1930s & The Great Depression

Mr. Klein Spring 2013

Causes of the Depression

Historians and Economists Still Debate What was the REAL Cause of the Depression

No one has the Right Answer

Most agree 4 factors contributed to the Depression .

Causes of the Depression

Four Factors:

1.Overly Easy Credit

2.Over Production / Loss of Global Markets 3.Uneven Income Distribution

4.Stock Market Crash

Causes of the Depression

1. Easy Credit
Interest Rates Are Held Low by Govt
Loans easy and cheap to obtain Installment purchases Many go into debt or invest borrowed money in stock market

Causes of the Depression

2. Overproduction / Loss of Global Markets
Businesses Manufacture More Consumer Goods Than Can Be Sold: Cars, Washing Machines, etc.

Only Needed ONE

By End of 20s, people who could afford had one already. Extra Inventory That Cant Be Sold in U.S.

Causes of the Depression

2. Overproduction / Loss of Global Markets European Exports Down Tariffs

1922 Fordney-McCumber Tariff

Europe Raises Tariffs (Retaliate)

WWI War Debts

Causes of the Depression

3. Income Disparities
Top 5% earned 1/3 of all income Bottom 40% earned 1/8 of all income

Means millions of Americans cant afford new products

Loose Credit helps drive consumer spending early in decade not late in decade
Contributes to problem of overproduction

Causes of the Depression

4. Stock Market Crash
Stock Market Bullish during 20s (Keeps Going Up and Up) Almost EVERYONE invests Buying on margin

Stock Pooling

Causes of the Depression

4. Stock Market Crash (cont.)
Stocks peak in July 1929 Savvy Investors sell. Black Thursday (October 24). Black Tuesday (October 29).
Institutional Investors sell

Causes of the Depression

4. Stock Market Crash (Cont.)

Banks collapse
Banks invested in stock market lost that $$.

Loans used by people to buy stocks could not repay.

Banks close depositors lose everything.
5,000 banks in first 3 years 9 million people lose savings

Run on banks.

Causes of the Depression

4. Stock Market Crash (Cont.)

Business Suffers:
Businesses lose money in failed banks. Cant get loans. Consumers who lost $ cant afford goods anymore Forced to cut production means cut jobs.

President Hoovers Philosophy

No direct government help
Fear of Creating Permanent Bureaucracy Handouts destroy Work Ethic and American Spirit of Self-Reliance

Private charity should help individuals

Private Charity cannot keep up People turn to Govt after a year

Encourage Business.

President Hoovers Actions

President Hoovers Actions

Raising import taxes Smoot-Hawley Tariff Act (1930) Slows trade even more Voluntary Cooperation by Business AND Labor No layoffs or wage cuts No strikes or demands for higher wages Income Tax Cuts for All
Taxes so low, no real effect

The Peoples Response

http://www.wingclips.com/movieclips/cinderella-man/im-stuffed

http://www.wingclips.com/movieclips/cinderella-man/stealing-sausage
http://www.wingclips.com/movieclips/cinderella-man/breaking-my-promise http://www.wingclips.com/movieclips/cinderella-man/asking-for-money

President Hoovers Actions

Public works programs
800 buildings 37,000 miles of roads
Boulder Dam Project

Reconstruction Finance Corporation

Authorized $1.2 Billion to loan to banks, financial institutions, and businesses

Federal Home Loan Bank Act of 1932

Lowered mortgage rates and let farmers refinance to avoid foreclosure.

The Peoples Response

Bonus Army
WWI Vets to get insurance (bonus) payout in 1945 Want pay NOW (1932) March on D.C. Bill Fails Occupy D.C.

Gen MacArthur and 1,000 troops clear the city

3 dead

The Peoples Response

Hoovervilles Hoover Flags

Farm Problems
Severe Drought Grips Midwest for a decade Topsoil begins to be carried off by wind Poor Plowing techniques Failed crops mean no roots to hold soil

Dust Bowl
1930s Dust Bowl
North Dakota to Texas

Massive Dust storms

Lost topsoil = Nothing will grow Farmers suffer

Eventual Solution: Plant grass and trees Cycle crops

Dust Storms

Dust Pneumonia

Okies
Frustrated Farmers Leave Midwest Head to California the Promised Land?
Route 66 No jobs when get there - UNWANTED

The Grapes of Wrath

Depression Entertainment
Writers and Singers Express Loss and Struggle
John Steinbeck (Grapes of Wrath)
Woody Guthrie
Oklahoma singer sings about common mans struggle

People Want Escape!

