The Great Depression: What Happened, What Are the Causes, and How Did It End?

Unemployment Reached 25%

The Great Depression impacted all aspects of society. At its peak in 1933, unemployment rates soared from about 3% to nearly 25% of the labor force in the country. Some workers who retained their jobs saw pay cuts, while many others were forced to take lower-paying jobs they were often overqualified for. From 1929 to 1932, the Gross Domestic Product of the United States nearly halved, dropping from $1,046 billion in 1929 to $572 billion in 1933, partly due to deflation. The Consumer Price Index fell by 27% between November 1929 and March 1933, according to the Bureau of Labor Statistics.

Life During the Great Depression

The Great Depression caused many farmers to lose their farms. At the same time, years of over-farming coupled with drought led to the emergence of the “Dust Bowl” in the central part of the country, destroying agricultural production in an area that had previously been fertile. Thousands of these farmers and unemployed workers migrated to California in search of work.

What Caused the Great Depression?

According to Ben Bernanke, former Chairman of the Federal Reserve, the central bank contributed to the onset of the Great Depression. It employed tight monetary policies when it should have done the opposite. According to Bernanke in 2004, these were the critical mistakes of the Federal Reserve:

1. The Federal Reserve began raising interest rates in the spring of 1928. It continued to increase them during a recession that began in August 1929.
2. When the stock market crashed, investors turned to currency markets. At that time, the value of the dollars held by the U.S. government was backed by the gold standard. Speculators began trading their dollars for gold in September 1931. This led to a run on the dollar.
3. The Federal Reserve raised interest rates again to protect the value of the dollar. This led to a restriction of money available for businesses. This was followed by more bankruptcies.
4. The Federal Reserve did not increase the money supply to combat deflation. Investors withdrew all their deposits from banks. Bank failures led to more panic. The Federal Reserve ignored the plight of the banks. This situation destroyed any remaining consumer confidence in financial institutions. Most people withdrew their money and hid it under their mattresses, further reducing the money supply.
5. The Federal Reserve did not put enough money into circulation to get the economy moving again. Instead, it allowed the total supply of U.S. dollars to decline by a third. Subsequent research has validated part of Bernanke’s assessment.

What Ended the Great Depression?

In 1932, the country elected Franklin D. Roosevelt as president. He promised to establish federal government programs to end the Great Depression. Within 100 days, he signed the New Deal into law, which created 42 new agencies over its lifespan. It was designed to create jobs, allow for unionization, and provide unemployment insurance. Many of these programs still exist. They were aimed at helping to protect the economy and prevent another depression. While some argue that World War II, not the New Deal, ended the Great Depression, others contend that if Franklin D. Roosevelt had spent as much on the New Deal as he did during the war, it would have ended the Great Depression. During the nine years between the launch of the New Deal and the attack on Pearl Harbor, Roosevelt increased the debt by $3 billion. In 1942, defense spending added $23 billion to the debt. In 1943, another $64 billion was added.

Causes

The Great Depression Won’t Happen Again

Although anything is possible, it is unlikely that another Great Depression will occur. Central banks around the world, including the Federal Reserve, have learned from past mistakes. There are better measures in place to protect the economy from disasters, and developments in monetary policy help manage the economy. For example, the Great Depression had a much smaller impact.

Frequently Asked Questions (FAQs)

When did the Great Depression end?

Although the lowest economic point of the depression came in 1933, the slow economy lasted much longer. The United States did not fully recover from the depression until World War II.

How many people died during the Great Depression?

It is difficult to analyze the number of people who died as a result of the Great Depression. According to a 2009 study, average lifespan during the crisis increased by 6.2 years. This aligns with findings that economic expansion tends to have more negative health impacts on the population compared to recessions. However, suicide rates increased by 22.8% between 1929 and 1932 – the highest level ever.

How did the Great Depression change the role of government in America?

The Great Depression and the subsequent New Deal significantly affected American views on the role of government, particularly at the federal level. Polls conducted in the 1930s showed strong support for the New Deal and its major government programs and interventions. However, this high level of overall support for federal interventions has not remained since the era of the depression.

Source: https://www.thebalancemoney.com:443/the-great-depression-of-1929-3306033