Oct. 29th, 1929 - NYC Stock market crashed, triggering a depression that would last until 1942 Slide 2 Market Gains Genuine economic gains during the 1920s US economy was booming and powering global commerce Genuine economic gains during the 1920s US economy was booming and powering global commerce The Stock Market posted large gains much real, but some speculative The Stock Market posted large gains much real, but some speculative Dow Jones in 1907 at 100 Dow Jones in summer 1927 at 200 Dow Jones by fall 1929 at 381 Slide 3 The Fear of Inflation Inflation was an old fear of American banks and business Inflation was an old fear of American banks and business Great for creditors / borrowers Bad for banks and lenders As problems grew in Europe, gold flowed into the US seen as a safe haven As problems grew in Europe, gold flowed into the US seen as a safe haven Trying to head off inflation, Treasury sold bonds to reduce the money supply Trying to head off inflation, Treasury sold bonds to reduce the money supply Actually decreased money supply by 4% Slide 4 The stock market: The stock market: the public invests in cos. by purchasing stocks; in return for this they expect a profit on sale b/c of booming 1920's economy, $ were plentiful, so banks were quick to make loans to investors also investors only had to pay for 10% of the stock's actual value at time of purchase this was known as BUYING ON MARGIN, and the balance was paid at a later date Slide 5 This encouraged STOCK SPECULATION - people would buy and sell stocks quickly to make a quick buck This encouraged STOCK SPECULATION - people would buy and sell stocks quickly to make a quick buck b/c of all this buying & selling, stock value increased (Ex: G.E stock $130 $396/share) this quick turnover didn't aid cos. they needed long term investments so they could pay bills (stock value was like an illusion) unscrupulous traders would buy and sell shares intentionally to inflate a given co.'s stock value All of this gave a false sense of security/confidence in the American market All of this gave a false sense of security/confidence in the American market Slide 6 Beginning in Oct. 1929, investors confidence dropped, leading to a market collapse All tried to sell at once and bottom fell out of market = panic selling (many bankruptcies as banks called in loans) Only a tiny minority of people traded on the stock exchange, but they possessed vast wealth, and the crash had a ripple effect on the economy Slide 7 For the poor....... mass consumption was already low (poor could afford to buy little) unemployment rose no gov't assistance at first since people could not buy, productivity was cut back = further unemp. With additional unemployment purchasing power declined again reduced productivity yet again (= ECONOMIC CYCLE) Unemployment Purchasing Power Productivity Slide 8 PRODUCTIVITY AND UNEMPLOYMENT U.S. Eco. was (and still is) based on the productivity purchasing power - employment cycle U.S. Eco. was (and still is) based on the productivity purchasing power - employment cycle For many goods to be produced, purchasing demand had to be there: Yields high employment and a healthy economy For many goods to be produced, purchasing demand had to be there: Yields high employment and a healthy economy Between 1924-27, U.S. productive capacity doubled but it was b/c of technological innovation Between 1924-27, U.S. productive capacity doubled but it was b/c of technological innovation electricity and mechanical advances made for better production, but no new jobs were added to the economy So more consumer goods were available, but there weren't more people able to buy them ( OVERPRODUCTION ) So more consumer goods were available, but there weren't more people able to buy them ( OVERPRODUCTION ) Slide 9 A second major problem: uneven distribution of wealth A second major problem: uneven distribution of wealth 0.1% at top owned as much as bottom 42% of American families (42% below poverty line) 0.1% at top owned as much as bottom 42% of American families (42% below poverty line) Of the 58% above the poverty line, most fell into the middle class category - they were not wealthy; they had jobs b/c of the industrialization & consumerization of the American market place Of the 58% above the poverty line, most fell into the middle class category - they were not wealthy; they had jobs b/c of