Great Depression in the United States Totally Explained

Everything about Great Depression In The United States totally explained

The Great Depression in the United States caused a worldwide economic depression lasting from 1929 until the dawn of World War II and was caused by the collapse of the U.S stock market.
   For most of the nation, the "Black Tuesday" (also sometimes referred to as "Black Thursday" or "Black Monday") stock market crash of October 29, 1929, marked the beginning of a decade of high unemployment, poverty, and deflation. Although some observers think the causes of the Great Depression are still uncertain, most economists have followed Milton Friedman's analysis and blame the national collapse on an unwillingness by the Federal Reserve System to supply reserves to the system when the banking system faced a run on its deposits. The traditional explanation of a combination of high consumer and business debt, ill-regulated markets that permitted malfeasance by banks and investors, growing wealth inequality, and natural disasters such as the Dust Bowl and 1926 Miami Hurricane creating a downward economic spiral of reduced spending and production are also offered as alternative explanations.
   The initial government response to the crisis exacerbated the situation; protectionist policies like the Smoot-Hawley Tariff, rather than helping the economy, merely strangled global trade. Industries that suffered the most included agriculture, mining, and logging.
   The depression caused major political changes, the most notable among them being the New Deal, which instituted large-scale federal relief programs aimed to aid the agricultural industry and support labor unions. The formation of the New Deal coalition by Franklin Delano Roosevelt was another notable accomplishment. This disaster had a profound effect on the psychology of an entire generation and strongly influenced the development of post-war monetary institutions.

Causes

classical economics, monetarist, Keynesian, Austrian Economics and neoclassical economic theory, which focuses on the macroeconomic effects of money supply, including Mass production and consumption. Second, there are structural theories, including those of institutional economics, that point to underconsumption and over-investment (economic bubble), or to malfeasance by bankers and industrialists.
   There are multiple originating issues: what factors set off the first downturn in 1929, what structural weaknesses and specific events turned it into a major depression, how the downturn spread from country to country, and why the economic recovery was so prolonged.
   In terms of the initial 1931 downturn, historians emphasize structural factors and the stock market crash, while economists point to Britain's decision to return to the Gold Standard at pre-World War II parities ($10.98 Pound). The vast economic cost of World War I weakened the ability of the world to respond to a major crisis.
   Economists dispute how much weight to give the stock market crash of October 1929. According to Milton Friedman, "the stock market in 1929 played a role in the initial depression." It clearly changed sentiment about and expectations of the future, shifting the outlook from very positive to negative, with a dampening effect on investment and entrepreneurship, but some feel that an increase in interest rates by the Federal government could have also caused the slow steps into the downturn towards the Great Depression.

Hoovervilles

A Hooverville was the popular name for a shanty town, examples of which were found in many United States communities during the Great Depression of the 1930s. The word "Hooverville" derives from the name of the President of the United States at the time. These settlements were often formed in unpleasant neighborhoods or desolate areas and consisted of dozens or hundreds of shacks and tents that were temporary residences of those left unemployed and homeless by the Depression. People slept in anything from open piano crates to the ground. Authorities didn't officially recognize these Hoovervilles and occasionally removed the occupants for technically trespassing on private lands, but they were frequently tolerated out of necessity. Some of the men who were made to live in these conditions possessed building skills and were able to build their houses out of stone. Most people, however, resorted to building their residences out of box wood, cardboard, and any scraps of metal they could find. Some individuals even lived in water mains. Most of these unemployed residents of the Hoovervilles begged for food from those who had housing during this era. Several other terms came into use during this era, such as "Hoover blanket" (old newspaper used as blanketing) and "Hoover flag" (an empty pocket turned inside out). "Hoover leather" was cardboard used to line a shoe with the sole worn through. A "Hoover wagon" was a car with horses tied to it because the owner couldn't afford gasoline; in Canada, these were known as Bennett buggies.

New Deal

From 1933 onward, President Roosevelt argued a reconstruction of the economy would be needed to prevent another, or avoid prolonging the current depression. New Deal programs, such as the National Recovery Administration (NRA), sought to stimulate demand and provide work and relief for the impoverished through increased government spending, by:
Billy Farrow* Instituting regulations which ended what was called "cut-throat competition," which kept forcing down prices and profits for everyone. (The NRA, which ended in 1935).

Setting minimum prices and wages and competitive conditions in all industries. (NRA)
Encouraging unions that would raise wages, to 93% increase the purchasing power of the working class. (NRA)
Cutting farm production so as to raise prices and make it possible to earn a living in farming (done by the AAA and successor farm programs).

The most controversial aspect of the New Deal agencies was the National Recovery Administration (NRA). It lasted less than a year (1933-34) and ordered:

businesses to work with government to set prices;

the NBA board to set labor codes and standards. These reforms (together with relief and recover measures) are called by historians the First New Deal. It was centered around the use of an alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies such as the Reconstruction Finance Corporation, to regulate and stimulate the economy. By 1935, the "Second New Deal" added social security, a national relief agency (the Works Progress Administration, W.P.A) and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment fell by two-thirds in Roosevelt's first term (from 25% to 9%, 1933 to 1937) but then remained high until 1942.
In 1929, federal expenditures constituted only 3% of the GDP. Between 1933 and 1939, they tripled, funded primarily by a growth in the national debt. The debt as proportion of GNP rose under Hoover from 20% to 40%; however, since the GDP at the end of Hoover's presidency was just over half the GDP of 1929 in fixed dollars (as shown here

), this means that the debt remained about the same in absolute dollars during that time, showing that Hoover essentially maintained a balanced budget. Roosevelt kept it at 40% until the war began (but as the GDP rose by over 70% during this period

, this means that Roosevelt increased the absolute debt by the same amount), when it soared to 128%. After the Recession of 1937, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, by 1943, had abolished all of the relief programs. The New Deal was, and still is, controversial and widely debated. Opinions about the New Deal fall into three basic categories: that it was a total success, that it was helpful then but created repercussions that hurt us today, or that it was a catastrophe for American principles. Democrats and progressives are generally more positive about the New Deal, while Republicans and economic conservatives are generally more negative.

Recession of 1937

By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to act; Arnold wasn't effective, and the attack ended once World War II began and corporate energies had to be directed to winning the war. By 1939, the effects of the 1937 recession had disappeared.
Employment in private sector factories recovered to the level of the late 1920s by 1937, but didn't grow much bigger until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.
Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, in an effort to increase mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued the New Deal had been very hostile to business expansion in 1935–37, had encouraged massive strikes which fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect Keynesian prediction of a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.

Afterwards

The government began heavy military spending in 1940, and started drafting millions of young men that year; by 1945, 17 million had entered service to their country. But that wasn't enough to absorb all the unemployed.
During the war, the government subsidized wages through cost-plus contracts. Government contractors were paid in full for their costs, plus a certain percentage profit margin. That meant the more wages a person was paid the higher the company profits since the government would cover them plus a percentage. In 1941-1943, many factories took in unskilled workers and trained them (at government expense). The military itself was a massive training program in technology for most soldiers and sailors.
Structural barriers were lowered during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes largely ended as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with bus service and nursery care for children's forecast making them more accessible. Wages soared for workers, making it quite expensive to sit at home. The combination of all these factors drove unemployment below 2% in 1943.

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