THE GREAT DEPRESSION & FDR’S NEW DEAL

Causes of the Great Depression Agricultural Decline Overproduction  lower prices  inability to repay loans Drought/Dust Bowl

Causes of the Great Depression Buying on credit– living beyond one’s means By 1929, Americans racked up more than $6 billion in personal debt — more than double the 1921 level.

Causes of the Great Depression Overproduction– surplus of goods No ability to continue to buy products due to excessive debt.

Causes of the Great Depression Rising wages masked unequal distribution of wealth While factory workers’ wages rose 8%, factory output increased by 32%. As a result, worker incomes rose modestly, while rich investor incomes skyrocketed.

Causes of the Great Depression Stock Market Crash Until September 1929, the stock market continued to rise. Many people borrowed money to buy stock, assuming prices would continue to go up. Some economists feared that stocks were over-priced (speculation).

Causes of the Great Depression Stock Market Crash On October 29th, 1929, the stock market went into a free fall as investors tried to sell at any price. 16 million shares were sold on “Black Tuesday.” Billions of dollars were lost in a few hours. Many who bought stocks on margin were wiped out.

Causes of the Great Depression Stock Market Crash The stock market crash didn’t start the Great Depression by itself. Instead, it quickened the collapse of the U.S. economy.

Effects of the Great Depression The banking system feels the effects of the crash first. People fear that their money will be lost so they run to the bank and attempt to withdraw their funds. But banks don’t have enough of their money on hand as cash. These bank runs cause banks to fail.

Effects of the Great Depression Business failures Factories closed, causing worker layoffs. This lowered demand for goods. By 1933, the unemployment rate reached 25%.

Effects of the Great Depression Passage of the Hawley-Smoot Tariff Congress passed the Hawley-Smoot Tariff to protect American manufacturers from foreign competition. The resulting drop in world trade only made the glut of American factory and farm products harder to sell. The strategy was a mistake. Other nations retaliated and raised tariffs as well.

Effects of the Great Depression Worldwide Depression

Hoover’s Response to the Great Depression Like most economists of the day, he believed that up and down swings in the economy were a natural part of the business cycle. It was thought that strong businesses would weather storms without the support of the government. At the start of the economic downturn, Hoover took a hands-off approach.

Hoover’s Response to the Great Depression Hoover saw that he must do something. Asked businesses to keep wages, employment, and prices at current levels Called for tax cuts, lower interest rates, and public works Asked wealthy to donate more money to charity

Hoover’s Response to the Great Depression But volunteerism failed. Towns and states didn’t have the necessary resources to deal with the depression. Hoover did not support direct federal aid to individuals. Hoover put his faith in localism, a policy whereby problems are best solved at the local and state levels.

Hoover’s Response to the Great Depression Congress passed the Reconstruction Finance Corporation RFC employed trickle-down economics The RFC gave billions of dollars to banks and large businesses. Lend to, and invest in, struggling businesses who would hire workers and thus end the depression. The RFC failed-- businesses did not hire more workers; not enough

Hoover’s Response to the Great Depression One Success of the RFC Construction of Hoover Dam in Nevada Increased electricity and farm land in SW.

Hoover’s Response to the Great Depression Bonus Army– marched on Washington demanding pensions In the summer of 1932, almost 20,000 veterans set up camps and occupied vacant buildings. In July, police tried to evict them and riots erupted.

Hoover’s Response to the Great Depression Bonus Army– disbursed by U.S. Military The eviction of the Bonus Army doomed Hoover’s bid for re-election. Americans were ready for new leadership and a greater role for the government in solving problems. Hoover ordered General Douglas MacArthur to remove the veterans. He used tear gas, cavalry, tanks, and troops with fixed bayonets. Press photos of troops using excessive force angered the American public.

FDR’S NEW DEAL Based on Keynesian Economics John Maynard Keynes Demand-side economics Use government spending to prime the pump Creates demand and generates economic growth

FDR’S NEW DEAL Emergency Banking Relief Act Bank Holiday Reopened stable banks Took us off the gold standard (creates inflation) Glass-Steagall Banking Reform Act FDIC: Federal Deposit Insurance Company Insured deposits

FDR’S NEW DEAL Civilian Conservation Corps Priming the Pump Camps for men 18-25 years old Reforestation, flood control, drainage, trails Sent home pay to families Criticism: militarized nation’s youth

FDR’S NEW DEAL Agricultural Adjustment Act 2nd AAA passed Creating artificial scarcity Paid farmers to reduce acreage Unintended consequences: Slaughtering of animals Declared unconstitutional Increased unemployment initially 2nd AAA passed Constitutional Rewarded farmers for planting certain crops Paid for through government spending– not taxes

FDR’S NEW DEAL National Recovery Administration Industries would accept fair codes of competition Laborers given rights Industries spread out employment by reducing hours of each worker Encouraged Americans to purchase goods from companies who followed these fair codes. Unconstitutional– can’t regulate businesses not involved in interstate commerce

FDR’S NEW DEAL Tennessee Valley Authority Built dams along tributaries of Tennessee River Expanded electricity “Creeping socialism”– govt. setting prices Constitutional but couldn’t be replicated Employed African Americans (segregated camps) Economically revitalizes the South

FDR’S NEW DEAL Securities and Exchange Commission Regulates buying and selling of stocks Oversees all activities on the Stock Market Establishes rules for trading stocks Stabilizes the stock market

FDR’S NEW DEAL Works Progress Administration Largest New Deal Program Construction of public works Jobs for unemployed white collar workers (dancers, artists) Highly criticized for “make work” policies

FDR’S NEW DEAL Social Security Act Unemployment insurance Old-age pensions Taxes: employers and employees Children can’t care for parents in urbanized economy Age 60: Life expectancy

FDR’S NEW DEAL Wagner Act National Labor Relations Board Workers earn right to collectively bargain Led to establishment of Congress of Industrial Organization Fair Labor Standards Act Minimum Wage Maximum hour work week Prohibited child labor

FDR’S NEW DEAL Net Results: Alphabet Soup Relief: provide relief from bad situations created by the Depression Recovery: provide economic growth Reform: prevent a Depression from occurring again Some improvement but not until government spending began accelerating. WWII is what really propels the US out of the Depression

FDR’S NEW DEAL Criticism of New Deal: Charles Coughlin Dr. Townshend Huey Long Too much power to federal government Supreme Court struck down some provisions Court-packing scheme by FDR– stopped by Congress

FDR’S NEW DEAL Role of Women: African Americans: Native Americans: Eleanor Roosevelt: Frances Perkins: 1st female cabinet member African Americans: Received some benefits from the New Deal Advised FDR FDR couldn’t be as supportive as he wanted– fear of losing Southern Democrats’ votes Native Americans: Indian New Deal Restored tribal identities Revoked assimilation policies