Effects of the Great Depression

The Great Depression of 1929 had a catastrophic impact not only on the economy of the
United States of America. The ripple effect of this economic tragedy was felt across the
world, as well. The Great Depression began in the year 1929 and lasted till 1933. During that
period, the real GDP of the USA fell from USD 104.4 billion to USD 74.2 billion, and the
unemployment rate rose from 3.2% to 25.2%. This was accompanied by failure of half of the
banks and rise in homeless population, which affected the social stability of the US. Housing
prices plummeted 30%, and international trade shrank by 65%. The prices fell by 10% every
year. It took almost a quarter of the decade for the stock market to recover.

Effect on the economy:

The economy shrank by 50% from a real GDP of USD 105 billion to USD 75 billion. The
stock market crash of October 1929, known as Black Thursday was the genesis point of the
Great Depression. The economy began contracting in August 1929, and by the end of that
year, more than 650 banks had failed and closed down. The economy went down another
8.5% next year, according to Bureau of Economic Analysis. In the next two years, the GDP
fell by 6.4% and 12.9% respectively in the years 1931 and 1932. The economic contraction
resulted in a fall in production to USD 57 billion in 1933, a drop of 50% from the year 1929.
Deflation in the economy was also a contributor to the contraction of the economy. Between
November 1929 to March 1933, the Consumer Price Index fell by 27%, and as a result of this
steep fall in price resulted in many firms going out of business.
In 1933, Franklin D Roosevelt enacted the New Deal, which was a series of programs,
projects, and public work schemes to pull the US out of the Great Depression. The spending
in the New Deal boosted the GDP by 10.8% in 1934, 8.9% in 1935, 12.9% in 1936, and 5.1%
in 1937. The government cut back on the New Deal spending and the economy shrank by
3.3% in 1938. However, the spending for World War 2 boosted the economy by 8% and
8.8% in 1939 and 1940 respectively.

Effect on the political system:

The depression impacted the political system by eroding the confidence of the people from
unfettered capitalism. The type of laissez-faire economics championed by President Herbert
Hoover had failed to show results. As a result of that, Franklin D Roosevelt was elected to the
office and introduced the New Deal to stabilize the economy, restore jobs, reduce the
sufferings of the people hit by the Great Depression and restore prosperity in the economy.
His Keynesian economics policies ensured that government spending would end the
Depression. It worked instantly, and the economy grew at 10.8% and unemployment
declined.
But fearing adding a $5 trillion in the budgetary deficit, President Roosevelt cut down on the
spending of the New Deal. The Depression resumed once he cut back the spending, and it
created the fear of the undesirable economic situation again. That is why politicians rely on
tax cuts, deficit spending, and other forms of expansionary policies.
Effect on unemployment rate:
The “Roaring Twenties” ended in 1928 when the unemployment rate was 3.2%, lower than
the natural unemployment rate. By 1930, it had reached 8.7%. In 1931, it shot up to 15.9% in
1931 and, in 1932, to 23.6%. By 1933, the unemployment rate reached the zenith of 24.9%.
More than 15 million people were jobless. That is the highest unemployment rate the US has
ever recorded.
New Deal programs helped reduce unemployment to 21.7% in 1934, 20.1% in 1935, 16.9%
in 1936 and 14.3% in 1937. But less government spending in 1938 sent unemployment back
up to 19%, and it remained above 10% until 1941.

Effect on the society in the USA:

The ten year long dust bowl drought in the Midwest caused the prices of the agricultural
products dropped to the lowest. So, farmers started leaving rural areas and moved to urban
areas in search of jobs and eventually became homeless in the 1930s.
Wages for the employed fell by 42%. Average family incomes fell by 40% from $2300 1929
to $1500 1933. As an adverse result of that, the number of children sent to orphanages rose,
and approximately 250,000 adolescents and young adults left home in search of jobs.
The Great Depression lasted so long that people had adjusted to the idea that the end of the
American Dream was near.