1. The Great Depression and The New Deal: 1929-1939 Understanding Fact and Fiction by Mr. Shore
2. October 24, 1929: Wall St. Earthquake Did the Stock Market Crash really reflect a meltdown of the real economy? Real output had not changed and was, in fact, on a growth path Interest rates had been kept low as a matter of Fed policy inviting speculation and credit Levels of debt had risen in the economy Protectionism and tariffs hurt US farmers and international trade
3. The General Business Cycle Peak, Recession, Trough, Recovery… At the peak, the economy usually has “asset bubbles” or overinvestment in land,factories, railroads, “dotcom” companies, housing…etc. At the peak, loans are made to marginal borrowers The market “corrects” for these bad investments and loans after roughly a one year period of higher unemployment and hardship
4. Hoover Makes Matters Worse Disastrous passage of the Hawley-Smoot Tariff (1930) Higher costs for Americans Less American exports and export-based jobs Trade war with Europe Both the US and Europe sink into a deeper downturn Debt Moratorium signals “insolvency” of the financial system to many observers
5. Hoover Tries a “Bailout” Reconstruction Finance Corporation (RFC) created to prop up failing railroads, banks, life insurance companies and other financial institutions In spite OR because of all the government policies through 1932, that year was the worst year of the Depression 1932 was also an Election Year
6. Hoover & FDR: The Pursuit of Bad Policy “To insist on balancancing the budget as recession looms by reducing spending or increasing taxes, would mandate a contractionary policy that would undoubtedly worsen the economic situation and thus ultimately increase the deficit. This is essentially what happened in the early 1930s. Many economists believe contractionary policies aimed at balancing the budget turned what probably would have been a modest recession into the Global Depression” –Stone, CoreEconomics, p.602
7. Turning Recession into Depression From 1929 to 1933, money supply in circulation fell by 27% 1930 and 1931 largest peacetime tax increase in the history of the United States Smoot-Hawley Public works programs prevented or delayed necessary labor market adjustments Price and wage controls under the NRA from 1933 to 1935 massively distorted relative market prices and thus investment Fed increased bank-reserve requirement three times in 1936 and 1937 leading to a deeper recession in 1937-1938
8. What made this downturn different? Stock Market PANIC Government tax INCREASES and monetary CONTRACTION Hoover appears ineffective and “out of touch” The American economic meltdown becomes a global meltdown
9. FDR and “The New Deal” FDR beats Hoover in a landslide in 1932 Bitter relations between Hoover and FDR FDR—cousin of Teddy Roosevelt. FDR was VP candidate with James Cox at top of Democratic ticket against Warren Harding FDR struck with polio and paralyzed from waist down FDR was a gifted orator, charismatic and a pragmatist in dealing with issues
11. Relief Federal Emergency Relief Administration—grants to states and local government to operate soup kitchens and other services for the unemployed and homeless Public Works Administration (PWA)—Money to build roads, bridges, dams and other construction projects Civilian Conservation Corps (CCC)—employed young men on projects on federal lands
12. Relief (cont) Tennessee Valley Authority (TVA)—build dams, operate electric power plants, control flooding and erosion, and manufacture fertilizer TVA sold electricity to residents of the region well below private power company rates
13. Relief (cont) Works Progress Administration (WPA)—provided jobs to 3.4 million men and women in public works and in the arts Resettlement Administration (RA)—loans to sharecroppers, tenants and small farmers. Also provided federal camps to house migrant workers
14. Recovery Emergency Banking Relief Act—authorize federal government to supervise management of bank finances and to permit temporary “bank holidays” Federal Deposit Insurance Corporation (FDIC)—guarantees deposits up to $5000 Home Owners Loan Corporation (HOLC) –refinancing of small homes to prevent foreclosures Farm Credit Administration—low interest loans to prevent foreclosures of farm property
15. Recovery and the Constitution More extraordinary was the National Recovery Administration (NRA) set codes for wages, hours of work, level of production and prices of finished goods NRA suspended anti-trust law NRA gave workers the right to organize and bargain collectively Companies were encouraged to be part of the NRA and to display the NRA seal in their business Supreme Court finds the NRA is unconstitutional in Schechter v. U.S.
16. Recovery & The Constitution (cont) Agricultural Adjustment Administration (AAA) encouraged farmers to reduce production, increase price and subsidized farmers to NOT grow The AAA was declared unconstitutional
17. FDR tries to “Pack the Court” Judicial Reorganization bill in 1937 President would be authorized to appoint an additional justice to the Supreme Court for each justice over 70.5 years old FDR would have been able to appoint six justices to create a Supreme Court of 15 Congress—including a majority of Democrats—opposes Roosevelt’s plan
18. Reform National Labor Relations (Wagner) Act—guarantees workers’ right to join a union and to bargain collectively Wagner Act establishes National Labor Relations Board Rural Electrification Administration (REA)—loans for electrical cooperatives to supply power in rural areas Tax increases on the wealthy and on capital gains SOCIAL SECURITY ACT
19. More New Deal Programs Civil Works Administration—temporary construction jobs Securities and Exchange Commission (SEC)—regulate the stock markets Federal Housing Administration (FHA)—insuring bank loans for building new homes and repairing old ones Dollars were no longer redeemable in gold
20. The Unions Union membership went from less than 3 million to over 10 million in the 1930’s Congress of Industrial Organizations (CIO)—unskilled workers in the auto, steel and textile industries Strikes were common during the Depression Passage of the Fair Labor Standards Act which established a minimum wage, maximum workweek, child-labor restrictions
21. The Depression Deepens: 1937-1938 Social Security tax reduced consumer spending Roosevelt called for measures to balance the budget and cut spending Annual balanced budgets can exacerbate cyclical trends in the economy
22. Criticism of the New Deal Sweeping new powers given to government Centralization of government Undermining of limited, constitutional nature of American republic Deficit spending Overregulation of business Too much power to unions Even Democrats Al Smith and John Davis join American Liberty League because of fear that FDR is moving country toward socialism
23. The Demagogues Father Coughlin—National Union for Social Justice. Called for inflated currency and nationalizing the banks. He was anti-Semitic and pro-Fascist. Huey “Kingfish” Long—a Senator from Louisiana and former Governor, he proposed a “Share Our Wealth” program to guarantee a minimum income to every family by taxing the rich.
24. New Deal Initiatives End: 1938 Many lost faith in government proposals after the Recession in 1937 Court packing fight hurt FDR’s prestige By 1938 foreign policy concerns in Europe began to take the spotlight off the economy
25. Life During the Depression “Depression mentality” Women Dust Bowl Farmers African Americans Native Americans Mexican Americans
