Why did the Great Depression happen? How bad was it?

What did the New Deal do?

1. Why did the Great Depression happen? (causes)
2. How bad was it? (effect)
3. What did the New Deal do? (solution)

I.

II.

The Great Depression of 1929 devastated the U.S. economy. For many years,
as one economic malady after another befell the country, American citizens
were left in awful conditions, with poor jobs and wages. Many no longer had
savings. This meant many U.S. farmers, in addition to being hurt by the tariffs
and trade decline, no longer even had usable land for farming.

Overall, the Great Depression had a tremendous impact on nine principal

areas.

1. Economic:
- During the first five years of the depression, the economy shrank 50%.
In 1929, economic output was $105 billion, as measured by gross
domestic product. That's equivalent to more than $1 trillion today.
- The economy began shrinking in August 1929. By the end of the
year, 650 banks had failed. In 1930, the economy shrank another
8.5%, according to the Bureau of Economic Analysis. GDP fell 16.1%
in 1931 and 23.2% in 1932. By 1933, the country had suffered at least
four years of economic contraction. It only produced $56.4 billion, half
what it produced in 1929.
- Part of the contraction was due to deflation. According to the Bureau of
Labor Statistics, the Consumer Price Index fell 27% between
November 1929 to March 1933. Falling prices sent many firms into
bankruptcy.
2. Politics:
- The Depression affected politics by shaking confidence in unfettered
capitalism. That type of laissez- faire economics is what President
Herbert Hoover advocated, and it had failed.
- As a result, people voted for Franklin Roosevelt. His Keynesian
economics promised that government spending would end the
Depression. The New Deal worked. In 1934, the economy grew 17%,
and unemployment declined.
- But FDR (Franklin D. Roosevelt) became concerned about adding to
the $5 trillion US debt. He cut back government spending in 1938,
and the Depression resumed. No one wants to make that mistake
again. Politicians rely instead on deficit spending, tax cuts, and
other forms of expansionary fiscal policy. That's created a
dangerously high U.S. debt.
- The Depression ended in 1939 as government spending ramped up for
World War II. This change in spending led to the mistaken belief that
military spending is good for the economy. But it doesn't even rank as
one of the four best real- world ways to create jobs.
3. Social:
- The Dust Bowl drought destroyed farming in the Midwest. It lasted 10
years—too long for most farmers to hold out. To make things worse,
prices for agricultural products dropped to their lowest level since the
Civil War.
- As farmers left in search of work, they became homeless. Almost 6,000
shantytowns, called Hoovervilles, sprang up in the 1930s.
- In 1933, Prohibition was repealed. That allowed the government to
collect taxes on sales of now-legal alcohol. FDR used the money to help
pay for the New Deal.
- The depression was so severe and lasted so long that many people
thought it was the end of the American Dream. Instead, it changed that
dream to include a right to material benefits. The American Dream as
envisioned by the Founding Fathers guaranteed the right to pursue
one's own vision of happiness.
4. Unemployment:
- Wages for a lot of workers weren't exactly high right before the
depression. With banks unable to provide savings for people and
companies falling apart, unemployment levels rose to worrying rates.
- In 1928, the final year of the Roaring Twenties, unemployment was
4.2%. That's less than the natural rate of unemployment. By 1930, it
had more than doubled to 8.7%.
- By 1932, it had increased to 23.6%. It peaked in 1933, reaching up to
around 25%. Almost 15 million people were out of work. That's the
highest unemployment rate ever recorded in America.
- The unemployment level never hit quite as dire a level for the remainder
of the depression, but the rate was still over 10% until the early '40s,
when the U.S. entered World War II.
5. Banking:
- After the market crash, confidence and belief in the U.S. financial
system was practically nonexistent, and that affected banks greatly.
Many Americans began pulling what money they had left out of the
banks, preferring to hoard it or buy gold instead. Bank accounts were
being withdrawn en masse, and the banks did not have the cash on
hand necessary to cover all withdrawals.
- Bank runs like these are done by depositors in the hopes of getting their
money back before the banks completely collapse in a worst-case
scenario; in this case, the worst-case scenario became real life and
 over 9,000 banks failed. The result was billions of dollars that bank
depositors were not able to recoup
6. Stock market:
- The stock market lost 90% of its value between 1929 and 1932. It didn't
recover for 25 years. People lost all confidence in Wall Street markets.
Businesses, banks, and individual investors were wiped out. Even
people who hadn't invested lost money. Their banks invested the money
from their savings accounts.
- When the stock market crashed, investors turned to the currency
markets. At that time, the gold standard supported the value of the
dollars held by the U.S. government. Speculators began trading in their
dollars for gold in September 1931. That created a run on the dollar.
7. Trade:
- As countries' economies worsened, they erected trade barriers to
protect local industries. In 1930, Congress passed the Smoot-Hawley
tariffs, hoping to protect U.S. jobs.
- Other countries retaliated. That created trading blocs based on national
alliances and trade currencies. World trade plummeted 66% as
measured in dollars and 25% in the total number of units. By 1939, it
was still below its level in 1929.
- Here's what happened to U.S GDP for the first five years of the
Depression: 1929: $103.6 billion, 1930: $91.2 billion, 1931: $76.5 billion,
1932: $58.7 billion, 1933: $56.4 billion
8. Deflation:
- Prices fell 30% between 1930 and 1932. Deflation helped consumers
whose income had fallen; however, it hurt farmers, businesses, and
homeowners. Their mortgage payments hadn't fallen 30%. As a result,
many defaulted. They lost everything and became migrants looking for
work wherever they could find it.
- Here are the price changes during the depression years:
1929: 0.6%
1930: -6.4%
1931: -9.3%
1932: -10.3%
1933: 0.8%
1934: 1.5%
1935: 3.0%
1936: 1.4%
1937: 2.9%
1938: -2.8%
1939: 0.0%
1940: 0.7%
1941: 9.9%
9. Long term impact:
 - The long term effects of the Great Depression were felt beyond the
borders of the United States, in rich and poor countries.
+ Worldwide GDP sunk by 15%
+ International trade halved, especially as construction halted in
many countries
+ Small farming and rural communities suffered exponential losses,
bringing key industries to a halt, only serving to contribute to the
further stagnation of the economy