- Swing Music
- Radio Serials - Movies (80 million tickets a week)

Franklin Delano Roosevelt

Former Gov. of NY
Enacted Programs to help individual Citizens

Wins 1932 Election in Landslide

Dems take WH and both houses of Congress

The Hundred Days

1st 100 days in office Implement New Deal

New DealBanks are Back!

Bank Holiday
Stop runs on banks

Emergency Banking Relief Act

Govt examines banks

If solvent allowed to reopen

Restore Confidence

Banking Act of 1933

Federal Deposit Insurance Corporation (FDIC)
Insure deposits up to $5,000 ($250,000 today) Take away fear of losing money!

Depository banks can no longer invest in securities (or sell them)

Known as Glass-Steagall Act
Existed until 1999

Fireside Chats
Weekly Radio Addresses
Reassurance Restore trust

Brain Trust
Presidential Cabinet and Advisors
Differing beliefs and viewpoints Cabinet members and leaders of industry

Frances Perkins
Sec. of Labor First Woman Cabinet Member

Black Cabinet
FDR Consults African-American Leaders
Informal group of advisors many appointed to New Deal Agency posts 47 total

Mary McLeod Bethune

Noted educator and founder of FL school Later appointed to NYA (National Youth Administration) post

 Alphabet Soup government

Goal: Lower 25% Unemployment Rate See chart on handout

The New Deal

CWA 4 million jobs building roads and airports CCC single men get jobs planting trees & improving parks in rural work camps TVA build dams and hydroelectric power in Tennessee River Valley FCA refinanced farm mortgages AAA stabilized prices for farm products (limit production) NIRA - Eliminate unfair competition set minimum wage

Short-term solution

New Deal Critics

1. New Deal Goes TOO FAR:
Huge expansion of government

Give the president too much authority

Like a Dictator

New govt spending = over-taxation Who: American Liberty League

Business Leaders
Conservative Politicians

How to Pay for Govt Jobs?

Bottom rate also increases 400% - 1% to 4%

How to Pay for Govt Jobs?

In addition to federal income taxes:
Corporate taxes up Estate taxes up State and Local taxes up Employment taxes up

Modern economists agree that these tax increases made problems worse by further shrinking demand
Less household $$ = less buying of goods
(http://www.econlib.org/library/Enc/GreatDepression.html)

New Deal Critics

2. New Deal Doesnt Go FAR ENOUGH:
Senator Huey Long (Louisiana) Tax the Rich to Pay the Poor $5,000 each year Overtly Socialist (Share the wealth) Fr. Charles Coughlin Radio Broadcasts with huge audience

New Deal too business oriented

not enough for help for people Wants nationalization of industry

2nd New Deal Programs

Social Security Act:
1st Govt program to directly provide for financial security of citizens.

Funded via taxes on employers and employees

Wagner Act (Natl Labor Relations Act)

Created after NIRA struck down Secures collective bargaining rights NLRB to oversee union activities

Clashes with Supreme Court

Supreme Court Strikes Down Key New Deal Legislation as Unconstitutional AAA limits on farm output NIRA minimum wage provisions

In all, 11 of 16 New Deal Programs that were challenged were struck down

Clashes with Supreme Court

Clashes with Supreme Court

Supreme Court Strikes Down Key New Deal Legislation as Unconstitutional

AAA limits on farm output

NIRA minimum wage provisions Roosevelt proposes Judicial Procedures Reform Act Appoint a new Justice for each one over 70 yrs old

court packing to gain approval for his programs

Separation of Powers issues REJECTED by Democratic Congress

Prohibition Repealed
December 1933

21st Amendment
Violation of personal liberty

Revenue source

Lasting Effects
New Deal Did Not End Great Depression
Depression lasted until WWII required massive production for war effort

Did Give Hope and Help to Citizens Resulted in Large Expansion of Role of Federal Govt in Our Lives Social Security and FDIC still exist Role of govt in our lives has continued to grow, even after Depression ended.