the great depression. the crash roaring twenties: personal savings declines, personal debt climbs...
TRANSCRIPT
The Great Depression
The Crash
Roaring Twenties:• Personal savings declines, personal debt climbs• Real estate bubble in South, especially Florida• Hurricane wipes out real estate and railroad investments in
Florida• Stock bubble, 1924-1929: 500% increase • Buying on “margin” with 10-20% down increases
participation and risk• Market collapse, October 24, 1929; 11% of stock values lost• “Black Tuesday”: October 29, 12% more value lost.
The Crash: Crisis at Home
Unemployment:1929 3 million1930 4 million1931 8 million1932 12.5 million (25% of heads of household)
90% of employers cut wages75% of workers only employed “part time”40% of income disappeared by 19335,000+ banks closed
The Crash: Crisis at Home
• Marriage age delayed• Medical and dental care plummeted• Illness skyrocketed• Birth rate declined for 1st time in United States history• 200,000 new orphans and abandoned children• “Dust Bowl” pushed hundreds of thousands of
farmers off Great Plains• President Herbert Hoover: “Nobody is actually
starving. The hoboes are better fed than they have ever been.”
The Crash: Global Financial Crisis
• US Investment declined• International trade dropped 30%• Nations, including US, established tariff walls
and protections• Communism and Fascism rose in Europe as
alternatives to Capitalism• Militarization, particularly in Germany,
addressed unemployment
“Beggar Thy Neighbor”• Nations Seek to Protect Domestic Industry and
Agriculture• 1930 USA’s Smoot-Hawley Tariff Act- US protectionism• 1931 Europe and Latin America Retaliate with own
Protective Tariffs• 1931 Bank Panics- Eastern Europe, Germany, France, UK,
Mexico, USA• 1931: Germany, then Britain abandon Gold.• Off gold standard? Currencies float, international trade
risk increases while economy in turmoil, trade restricts and collapsed.
• 1933 US abandons Gold Standard under FDR.
The Crash: Hoover Responds
• Requests employers to halt wage and hour cuts.
• Requests labor to postpone strikes.• Spoke optimistically about economy to assure
citizens that everything is on the way up.• Hoover refused to deficit spend or use
government to stimulate economy.• Rejected “Keynesianism”
Keynes
Keynes’s Proposal
• Active Government Stewardship of Economy• Fiscal Policy- Governments can influence economy by their
spending and taxing decisions.• Monetary Policy- Governments can influence economy by their
control of the money supply.• In times of recession, the state should supply the demand to
correct for downward market forces.• In times of boom, the state should restrain and reverse course.• Widely criticized as unreliable because of economists fallibility.
Also, governments tend NOT to draw down and shrink or end programs which were intended to be temporary. Critics point out this is the radical increase of government size and power.
The Crash: 1932
Election year. Herbert Hoover runs for 2nd term.Reconstruction Finance Corporation, 1932:
$2 billion loan to states. Absorbed quickly, no effect on economy. Too small.
Bonus Army March, July 1932: 43,000 Veterans march on Washington DC and demand early payment of their pensions.US Attorney General orders protestors removed from government facilities, police and veterans fight, 2 killed, US Army ordered by Hoover to disperse crowd.
The Crash: 1932
Election of 1930: Democrats sweep House.
Election of 1932:Herbert Hoover (R): 40%
15.7 million59 EC
Franklin Delano Roosevelt (D): 57%22.8 million472 EC
1932
The Crash: 1932
Roosevelt builds new Democratic coalition:• Traditional southern and western farm voters• New immigrants and 2nd and 3rd generation
immigrants in urban centers• African-Americans begin move from
Republican party to Democratic party in North• Women supported Democratic party
Franklin D. Roosevelt
• New Yorker• Distant cousin of Teddy Roosevelt• Married to Teddy’s niece, Eleanor Roosevelt• Lawyer, New York Assemblyman• Woodrow Wilson appointed FDR to be Asst Secretary of the
Navy during World War 1• Vice Presidential candidate in failed race of 1920• 1921 Crippled by polio and wheelchair bound until his death
in 1945• 1929-1932 Governor of New York, presides over New York
during the first years of the Depression
First Hundred Days
15 Acts including:• Emergency Banking Act• Unemployment Relief• Civilian Conservation Corp• Agricultural Adjustment Act• Tennessee Valley Authority• Gold & Securities Reform• Home Owner Assistance• Farm Credits• More!