III. The New Deal

a series of programs and projects instituted during the Great Depression by

President Franklin D. Roosevelt that aimed to restore prosperity to Americans.

Purpose of the New Deal can be described by the 3 R

- Relief for the unemployed and poor

- Recovery the economy back to normal levels
- Reform the financial system to prevent a repeat depression

The New Deal is usually referred to in 2 different part:

The First New Deal (1933-1934)

In the first “100 days” of his presidency, Roosevelt passed a wide range of
legislation designed both to provide immediate relief and to promote recovery.
It was a time of experimentation in which any idea that offered hope might get
a trial.

Relief Programs

Philosophy of relief: It was not enough to give the unemployed cash

payments. The government also had to create work for the unemployed to
help them maintain their self-respect as well as maintain and build skills that
could be used in the private sector when jobs again became available.

Basically Relief Programs is those programs That Put People to Work

WPA: Works Progress Administration: This agency employed millions of

people in road building, flood control projects, and similar programs

CCC: Civilian Conservation Corps created camps for young men and
employed them in refurbishing national parks and similar activities.
PWA: The Public Works Administration undertook larger construction projects.
It spent more than $6 billion over the course of the depression on dams, low-
cost housing, airports, warships, and other projects.

TVA: Tennessee Valley Authority is a multifaceted project designed to

promote economic development in a large region that had been poverty
stricken for decades. The Authority built dams in a seven-state area
(Tennessee, Alabama, Mississippi, Kentucky, Georgia, North Carolina and
Virginia.), supplied low-cost electric power to farmers (a policy that created
considerable opposition from private power companies), engaged in flood
control, created inland navigation routes, and promoted farmer education and
related projects.

Recovery Programs

- NIRA: National Industrial Recovery Act

+ Its chief purposes were to raise prices and wages, spread work
by reducing hours, and prevent price cutting by competitors trying
to maintain volume.
+ It create The National Recovery Administration which create
"codes of fair competition"
+ However it appeared that the codes redistributed rather than
expanded incomes.
+ In 1935 the Supreme Court declared unconstitutional.
- AAA: the Agricultural Adjustment Act, passed in May 1933
+ Provided for an Agricultural Adjustment Administration, which was
given the responsibility of raising farm prices by restricting the
supply of farm commodities using “acreage allotment”
+ The AAA would determine a total acreage of certain major crops
to be planted in the next growing season. And it will be
subdivided into state totals, which in turn were allotted to
individual farms on the basis of each farm’s recent crop history,
+ To secure the cooperation of the individual farmer, an
“adjustment payment” was made.

The Second New Deal (1935–1941)

Although relief and recovery efforts continued, the administration now pushed
for reforms that it believed would permanently improve and protect the
standard of living of the working class.

Reform Programs

- Social Security: provided for a federal old-age and survivors’ insurance

program based on workers’ payments of 1 percent of earnings
- Wagner Act: the National Labor Relations Act
 + Established the principle of collective bargaining as the
cornerstone of industrial relations and stated that it was
management’s obligation to recognize and deal with a bona fide
labor organization in good faith.
+ The act further guaranteed workers the right to form and join a
labor organization, to engage in collective bargaining, to select
representatives of their own choosing, and to engage in
concerted activity.
- FDIC: the Federal Deposit Insurance Corporation
+ Established to insure bank deposits.
+ Deposit insurance dramatically changed the incentives facing
depositors.
- SEC the Securities and Exchange Commission
+ Established in 1934 Given powers to supervise the stock
exchanges, their trading practices, and the issue of new
securities.