The Great Depression and the New Deal

Page Summary

The Great Depression and the New Deal

 

Opinions and Evidence - The stock market crash of 1929 was more a symptom than a cause of the Great Depression. The Depression itself resulted from disruptions to international trade and faulty government economic policies before and after the downturn came. Curiously, even though government policies had much to do with both bringing on the Depression and making it more severe, the economic crises of the early 1930s became grounds for greatly expanding the role of the government in American economic life.

Outline

  1. The U.S. was prosperous during the 1920s, but the world economy faced problems ¾ (Background)

    1. Legacies of World War I

    2. Sources of U.S. prosperity

    3. Policy pillars - tariffs, the gold standard, the Federal Reserve

    4. The stock market crash

  2. The Depression deepens

    1. Monetary collapse - money stock and prices fall; banks fail

    2. Why did the Federal Reserve not prevent monetary collapse and bank failures, as it was supposed to

    3. Unemployment soars to 25% of labor force

  3. Enter FDR and the New Deal

    1. Relief programs
      1. FERA, CCC, CWA, PWA, WPA, Unemployment Insurance - support Americans and put them back to work
      2. Unemployment drops, but remains high throughout the 1930s

    2. Recovery and support programs
      1. For industry - NIRA, NRA
      2. For agriculture - AAA, REA, 2nd AAA

    3. Reform measures
      1. Labor - Wagner Act, NLRB, Social Security
      2. Finance - Banking Acts of 1933, 1935 and Securities Acts of 1933, 1934

  4. Effectiveness of New Deal programs

    1. Short run - some recovery, but unemployment remains a problem

    2. Long run - New Deal institutions and policies continue, representing a major shift in American attitudes toward economic responsibilities of government

  5. World War II finally ends the high unemployment and seemingly reinforces the New Deal belief that active government can prevent depressions

Connections to Economics

Rules of the Game - What was the economic condition of the United States in the late 1920s? What was the condition of the world economy? What were Americans' prevailing assumptions about the proper role of government with respect to the economic system? What assumptions, precepts, and goals guided government economic policy?

Trade-offs - What alternative choices faced policy makers at the start of the Depression? What choices did they make? How did the increasing severity of the Depression alter politics and government policies?

Incentives - How did the Depression itself alter people's incentives to oppose or go along with more government intervention in economic life? What were the incentives of political leaders in responding to these changes?

The Economic Way of Thinking - The Great Depression changed Americans' perceptions of the costs and benefits of increased government intervention in the economy. Unfortunately, New Deal programs did not fulfill expectations and, indeed, may have delayed recovery as they further disabled market operations.

Economic Concepts that support the historical analysis:

  • restrictions of supply and their impact on the market
  • price controls and their impact on the market
  • transfer payments
  • equilibrium price
  • subsidy