the industrialization & consumerization of the American market place This middle class depended on their salaries and when productivity declined they lost their jobs This middle class depended on their salaries and when productivity declined they lost their jobs Because of low savings, they had to cut back on their purchases Because of low savings, they had to cut back on their purchases This decline in consumption among the middle class ruined the whole country This decline in consumption among the middle class ruined the whole country Slide 10 Does this sound familiar???? It should. Take a look at the decline of the US economy since 2009!!! Slide 11 Hoover the Engineer Hoover was an aggressive problem solver tried to learn from the recession of 1920-1921. Hoover was an aggressive problem solver tried to learn from the recession of 1920-1921. Hoover had always been successful and accustomed to being praised for his accomplishments in industry & govt Quickly gathered business leaders and used his Bully Pulpit to persuade them to avoid the problems he saw in the last recession Quickly gathered business leaders and used his Bully Pulpit to persuade them to avoid the problems he saw in the last recession Kept taking steps to limit the perceived threat of inflation further reducing the money supply Kept taking steps to limit the perceived threat of inflation further reducing the money supply Limited $ for businesses to keep operating Slide 12 A Narrow View of the Constitution Pres. Hoovers responses Pres. Hoovers responses he didn't believe that the government should play an active role in the economy VOLUNTARY NON - COERCIVE COOPERATION Convinced business leaders to maintain employment and wages even as they were losing $ Convinced business leaders to maintain employment and wages even as they were losing $ Convinced business leaders to actually spend money to expand their businesses in exchange for tax breaks Convinced business leaders to actually spend money to expand their businesses in exchange for tax breaks As the economy declined further business leaders had to choose between (1) breaking their promises to Hoover or (2) going out of business. As the economy declined further business leaders had to choose between (1) breaking their promises to Hoover or (2) going out of business. Slide 13 Hoover on the Bully Pulpit Hoover also organized some private relief agencies for the unemployed Hoover also organized some private relief agencies for the unemployed Pushed state leaders to spend on public projects public construction Pushed state leaders to spend on public projects public construction He worked out a system with European powers that owed U.S. money as a result of WWI debts = HOOVER MORATORIUM - put a temporary stop to war debt & reparations payments He worked out a system with European powers that owed U.S. money as a result of WWI debts = HOOVER MORATORIUM - put a temporary stop to war debt & reparations payments Euro. countries were to purchase American goods instead to stimulate American economy Slide 14 In early 1930 these measures appeared successful, but then......the TARIFF WARS In early 1930 these measures appeared successful, but then......the TARIFF WARS With Hoovers support, Congress passed a broad tariff bill to protect American farmers and business With Hoovers support, Congress passed a broad tariff bill to protect American farmers and business Over the strong objections of many business leaders and economists A fatal error...the US was tied to a GLOBAL ECONOMY A fatal error...the US was tied to a GLOBAL ECONOMY A trade surplus of $25 billion over the prior 15 years Other countries retaliated with high tariffs so no foreign markets purchased American goods and U.S. productivity decreased again Other countries retaliated with high tariffs so no foreign markets purchased American goods and U.S. productivity decreased again Slide 15 Cascading Bank Failures World Wide Before Dec 1930, bank failures were mostly limited to rural banks Before Dec 1930, bank failures were mostly limited to rural banks December 1930, a major New York City bank ran into trouble. December 1930, a major New York City bank ran into trouble. Federal Reserve was new and we did not understand the relations of business cycle and monetary supply Federal Reserve was new and we did not understand the relations of business cycle and