The New Deal
• Federal Deposit Insurance Corporation (FDIC):Savings deposit insurance.Up to $5000/account insured by Federal government, now $250,000
• $500 million in loans made to home owners.• Takes US off gold standard, allows currency to
fluctuate.
The New Deal
• TVA: water power to create electricity through dam construction mostly in Appalachia and US southwest
• PWA: Public Works Admin: jobs, jobs, jobs!• CCC: 300,000 adolescent boys working on
state and federal parks and land
The New Deal
Works Progress Administration (WPA)
1933:$2.5 million 250,000 miles of roads
40,000 schools150,000 privies3,700 playgrounds
1934:$3.5 million 2,500 hospitals
5,900 schools1,000 airports13,000 playgrounds
The New Deal
Experiment! Take Action!Not yet an embrace of Keynesian stimulus, but
more experimental.FDR hesitates to deficit spend in recession,
hesitates to raise taxes, cannot borrow.1932: 1456 banks close1933: 5190 banks close
Unemployment continues to rise.
The New Deal: Double Dip and the Critics
Critics on the Left:Huey LongLouisiana politician,populist, proposes tax onmillionaires, proposesminimum and maximum wageof $2,000 to $1,000,000,demands FDR do more or faceprimary challenge in 1936,Share Our Wealth program,assassinated in 1935.
The New Deal: Double Dip and the Critics
Father Charles Coughlin:Catholic priest, radio host,
anti-Semitic rants blamed bankers and Jews for Crash, promoted conservative personal values and radical economic values, proposed FDR nationalize the banks.
The New Deal: Double Dip and the Critics
Francis TownsendProposes retirement
pension.60 and older.Cannot work.$200/month.Must spend money every
month and show receipts to get next month’s pension.
The New Deal: Double Dip and the Critics
Critics on the Right of FDR:• Fear expansion of government• Fear dependency of citizens• Disruption to families and the employer/employee
relationship• Fiscal concerns over cost of programs• Distrust of Keynesian policy• Supreme Court begins striking down much of the
New Deal as unconstitutional from 1934 to 1936
The New Deal: Election of 1936
Franklin D. Roosevelt (D): 60%27.8 million523 EC
Alf Landon (R): 37%16.7 million8 EC
FDR views reelection as popular mandate to continue New Deal despite pressure from Courts and business leaders.
1936
The New DealSupreme Court Packing• 1789 6 Justices• 1801 5• 1807 7 • 1837 10• 1866 plan to reduce by 3 back to 7 • 1869 set at 9 (and there ever since)• 1937 Add 4-6 new Justices?
The New Deal: Supreme Court Reform
Proposal: One new justice for every justice over 70. Court will have 15 justices maximum. (FDR would appoint 4.)
Why: Ease case load, help “elderly” judges, get more work done or have FDR’s appointees secure approval.
Proposal dies in Congress, shocked public, embarrassed FDR.
BUT:From 1937 forward, after the re-election and court packing scandal the
Supreme Court retreats from its attack on the New Deal.With four terms and over twelve years, FDR appointed 7 new judges; by
the mid 1940s the Court was a New Deal Court without “packing”.
The New Deal Legacies
Social Security, 1935Income Tax,
1939 75% rate on incomes over $5 million1944 94% rate on incomes over $200,000
Amendment 21: 1933 (Repeal of 18, Prohibition)Amendment 22: 1947 (Presidential Two Term
limit)
The CrashDespite FDR’s activity and the New Deal programs, the economy
continued to worsen.World War II stimulated the economy by increasing employment,
production, and incomes in war material and combat. WW II ends Depression.
So?Would a peacetime expense equal to the cost of World War II have
stimulated the economy?Was FDR and government intervention in the economy preventing the
natural business cycle by interfering with wage and commodity markets?
Was the New Deal a step forward for the USA or an unhealthy expansion of governmental authority?