Question

Discuss the changing economic landscape of the US between the world wars. In your response, trace the highs and lows from the fall out of World War 1, the onset of the Great Depression, and the impact of the New Deal? How did the trends have an impact on marginalized communities?

Answer 1

America's Changing Economic Landscape

On the last day of 1980, when Jimmy Carter had been defeated and the question of further political damage to him was moot, a commission that Carter had appointed, called the President's Commission for a National Agenda for the Eighties, issued a report, Urban America In the Eighties: Perspectives and Prospects. It was written in diplomatic, understated prose, which may initially have obscured the import of its message. Its meaning did not long remain concealed, however, for within days the report was taken in the northern half of the country as a declaration of war.

The clues to why this should be so lay in the report's introduction, which described economic life as ceaseless, churning change. Industries rose and fell--and so did empires, and so did cities. Nothing endured forever, and in the real world of economics it was vain to hope that anything would. "An increasingly productive economy should be recognized as necessitating simultaneous painful growth and shrinkage, disinvestment and reinvestment," the report said. "Disinvestment" was another way of saying that industries might die and cities fade. The shape of America's cities reflected the painful growths and shrinkages that had already occurred, as immigrants arrived from the hinterland and from overseas, emigrants departed for the frontier, new classes rose and built temples to themselves, and other classes fell.

Yet somehow, the report mused, "the city is perceived as something that should be largely permanent and unchanging, reflecting continuity and stability, promising to be a lasting monument to society's achievements and failures, and serving as a testimony to the success with which people have hammered out relations among themselves." This vision of a city might seem appealing, the report concluded, but it was naive and unrealistic, and in the United States it had never been accurate.

And it could not be accurate now, according to the report, because the American economy was undergoing yet another transformation, one that was sure to make the nation's older cities more suitable for some functions and less for others. In particular, the big, broad-shouldered places from which America's twentieth-century industrial wealth had been wrung--Chicago, Cleveland, Pittsburgh, Detroit--could not expect to survive in their current form. There had been much talk about "revitalizing" these cities, through means as genteel as the movement of young professionals into marginal neighborhoods or as direct and unrefined as large redevelopment projects. But if revitalization "is defined as the attempt to restore our older industrial cities and regions to the influential positions that they have held throughout the industrial era, urban revitalization shall surely fail."

In the face of such a certainty, the report argued, the government should stop trying to ward off the inevitable by subsidizing specific cities or regions. After all, its obligations were to people, not to the places where they happened to live, and people had often advanced by moving someplace else. The postwar growth of California had done more for the people of Appalachia and the Midwest than had any targeted-assistance program. The government could best discharge its obligations "by removing barriers to mobility that prevent people from migrating to locations of economic opportunity, and by providing migration assistance to those who wish and need it."

In other words, as the report was soon translated in the daily press, the President's commission was recommending that Americans vote with their feet. FEDS TO NORTHEAST: DROP DEAD, said the headline in the New York Daily News.

Like other units of Carter-era detritus, Urban America in the Eighties soon left the news, but the report amounted to the first shot in the economic battle of this decade. The battle is about the way in which the United States should view the tumultuous economic change that seems to lie ahead. Should it rest secure in the faith that despite the disruptions and human friction we may endure, the shift away from heavy industry and the heavy-industrial belt is just the latest twist on the same process that created America's wealth? Or might this transition be something quite different? Could it be a step into unknown and perilous territory, where we will find less equality, fewer jobs, more suffering, and less of the spiritual and material glue that has helped the nation cohere?

The political battle lines are being drawn between those who think the economic future is promising and those who see lowering signs. Within the Republican Party the pizzazz now seems to belong to a group of congressmen who are urging the United States toward their vision of a "Conservative Opportunity Society." These COS politicians, the most visible of whom are Representatives Jack Kemp, of New York, and Newt Gingrich, of Georgia, express an unmixed optimism that economic benefits lie ahead. The only difficulty on the road to tomorrow is keeping the federal government and its tax code out of the way. The COS spokesmen claim that they can win over even such bedrock Democratic groups as black voters, once they make clear that they are talking about opportunity for everyone.

Within the Democratic Party there is a cleavage over the changing economy that is leading to an ugly fight. One group of politicians, mainly from places other than the Midwest and the Northeast, has been recommending that the United States get moving toward a higher-tech economy. They see a big role for the government in that transition; it should be encouraging research and development, retraining workers, targeting its incentives, and generally seeing that things proceed on course. As incarnated in Gary Hart, this movement lost the 1984 nomination to Walter Mondale and the tradition that the political analyst Kevin Phillips has cruelly but precisely called "reactionary liberalism."