monetary supply European banks began to fail, impairing the ability of Germany to repay loans from US banks. European banks began to fail, impairing the ability of Germany to repay loans from US banks. As European banks defaulted on loans, larger US banks also began to close. Slide 16 Hoovers Political Challenges Before 1931, Hoover faced a Republican Congress hostile to any initiatives to spend $ or limit business Before 1931, Hoover faced a Republican Congress hostile to any initiatives to spend $ or limit business Republicans lost control of the House of Representatives in the 1930 election and Hoover battled with a hostile and divided Congress Republicans lost control of the House of Representatives in the 1930 election and Hoover battled with a hostile and divided Congress Slide 17 AMERICANS REACT TO HOOVER Hoover was increasingly unpopular, but he continued to try... In 1932 he persuaded Congress to establish the RECONSTRUCTION FINANCE CORPORATION hhhhad power to make emergency loans to banks bbbbut it was too little too late Hoover remained opposed to any programs of direct gov'tal aid to individuals -didn't want to erode Americans sense of "RUGGED INDIVIDUALISM SSSSmacked of socialism VVVVetoed legislation to build dams on the Tennessee River (Muscle Shoals) Slide 18 People were frustrated - isolated protest movements People were frustrated - isolated protest movements EX: Dairy farmers frustrated w/ low price of milk refuse to sell (dump it) EX: WW1 veterans (pensions discontinued by congress) march on Washington = BONUS MARCH (by BONUS ARMY) they reached Washington by 1931, set up shantytowns = HOOVERVILLES (food scraps = HOOVER-MEALS, hitchhiking journeys = HOOVER RIDES) after one year they were forcibly dispersed by the Army (MacArthur/Eisenhower) Slide 19 Ahead of His Time? Hoover sponsors the Norris-La Guardia Anti-Injunction Act Hoover sponsors the Norris-La Guardia Anti-Injunction Act Outlawed yellow dog (anti-union) contracts Prohibited the federal courts from issuing injunctions to stop strikes, boycotts, and peaceful picketing. Slide 20 1932 ELECTION 1932 ELECTION 1 out of 4 was unemployed nat'l income was 50% of what it had been in 1929 Republicans nominated Hoover no hope Republicans nominated Hoover no hope Winner by a landslide = FRANKLIN DELANO ROOSEVELT (Dem - N.Y. governor) Winner by a landslide = FRANKLIN DELANO ROOSEVELT (Dem - N.Y. governor) Slide 21 Chaning America Big Picture The New Deal A revolution in American society - changed completely the relation between government and citizens A revolution in American society - changed completely the relation between government and citizens More government involvement - but within the context of traditional U.S. democracy (not socialist) More government involvement - but within the context of traditional U.S. democracy (not socialist) Slide 22 Changing America Big Picture Transformation of Government - Function Economy Economy Regulation Participation Economic Theory Keynesian concepts A role for organized labor Orientation whats good for the consumer is good for America Social Services Social Services Direct support for struggling people Entitlements? Slide 23 Expanded in size and distribution / employment Expanded in size and distribution / employment Agencies & Iron Triangles Agencies & Iron Triangles Political realignments Political realignments Changing America Big Picture Transformation of Government Is Slide 24 Changing America The Supreme Court A revolution in our fundamental understanding of the Constitution A revolution in our fundamental understanding of the Constitution Abandoned protection of contract and property as the dominant framework Abandoned strict construction essential in context of a different America A new, broad view of the Commerce Clause support for government regulation of the economy. Slide 25 Changing America Role in the World Transformed to SuperPower Transformed to SuperPower World Banker World Banker Embraced Collective Security and broad responsibility for peace and democracy Embraced Collective Security and broad responsibility for peace and democracy Alliances From 0 to 100 mph in 6 sec. Alliances From 0 to 100 mph in 6 sec. Slide 26 Changing America At Home All mixed up migration and loss of community All mixed up migration and loss of community Changed social constructs family, women, minorities Changed