💵Growth of the American Economy Unit 13 – Great Depression and New Deal Policies

Historical Context

• The Great Depression was a severe economic downturn that began in 1929 and lasted until the late 1930s
• It was the longest and deepest depression of the 20th century, affecting countries worldwide
• The United States experienced a period of rapid economic growth and prosperity during the 1920s, known as the "Roaring Twenties"
  • This period was characterized by technological advancements, increased consumer spending, and a booming stock market
• The U.S. economy had become increasingly dependent on consumer spending and credit during the 1920s
• Income inequality had risen significantly during the 1920s, with the top 1% of Americans owning 40% of the nation's wealth
• Agriculture had been in a state of depression since the early 1920s due to overproduction and falling prices
• The Federal Reserve had pursued a tight monetary policy in the late 1920s, contributing to a slowdown in economic growth

Causes of the Great Depression

• The stock market crash of 1929, known as "Black Tuesday," marked the beginning of the Great Depression
  • On October 29, 1929, the Dow Jones Industrial Average fell by nearly 13%, triggering a massive sell-off and wiping out billions of dollars in wealth
• Overproduction and underconsumption led to a buildup of unsold goods and falling prices
• The banking system was weakened by a series of bank failures and panics, as many banks had invested heavily in the stock market
• The Smoot-Hawley Tariff Act of 1930 raised tariffs on imported goods, leading to a decline in international trade and retaliation from other countries
• The Dust Bowl, a period of severe dust storms and ecological disaster in the Great Plains, exacerbated the economic downturn in rural areas
• The collapse of the international gold standard in 1931 led to a wave of currency devaluations and further economic instability
• Tight monetary policy pursued by the Federal Reserve in the early 1930s contributed to a contraction in the money supply and deflation

Economic Impact

• The Great Depression led to a sharp decline in economic output, with U.S. GDP falling by nearly 30% between 1929 and 1933
• Industrial production fell by nearly 50%, and construction activity virtually ceased
• Unemployment rose from 3.2% in 1929 to a peak of 24.9% in 1933, leaving millions of Americans without work
  • The hardest-hit sectors included manufacturing, mining, and construction
• Deflation occurred, with prices falling by nearly 10% per year between 1930 and 1933
  • This made it harder for debtors to repay their loans and discouraged spending
• International trade collapsed, with the value of U.S. exports falling by nearly 70% between 1929 and 1933
• The agricultural sector was hit hard, with farm prices falling by nearly 60% and many farmers losing their land to foreclosure
• The banking system was severely weakened, with over 9,000 banks failing between 1930 and 1933

Social Consequences

• The Great Depression had a profound impact on American society, affecting people from all walks of life
• Millions of Americans lost their jobs, homes, and savings, leading to widespread poverty and hardship
  • Homelessness increased, with many people living in shantytowns known as "Hoovervilles" (named after President Herbert Hoover)
• Malnutrition and hunger became widespread, as many families struggled to put food on the table
  • Bread lines and soup kitchens became a common sight in many cities
• The crisis led to a rise in social unrest and political extremism, with some Americans turning to radical ideologies such as communism and fascism
• The Great Depression had a disproportionate impact on certain groups, such as African Americans, who faced even higher rates of unemployment and poverty
• The economic hardship led to a decline in marriage and birth rates, as many couples delayed starting families
• The crisis also had a profound psychological impact, with many Americans losing faith in the American Dream and the capitalist system

Political Response

• The initial response to the Great Depression by the Hoover administration was limited, as Hoover believed in a hands-off approach to the economy
  • Hoover encouraged voluntary cooperation between businesses and labor to maintain wages and prices, but this proved ineffective
• In 1932, Franklin D. Roosevelt was elected president on a platform of "relief, recovery, and reform"
  • Roosevelt's "New Deal" programs aimed to provide immediate relief to the unemployed, stimulate economic recovery, and implement long-term reforms to prevent future depressions
• The New Deal marked a significant expansion of the federal government's role in the economy and society
  • New agencies were created to regulate industries, provide jobs, and support farmers and homeowners
• Roosevelt also took steps to stabilize the banking system, including the Emergency Banking Act of 1933 and the creation of the Federal Deposit Insurance Corporation (FDIC)
• The New Deal faced opposition from conservatives who believed it represented a dangerous expansion of government power and a threat to free enterprise
• The Supreme Court struck down several key New Deal programs as unconstitutional, leading Roosevelt to propose a controversial "court-packing" plan in 1937
• Despite the New Deal's efforts, the Great Depression persisted throughout the 1930s, and it was not until World War II that the U.S. economy fully recovered

New Deal Programs

• The New Deal encompassed a wide range of programs and initiatives aimed at providing relief, recovery, and reform
• The Civilian Conservation Corps (CCC) employed young men in conservation projects such as planting trees and building parks
• The Public Works Administration (PWA) funded large-scale infrastructure projects such as dams, bridges, and schools
• The Works Progress Administration (WPA) employed millions of Americans in construction, arts, and education projects
  • The WPA built or improved over 650,000 miles of roads, 125,000 public buildings, and 8,000 parks
• The Agricultural Adjustment Act (AAA) provided subsidies to farmers to reduce crop production and raise prices
• The National Industrial Recovery Act (NIRA) established codes of fair competition for industries and guaranteed workers the right to collective bargaining
  • The NIRA was later struck down by the Supreme Court in the case of Schechter Poultry Corp. v. United States (1935)
• The Social Security Act of 1935 established a national pension system for the elderly and unemployed, as well as aid for the disabled and dependent children
• The Tennessee Valley Authority (TVA) provided jobs and electricity to the impoverished Tennessee Valley region through the construction of dams and power plants

Criticisms and Controversies

• The New Deal faced criticism from both the left and the right
  • Conservatives argued that the New Deal represented a dangerous expansion of government power and a threat to free enterprise
  • Some liberals and progressives argued that the New Deal did not go far enough in addressing the root causes of the Depression and inequality
• The New Deal's impact on African Americans was limited, as many programs were administered in a discriminatory manner and did not challenge the Jim Crow system in the South
• The Agricultural Adjustment Act led to the destruction of crops and livestock at a time when many Americans were going hungry
• The National Recovery Administration's codes of fair competition were criticized for favoring large corporations over small businesses and for allowing price-fixing and other anti-competitive practices
• The court-packing plan proposed by Roosevelt in 1937 was seen by many as an attempt to undermine the independence of the judiciary
• The New Deal's reliance on deficit spending and an expansionary monetary policy led to concerns about inflation and the national debt
• Some historians have argued that the New Deal prolonged the Great Depression by creating uncertainty and discouraging private investment

Long-Term Effects

• The New Deal had a lasting impact on American politics and society, establishing a new role for the federal government in the economy and social welfare
• The Social Security Act laid the foundation for the modern welfare state, providing a safety net for the elderly, unemployed, and disabled
• The New Deal's labor reforms, such as the National Labor Relations Act, helped to strengthen the labor movement and improve working conditions
• The New Deal's public works programs left a lasting legacy of infrastructure, including roads, bridges, and parks
• The New Deal's agricultural programs, such as the Agricultural Adjustment Act and the Soil Conservation Service, helped to modernize American agriculture and promote conservation
• The New Deal's financial reforms, such as the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, helped to stabilize the banking system and prevent future financial crises
• The New Deal's expansion of the federal government's role in the economy and society set the stage for the post-World War II era of "big government" and the growth of the welfare state
• The New Deal's legacy continues to be debated by historians and policymakers, with some arguing that it represented a necessary response to the crisis of the Great Depression, while others argue that it represented a dangerous expansion of government power and a departure from traditional American values of individualism and free enterprise