The label is less derogatory than it may sound, for it captures the challenge that many liberals feel they now face: the defense of noble values that have come under unprecedented assault. Since the New Deal they and their forebears have helped build a healthy labor movement, raise the working-class wage, create a social "safety net," and establish the Democratic Party as the guarantor of such benefits. From the party's base to the unions' survival, every one of those achievements is now threatened by the industrial and regional shift. These liberals see the rise of foreign competition as another way of cutting the union wage; they know that the growing prominence of the Sun Belt means electoral trouble for the Democrats. Can it be a surprise that they speak in "reactionary" terms, seeking to preserve what they have built? Whereas Urban America urged the government to help people hit the road, a recent book called Rebuilding America, by Gar Alperovitz and Jeff Faux, exemplified the liberal emphasis on community stability: "The sensible planning answer clearly is to shift the money and physical capital involved in making cars to making something else--in Detroit."

Even though Walter Mondale was trounced by Ronald Reagan, his wing of the Democratic Party heavily influences national discussion of economic change. The conservatives may have George Gilder, but the liberals have Barry Bluestone and Bennett Harrison, whose book The Deindustrialization of America out-facts Gilder by about a hundred to one in its grim recitation of jobs lost, factories closed, and hopes destroyed.

The outcome of this argument over "deindustrialization" matters, because societies find ways of deflecting the things that frighten them. When they see change as a threat, they manage to retard it. The government can be pressured into taking over businesses that the market would let die, as happened with the English steel and coal and auto industries before Margaret Thatcher came to power. It can subsidize people to stay where they "should," as France has done with its numerous farmers and Italy has attempted to do with its southerners. When, on the other hand, societies are indifferent to the costs of economic change, they glorify their Gradgrinds and Bounderbys, who may have risen largely through luck, and sneer at those who fall by the way.

The United States has seen its share of recessions in its 242 years as a country, but none quite compares to the Great Depression and the financial devastation it left in its wake.

The Great Depression is said to have lasted from 1929-1941, though some also say its true end was at the end of World War II. It is seen as the greatest financial catastrophe of the entire 20th century, the only event even approaching its disastrous nature being the Great Recession of the late 2000s. How could such a monumental collapse of the economy occur?

What Caused the Great Depression?

As a massive recession that devastated the country (and subsequently the entire world), it's hard to pin down one single fault for the Great Depression. It was a number of factors all coalescing into more than a decade economic misery.

There are several theories as to how the economy was able to collapse, but the most obvious occurrence that portended doom and started the depression was the stock market crash that happened in October of 1929.

1929 Stock Market Crash

Oct. 24, 1929 became known as Black Thursday. Early on that day, the Dow Jones Industrial Average dropped 11%. Panicked investors began selling their shares in an unprecedented volume; the Dow had been gradually declining since its peak in early September of that year and investors feared the worst.

Black Thursday wasn't the worst, though. That Thursday the Dow closed at 299.47. On October 28, known as Black Monday, it fell 13% to 260.64. Further panic set in, and the next day - Black Tuesday - the market fell even further. Pandemonium ensued on the New York Stock Exchange, and nothing was able to stop the panic and immediate impulse for investors to sell their shares lest it fall further.

Over 16 million shares were traded that day, and the market fell another 12%. On that Monday and Tuesday alone, over $30 billion in share value was lost. The Dow would continue to decline for 3 years in the wake of these three disastrous days.

Confidence in the economy was shattered. Wall Street and the banks were no longer seen as reliable. Many refused to put money into stocks, choosing instead to buy gold.

Income Equality

Of course, a stock market crash doesn't just happen on its own, completely out of nowhere. There were several problems with the economy that many didn't see and others ignored.

One major economic issue of the time is one that still greatly affects America today: Income inequality. Research from UC Berkeley professor Emmanuel Baez suggests that Americans in the top 1% of income in 2012 had the highest percentage of the nation's income since 1928. In 1928, the top 1% made a whopping 19.6% of the nation's income.

Economic growth would inevitably stall. The Roaring Twenties meant great employment numbers throughout the decade as industries expanded rapidly, but the wages of workers did not increase to the same degree that corporate profits increased. Products were being made, but many were no longer able to afford them. Spending slowed, playing a part in stock prices declining.

