The Roaring 20s and The Great Depression

Roaring 20s- What You Need to Know Time of economic prosperity and massive inequality Return (desperate) to political normalcy Rise of manufactured goods and modern conveniences

Roaring 20s- What You Need to Know Classical liberal economics Resulted in a huge boom in Western economies ‘No reason for someone not to be rich’ People invested heavily in the stock market Speculation was rampant Banks loan money on as little as 10% down This led to what we know as a ‘stock market bubble’

Why did the market crash? Many people bought stocks on margin At this time you could buy stocks on 10% down payment 1000$ in stocks for only 100$ Companies lied about their profits Economies like ours go through natural “boom” and “bust” cycles These cycles have happened throughout history and the economy had always recovered Politicians believed in laissez faire—no control on businesses Based on the belief that things would go back to normal Stock market was not regulated by government

Stock Market Crash- October 24, 1929 Stock market had hit all time highs in both prices as well as sales Rampant speculation in stocks Panic started in the stock market People started to sell their stocks As the panic grew more and more people sold This forced prices down this meant that more people panicked and sold Banks who had invested in the market tried to recoup their losses People tried to get their money out of banks and were unable to

Consequences of the Crash Millions of people who never owned a single stock lost their jobs, farms and homes The crash was a precipitating factor in a much wider, long term crisis known as the Great Depression People lost faith in the government and the economy The Depression lasted from 1929 to 1941 when America entered WWII The Depression had a ripple effect that hurt the economies of other countries

The Great Depression

Causes of the Great Depression Stock market crash and financial panic Unequal distribution of wealth Monetary policy High Tariffs and war debts Overproduction by industry and agriculture (led to crop failures)

Economic Indicators:

The economy was further handicapped by agricultural failures in the prairies                                                             

The Dust Bowl The Great Plains region: North and South Dakota, Nebraska, Colorado, Kansas Oklahoma and northern Texas Farmers plow the plains, eliminating the protective layer of grass Wheat replaces grass: tractors make it much easier Severe drought High winds Layers of top soil blown away, leaving dunes of grit and sand

A Dust Storm in Eastern Colorado

A collage of newspaper headlines from the Dust Bowl

Franklin Roosevelt and the New Deal Comes into power as the people in the USA felt that the government was not doing enough Pre Roosevelt the plan was to allow the economy to recover (it always had before) Underestimation of the severity of the depression Roosevelt campaigned on the principle of a ‘new deal’ for the American people In Roosevelt’s first 100 days in office he created a number of alphabet agencies to put people back to work Government work programs Contrary to capitalist principles

John Maynard Keynes British economist who responded to the failure of the unrestricted economy during the Great Depression Government needed to be more active in regulating the economy to whether the “boom” and “bust” cycles Prime Pump the economy In good times=increase taxes In bad times= increase spending http://www.investopedia.com/ask/answers/012715/why-keynesian-economics-sometimes-called-demandside-economics.asp

Demand-Side Economics Focused on large scale demand Combination of consumption of goods, industry investment, government spending, exports Use of fiscal policy, adjusting government spending and taxes to influence the economy

New Deal (1933-1938): Concerned with relief for the unemployed and getting people back to work Emergency banking act Federal government inspects the bank and sets rules for loans and insurance for depositors Restores confidence in the banking system Mortgage relief given to home owners as interest rates increase Loan guarantees given to home purchasers National Industry Recovery Act Large public works programs Government involvement in business and attempts to ensure that business compete fairly Alphabet Agencies Glass-Steagall Act

Second New Deal 1935: Aims at higher taxes for the rich National labor Relations Act Federal protection of the bargaining process Fair employment standards

Results of the New Deal: Government involvement turned to correct the shortcomings of the capitalism system Social Security Act Establishes Pensions Unemployment insurance Welfare grants Subsidies Development of deficit spending

Conclusions: Permanent expansion in the role of Government in the economy Economic regulation Resource development Income maintenance The New Deal by its self failed to stimulate economic recovery (this was done by WWII) this gave the government the tools to be able to get involved in the economy Monetary supplies Federal reserve policies Increased understanding of its own activities Taxation, borrowing, spending