social constructs family, women, minorities rugged individualism rugged individualism Slide 27 The Watershed1932 Election Roosevelt attacked Hoovers spending promising a balanced budget Roosevelt attacked Hoovers spending promising a balanced budget Promised a new deal for Americans Promised a new deal for Americans Ran on Happy Days Are Here Again Ran on Happy Days Are Here Again For the first time, Black voters moved to the Democratic Party especially in urban areas For the first time, Black voters moved to the Democratic Party especially in urban areas Slide 28 Roosevelts Program Relief take care of people Relief take care of people Recovery restore the economy and get people back to work Recovery restore the economy and get people back to work Reform Reform make sure it does not happen again other Progressive reforms deferred by WWI and the 20s Slide 29 Hundred Days First 100 days of Roosevelt Administration First 100 days of Roosevelt Administration Congress gave Roosevelt nearly a blank check whatever FDR wanted Congress gave Roosevelt nearly a blank check whatever FDR wanted The benchmark for the success of new presidents ever since The benchmark for the success of new presidents ever since Slide 30 THE NEW DEAL Economic reform first Economic reform first FDR believed government legislation/involvement was crucial to stimulate the economy Opposite of Hoover Step 1 fix the banks and restore confidence in the banking system Step 1 fix the banks and restore confidence in the banking system Emergency Banking Relief Act Bank Holiday Glass-Steagall Act Creating the FDIC Effectively ended bank failures Slide 31 Step 2 - stock market reform- Security Exchange Commission created to regulate stock markets Step 2 - stock market reform- Security Exchange Commission created to regulate stock markets Federal Securities Act required disclosure of information to investors Federal Securities Act required disclosure of information to investors Step 3 - to put more $ in circulation, FDR went off the GOLD STANDARD Step 3 - to put more $ in circulation, FDR went off the GOLD STANDARD w/ more $ in circulation, wages and prices increased Inflation would reduce debtors burden and increase production Gave government greater purchasing power Cancelled gold contracts Individuals prohibited to hold gold Slide 32 Economic Legislation Creating direct government intervention in the economy "Alphabet Soup agencies Creating direct government intervention in the economy "Alphabet Soup agencies NATIONAL INDUSTRIAL RECOVERY ACT (NIRA) and NATIONAL RECOVERY ADMIN (NRA) NATIONAL INDUSTRIAL RECOVERY ACT (NIRA) and NATIONAL RECOVERY ADMIN (NRA) established to end animosity b/n labour and business all was redirected to industrial growth fair labour codes established - wages, no child labour, shortened work hours- Business argued the NRA was socialism Business argued the NRA was socialism Formed the LIBERTY LEAGUE to oppose government regulation of business Supreme Ct. overturned the NIRA & NRA, holding Congress did not have the authority under Article I, Section 8 Strict Construction of the Constitution Slide 33 Economic Stimulation and Jobs Creation Prime the Pump of the economy with federal money Prime the Pump of the economy with federal money TVA and BPA TVA and BPA Put people to work Create public power Source of lower cost power Slide 34 FDR like Hoover was wary of gov't handouts - he wanted people to earn their keep so gov't agencies were created - temporarily - to address the unemp. problem FDR like Hoover was wary of gov't handouts - he wanted people to earn their keep so gov't agencies were created - temporarily - to address the unemp. problem CIVILIAN CONSERVATION CORPS (CCC) - in 1933 - set to establish work for young men (18- 25) in areas of reforestation, soil conservation, flood control, road construction - also took them out of urban labour markets - but Blacks not permitted to enrol CIVILIAN CONSERVATION CORPS (CCC) - in 1933 - set to establish work for young men (18- 25) in areas of reforestation, soil conservation, flood control, road construction - also took them out of urban labour markets - but Blacks not permitted to enrol Slide 35 Civilian Conservation Corps Civilian Conservation Corps Civil Works Administration Civil Works Administration Works Progress Administration Works Progress Administration Slide 36 Slide 37 Slide 38 Slide 