Smoot-Hawley Tariff Act

Tariffs. Sound familiar? The Smoot-Hawley Tariff Act was first introduced to Congress in 1929 and became official law in 1930 after the stock market crash.

This act was meant to help protect America's farmers from overseas competition by putting in a protectionist policy, but it backfired tremendously. The tariffs were warned against before being signed into law, immediately unpopular, and were quickly retaliated against. Other countries increased their tariffs as well, and trade between nations plummeted for several years.

The fallout from the Smoot-Hawley Tariff Act hurt not just the U.S. but the world economy, and may have made the depression worse.

Federal Reserve

Some economists believe, in hindsight, that some decisions made by the Federal Reserve played a role in the economy worsening, former Federal Reserve Chairman Ben Bernanke being one.

Some have even argued that the Fed is the reason it became a depression at all, and that had they been more active and aggressive, it could have been held to a recession. The Federal Reserve did not give aid to banks and thousands of smaller ones collapsed, in part because the Fed declined to create more cash as the money supply tightened. This was far different than the Fed of the Roaring Twenties, which increased money supply plenty throughout the decade.

What Were the Effects of The Great Depression?

For many years, as one economic malady after another befell the country, American citizens were left in awful conditions, with poor jobs and wages. Many no longer had savings. A severe drought struck the Southern Plains, causing the infamous Dust Bowl. This meant many U.S. farmers, in addition to being hurt by the tariffs and trade decline, no longer even had usable land for farming.

What were some of the other major effects that happened in the wake of the Great Depression years?

Unemployment Skyrockets

As mentioned earlier, wages for a lot of workers weren't exactly high right before the depression. With banks unable to provide savings for people and companies falling apart, unemployment levels rose to worrying rates.

The Great Depression started with the unemployment rate rising, but still under 10%. As the depression reached its nadir, though, it worsened significantly. It blew past 20% in 1932 and by 1933, it was approximately 25%.

The unemployment level never hit quite as dire a level for the remainder of the depression, but the rate was still over 10% until the early '40s, when the U.S. entered World War II.

Banks Closed

After the market crash, confidence and belief in the U.S. financial system was practically nonexistent, and that affected banks greatly. Many Americans began pulling what money they had left out of the banks, preferring to hoard it or buy gold instead. Bank accounts were being withdrawn en masse, and the banks did not have the cash on hand necessary to cover all withdrawals.

Bank runs like these are done by depositors in the hopes of getting their money back before the banks completely collapse in a worst-case scenario; in this case, the worst-case scenario became real life and over 9,000 banks failed. The result was billions of dollars that bank depositors were not able to recoup.

FDR Elected

It would be difficult to pin an economic collapse on one single figure, but as president during the stock market crash, the Smoot-Hawley Tariff Act and 9,000+ banks failing, Herbert Hoover was a pretty easy figure to point at.

As the face of a country in major turmoil, Hoover had an uphill battle for re-election and was defeated easily by Franklin Delano Roosevelt. Roosevelt campaigned on change, and after a Hoover administration of depression, the American people were ready for it.

What Ended the Great Depression?

There are multiple theories as to what ended the Great Depression, one of which is that when Roosevelt entered office, he immediately began implementing policies that were part of what would be known as the "New Deal."

The first New Deal focused on economy, the banks and farmers in an attempt to strengthen them at their weakest. The Emergency Bank Act attempted to stabilize the banking system after thousands of failures, while the Agricultural Adjustment Act and the Emergency Farm Mortgage Act aimed to save farmers, their farms and their crops.

After a couple of years of passing initiatives to help save businesses and industries, in 1935 the "Second New Deal" began. These initiatives sought to help poor, unemployed struggling Americans. Some programs continued to help farmers, even paying them to plant specific crops. Perhaps most importantly, though, the Second New Deal implemented the Social Security Act.

These programs, and the many others that FDR would go on to implement, stimulated the economy and helped lower the unemployment rate. Still, some say that it was instead World War II that ended the Great Depression. Government spending went up significantly when the U.S. joined the war, and unemployment dipped below 1 million unemployed Americans. American soldiers returned home to an economic boom.

Great Depression Timeline

The Great Depression lasted over a decade, though the worst of it was from 1929-33. The New Deal policies steadily helped lead the economy back - albeit with a brief recession in 1937.

The years of the Great Depression presented great turmoil for the country and the world. After that struggle, lessons had to be learned by the government and the Federal Reserve on how to avoid letting a recession turning into a depression of that magnitude ever again.