NEW DEAL OR NO DEAL? THE DEPRESSION DECADE OF THE 1930’S

What made the Depression so Great?????? 1. It was the worst of a group of similar downturns. 2. It was one of the longest and deepest recessions 3. It entailed strong deflation, high unemployment and increased homelessness. 4. Many consider the Depression the most important economic event of the 20th century. 1. It was the worst of a group of similar downturns. 2. It was one of the longest and deepest recessions 3. It entailed strong deflation, high unemployment and increased homelessness. 4. Many consider the Depression the most important economic event of the 20th century.

CAUSES People underestimated the impact of the normal economic process. The Stock Market crashed Margin and expanding industry fueled speculation The FED reduced the $ supply to cut speculation Public was too optimistic before and too panicked after Most ECONOMISTS agree that the crash alone did not cause the “Big D.” People underestimated the impact of the normal economic process. The Stock Market crashed Margin and expanding industry fueled speculation The FED reduced the $ supply to cut speculation Public was too optimistic before and too panicked after Most ECONOMISTS agree that the crash alone did not cause the “Big D.”

Causes II G A decline in aggregate demand slowed down the economy, but only to a certain extent G Business investment fell dramatically G “Tired Consumers” (?????) G Hoover increased govt. $ until the election G Smoot-Hawley Tariff > exports but only a small part of the economy G A decline in aggregate demand slowed down the economy, but only to a certain extent G Business investment fell dramatically G “Tired Consumers” (?????) G Hoover increased govt. $ until the election G Smoot-Hawley Tariff > exports but only a small part of the economy

III. MISMANAGEMENT OF MONETARY POLICY= MAIN CAUSE G Difference between low nominal interest rates & high real interest rates confused people G The FED didn’t understand that bank failures contributed to lack of credit G The Gold Standard forced the USA to keep interest rates high-strangling the economy G Policy deadlocks inside of the FED led to periods of indecision G Difference between low nominal interest rates & high real interest rates confused people G The FED didn’t understand that bank failures contributed to lack of credit G The Gold Standard forced the USA to keep interest rates high-strangling the economy G Policy deadlocks inside of the FED led to periods of indecision

NEW DEAL, NEW LAWS, NEW REGULATIONS G I. Web of industrial law and regulation G National Recovery Administration: fair competition codes (Monopolies) G Agricultural Adjustment Act: ^ farmer’s wages G Banking and financial acts: regulated credit and stock exchanges G Glass-Steagall Act: regulated how banks invested G I. Web of industrial law and regulation G National Recovery Administration: fair competition codes (Monopolies) G Agricultural Adjustment Act: ^ farmer’s wages G Banking and financial acts: regulated credit and stock exchanges G Glass-Steagall Act: regulated how banks invested

II. New Deal & Unions G 1935 (before the election?) G CIO merged separate industrial unions G Wagner Act supported unions G 1935 (before the election?) G CIO merged separate industrial unions G Wagner Act supported unions

III. Social Security and other income support programs G Social Security divided into two programs G Current workers support current retirees G Other acts supported families and jobs G Social Security divided into two programs G Current workers support current retirees G Other acts supported families and jobs

IV. Minimum Wage Law G North wanted it, South had low wages G Effect: low wage workers, mostly poor blacks, fired G Effect, migration of poor blacks to North G Question- was it wise to cause job loss during a depression? G North wanted it, South had low wages G Effect: low wage workers, mostly poor blacks, fired G Effect, migration of poor blacks to North G Question- was it wise to cause job loss during a depression?

DID THE NEW DEAL LEAD TO ECONOMIC RECOVERY? G I. Economic Patterns G Economic recovery (sort of) G 1937 “Roosevelt Recession” G 2nd Stock Market Crash (1937) G Government taxes and spending (fiscal policy) took buying power out of the economy G FED raised reserve requirements, led to less consumer buying power G I. Economic Patterns G Economic recovery (sort of) G 1937 “Roosevelt Recession” G 2nd Stock Market Crash (1937) G Government taxes and spending (fiscal policy) took buying power out of the economy G FED raised reserve requirements, led to less consumer buying power

The New Deal and the economists G Some regulations and laws helped the “general welfare”  New Deal regulations should have spurred economic growth and recovery, they didn’t  FDR and his advisor’s ideas (keeping prices up, cutting competition, cutting production, keeping wages high) were counter productive G Some regulations and laws helped the “general welfare”  New Deal regulations should have spurred economic growth and recovery, they didn’t  FDR and his advisor’s ideas (keeping prices up, cutting competition, cutting production, keeping wages high) were counter productive

Ok, wise guy, how in heck did we get out of the Great Depression? G The Supreme Court invalidated many of the counter-productive New Deal regulations G FDR and his advisors became preoccupied with the world crisis brewing in Europe and Asia G Left alone, the free market economy started to recover G Some foreign trade: WAR orders from France and the UK boosted employment G The Supreme Court invalidated many of the counter-productive New Deal regulations G FDR and his advisors became preoccupied with the world crisis brewing in Europe and Asia G Left alone, the free market economy started to recover G Some foreign trade: WAR orders from France and the UK boosted employment

QUESTIONS-WRITE DOWN AND ANSWER FOR HOMEWORK G WHAT WERE THE KEY ELEMENTS OF THE NEW DEAL? WHICH ONES ARE STILL IMPORTANT TODAY? G WHY DO MANY ECONOMISTS LOOK AT THE NEW DEAL AS “SMOKE AND MIRRORS,” RATHER THAN REAL SOLUTIONS? G WHAT WERE THE KEY ELEMENTS OF THE NEW DEAL? WHICH ONES ARE STILL IMPORTANT TODAY? G WHY DO MANY ECONOMISTS LOOK AT THE NEW DEAL AS “SMOKE AND MIRRORS,” RATHER THAN REAL SOLUTIONS?

Recommended readings G Galbraith, John K. The Great Crash:1929. G Garraty, John A. The Great Depression. G Schlesinger, Arthur. The Coming of the New Deal. G Manchester, William. The Glory and the Dream: A Narrative History of America, G Galbraith, John K. The Great Crash:1929. G Garraty, John A. The Great Depression. G Schlesinger, Arthur. The Coming of the New Deal. G Manchester, William. The Glory and the Dream: A Narrative History of America,

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