39 AGRUCULTURAL ADJUSTMENT ACT (AAA) - passed in 1933 to aid formers- its objective was to restore farmers' purchasing power and to restore the family farm - AAA had farmers cut back on crop production by paying them equivalent SUBSIDIES (paid not to produce) - bad side: AGRUCULTURAL ADJUSTMENT ACT (AAA) - passed in 1933 to aid formers- its objective was to restore farmers' purchasing power and to restore the family farm - AAA had farmers cut back on crop production by paying them equivalent SUBSIDIES (paid not to produce) - bad side: 1) food production down when millions were starving 2) Black sharecroppers were hurt: white landowners paid not to farm so they got rid of Black tenant formers in 1935, AAA was declared unconstitutional by courts (too much control over individual states), so it was revised and introduced as new legislation in 1935, AAA was declared unconstitutional by courts (too much control over individual states), so it was revised and introduced as new legislation EX: Food Stamp Act of 1939 - gave away surplus food to poor, also guaranteed (small) farmers a market EX: Food Stamp Act of 1939 - gave away surplus food to poor, also guaranteed (small) farmers a market Slide 40 other agencies had specific mandates too...NATIONAL YOUTH ADMIN. (NYA) - created jobs for young in urban areas other agencies had specific mandates too...NATIONAL YOUTH ADMIN. (NYA) - created jobs for young in urban areas FED. EMERGENCY RELIEF ACT (FERA) - aimed at older workers- these and other similar agencies worked well, but unemp. was still at 6 million in 1941(solution for this would be the ind. boom of WW2) FED. EMERGENCY RELIEF ACT (FERA) - aimed at older workers- these and other similar agencies worked well, but unemp. was still at 6 million in 1941(solution for this would be the ind. boom of WW2) NEW DEAL - SOCIAL REFORM ASPECT- after 1935, w/ immediate economic relief & reform addressed, New Deal turned to Social Welfare - more legislation... NEW DEAL - SOCIAL REFORM ASPECT- after 1935, w/ immediate economic relief & reform addressed, New Deal turned to Social Welfare - more legislation... National Labour Relations Act (aka Wagner Act)- it legitimized unions and labour tactics such as collective bargaining & collective action (strikes, etc...) - it outlawed BLACKLISTS & other anti-union practices National Labour Relations Act (aka Wagner Act)- it legitimized unions and labour tactics such as collective bargaining & collective action (strikes, etc...) - it outlawed BLACKLISTS & other anti-union practices Slide 41 Social Security Act (1935)- feared by opponents as "creeping socialism"- this act typifies the WELFARE STATE - unemployment insurance, old age pensions Social Security Act (1935)- feared by opponents as "creeping socialism"- this act typifies the WELFARE STATE - unemployment insurance, old age pensions Problem: it took some $ out of circulation (payroll deductions) at a time when purchasing power was already low- also, it only covered the unemployed 1936 - "Soak The Rich" tax Slide 42 ELECTION OF 1936 - FDR won easily (v Repub. Alf Landon - Kansas governor) ELECTION OF 1936 - FDR won easily (v Repub. Alf Landon - Kansas governor) this victory gave FDR a mandate to continue his New Deal policies FDRs Court Packing Scheme FDRs Court Packing Scheme first objective: to reorganize the Supreme Court - they disallowed some New Deal legislation FDR wants # of judges changed from 9 15 (to "pack the court") - great opposition, so FDR w/drew this proposal but judges retired & FDR got to appoint new ones they approved all New Deal legislation Slide 43 the late 1930's new Qs arose the late 1930's new Qs arose FDR concerned w/ int'l issues FDR concerned w/ int'l issues in 1939 he proposed no new major domestic reform measures (1st time in his pres.) in 1939 he proposed no new major domestic reform measures (1st time in his pres.) ELECTION OF 1940 - FDR broke with tradition & ran a 3rd time ELECTION OF 1940 - FDR broke with tradition & ran a 3rd time FDR v. Wendell Wilkie - the big issue here was American support of the Allies (G.B.), now embroiled in WWII v. Nazi Ger. both U.S. pol. parties wanted to support G.B. but to remain neutral - in fact a CONSENSUS had developed b/n the Dems. and Repubs. both parties approved of (most) New Deal legislation & wanted an isolationist foreign policy- FDR won in 1940 (and again in 1944)