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Rethinking the Great Depression Rethinking the Great Depression

Rethinking the Great Depression - PowerPoint Presentation

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Rethinking the Great Depression - PPT Presentation

Effects of the New Deal The Depression of 19371938 An Anemic Recovery 19381940 WWII amp Great Depression of 1946 ECO 473 Money amp Banking Dr D Foster Myth vs Reality of the Great Depression ID: 662053

depression amp production great amp depression great production 1946 federal 1933 fdr durables unemployment banks increased economic july 1938 1940 recovery deal

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Presentation Transcript

Slide1

Rethinking the

Great Depression

Effects of the

New

Deal

The Depression of

1937-1938

An Anemic Recovery: 1938-1940

WWII & Great Depression of 1946

ECO 473 – Money & Banking – Dr. D. FosterSlide2

Myth vs. Reality of the Great Depression

The myths:Capitalism failed.

Markets failed.Government intervention was necessary.The New Deal saved capitalism.

Growth in the 1920s was illusory.Herbert Hoover was a do-nothing President.

The reality:Slide3

FDR & The

New Deal

Nation-wide bank “holiday”.

Cooling off period to regain confidence.

Re-opened banks could not redeem deposits

in gold nor in gold certificates.

Many big city banks open w/in a week.

Most banks open w/in a month (90% and 70%).

Established FDIC in June.Deposits flowed back into banks, R and ER.Bank crisis is over!!Slide4

1933 Economic Rebound

Gold inflows; banks rebound.

March to July

Non-durables Production

+35%

Durables

+83%

Unemployment

-5%Slide5

FDR & Economic Policy

No particular economics expertise.

Change = f(academic advisors)

The problem of

“underconsumption/

overproduction” (?)

Industrial planning

Reform vs. Recovery

Berle

Tugwell

Moley

HopkinsSlide6

FDR & Economic Policy

Banking

Relief

Jobs

TVAAAANRASlide7

1933 Economic Slide

AAA & NRA kick in.

July to November

Non-durables Production

-19%

Durables

-32%

Unemployment

no changeSlide8

Back to July 1933 …

Industrial codes & price fixing.

Date:

Durables Production

July 1935

Manufacturing Production

August 1935

Unemployment

October 1934Slide9

The Agricultural Adjustment Administration (1933)

Protect farm incomes.

Keep prices high … by keeping output low.

Establish “parity prices” from 1910-1914.

Wheat, cotton, corn, rice, tobacco, milk, hogs.

1934/5: rye, grain, cattle, sugar, potatoes, and others.

How?

Production controls/benefit payments/

non-recourse loans/marketing agreementsVoluntary but steep taxes assessed.Slide10

The Agricultural Adjustment Administration (1933)

What the AAA did:

Kill 6 million

piglets

to maintain prices.

Plow under 10 mill. acres of cotton (25%).

Nebraska: kill 470,000 cattle & 440,000 hogs.

Texas: kill 2 million cattle.

Results:Income transferred from non-farmers to farmers.Wealthy & large farmers benefit.

Over the 1930s, government must maintain surpluses.Slide11

The Agricultural Adjustment Administration (1933)

AAA struck down in 1935:

Supreme Court rules 6-3 in

U.S. v. Butler

While held to be a tax, it was not:

1942 – new court – rules in Wickard v. Filburn:

It is a statutory plan to regulate and control agricultural production, a matter beyond the powers delegated to the federal government.

Home-grown wheat in this sense competes with wheat in commerce.Slide12

FDR & The

2nd New Deal

NRA & AAA ruled unconstitutional.

FDR embarks on a court-packing plan.

New Federal Reserve structure.

Social Security passed.Labor & the Wagner Act.Tax plans …Slide13

The Depression

of 1937-1938Ur

: decreased to 12% by 1937 . . . then, back to 20%Production rising . . . now falling by 67% (dur.)Stock prices rising . . . now down 50%Downturn worse than 1920-21 & 1929-30 !!!

Why?

FDR continues attacks on business.Fed raises reserve requirements.Labor laws raise labor costs.Slide14

Anemic Recovery: 1938-1940

By 1940, back to where we were in 1937.Ur: decreased but still around 15%.Durable mfg. at 96% of July 1929 level.

Housing construction reached 1929 levels . . . in 1951 !!

Why? Regime UncertaintyNet Investment = -$18 billion 1931-1935.

From 1930-1940, Net Investment = -$3 bill.Contractionary monetary policy.Slide15

Did WWII save the Economy?

Unemployment rate decreased to <2% by 1943.Gov’t. spending rose by almost 900%.Rise in Consumption spending.Economic recovery as prescribed by Keynes.

Were we better off?The unemployed were now in the

military.Goods were rationed and price controls were imposed.Increased taxes.Increased money supply.Slide16

The

Great Depression of 1946

Forecast:

A return to Great Depression

levels of unemployment.

Contraction from 1945 (II) to 1946 (I)

Federal spending 67%1945 deficit ($3.3 tr.) to 1947 surplus ($760 b.)”Defense employment” by 11 million.Armed forces/Federal jobs/DefenseRGDP about 15%Slide17

1945

1946

1947

4%

The

Great Depression of 1946Slide18

Despite fears, increased reliance on markets and decreased reliance on government proved effective.

What Happened from 1945-1947?

5.6 mill. women exited labor force.

4 mill. non-mfg. jobs created.

Real wages 7%.

Investment & Exports growing.

Federal deficits keep interest rates low.

The

Great Depression of 1946Slide19

Consequences of the

Great DepressionAn end to the gold standard.

--Increased monetary destabilization.--Culminated with inflationary 1970s.Increased Federalism.

--Size of federal gov’t. still growing.--State/local getting 25% from feds.Growth in the Regulatory State.--What isn’t “interstate commerce?”

--Cap & Trade next?Rise of the Welfare State.--Can Social Security continue?Slide20

Rethinking the

Great Depression

Effects of the

New

Deal

The Depression of

1937-1938

An Anemic Recovery: 1938-1940

WWII & Great Depression of 1946

ECO 473 – Money & Banking – Dr. D. Foster