1 / 24

The Roaring 20s and the Great Depression

The Roaring 20s and the Great Depression. Ing. Tomáš Dudáš, PhD. Roaring Twenties. The Roaring Twenties is traditionally viewed as an era of great economic prosperity driven by the introduction of a wide array of new consumer goods

olisa
Download Presentation

The Roaring 20s and the Great Depression

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. The Roaring 20s and the Great Depression Ing. Tomáš Dudáš, PhD.

  2. Roaring Twenties • The Roaring Twenties is traditionally viewed as an era of great economic prosperity driven by the introduction of a wide array of new consumer goods • At first, the recession of wartime production caused a brief but deep recession, known as the Post-WWI recession. • Quickly, however, the U.S. economy rebounded as returning soldiers re-entered the labor force and factories were retooled to produce consumer goods.

  3. Roaring Twenties • Many of the devices that became commonplace had been developed before the war but had been unaffordable to most people. The automobile, movie, radio, and chemical industries skyrocketed during the 1920s • Radio became the first mass broadcasting medium • The new technologies led to an unprecedented need for new infrastructure, largely funded by the government. Road construction was crucial to the motor vehicle industry; several roads were upgraded to highways, and expressways were constructed • Urbanization reached a climax in the 1920s. For the first time, more Americans lived in cities of 250,000 or more people than in small towns or rural areas

  4. Social and cultural issues • On August 18, 1920, Tennessee became the last of 36 states needed to ratify the Nineteenth Amendment, granting women the right to vote • In 1920, the manufacture, sale, import and export of alcohol was prohibited by the Eighteenth Amendment to the United States Constitution in an attempt to alleviate various social problems; this came to be known as "Prohibition“ • Jazz Age • Organized Crime

  5. Presidents – during the roaring twenties • Warren G. Harding - laissez-faire policies, served from 1924 to 1923 • Calvin Coolidge – was popular due economic prosperity, 1923-1929 • Herbert Hoover • "We in America today are nearer to the final triumph over poverty than ever before in the history of any land.“ - 1928

  6. Tax cuts in the 20s

  7. The Great Depression – basic facts • Between 1929 and 1933 the manufacturing output fell by half • Automobile production fell by 75 % • 2 hamburgers for 5 cents – but the people could not afford to buy them • People would work for 10 cents per hour – but employers could not profit from their labor • Banks were filled with idle reserves – but borrowing did not occur • Agricultural production rotted in the fields – and people went hungry

  8. The Great Depression – basic facts • 13 million people became unemployed. In 1932, 34 million people belonged to families with no regular full-time wage earner • Homebuilding dropped by 80% between the years 1929 and 1932 • From the years 1929 to 1932, about 5,000 banks went out of business • Over one million families lost their farms between 1930 and 1934 • Over 60% of Americans were categorized as poor by the federal government in 1933

  9. "Black Thursday" • The Great Depression began on "Black Thursday" with the Wall Street Crash of October, 1929 and rapidly spread worldwide. • Share prices on the NYSE collapsed and they continued to fall, at an unprecedented rate, for a full month – Black Friday, Black Monday, Black Tuesday • Dow Jones Industrial Average for 10/28/1929 and 10/29/1929 • Date change % change close • October 28, 1929 -38.33 -12.82 260.64 • October 29, 1929 -30.57 -11.73 230.07

  10. Don’t trust economists  • There may be a recession in stock prices, but not anything in the nature of a crash. Dividend returns on stocks are moving higher. This is not due to receding prices for stocks, and will not be hastened by any anticipated crash, the possibility of which I fail to see.“ • Irving Fisher, two days after the peak of the bull market 1929

  11. People lose their jobs. Even more people Lose their confidence And spend less money The Spiral of depression Demand drops. Fewer goods are sold. In order to stay in business companies cut wages Companies are forced to cut costs by laying people off People lose their confidence & start saving their money Demand drops even further.

  12. Explanations of the great depression • Explanation #1: The laissez-faire freemarket caused the Great Depression,and the New Deal pulled theeconomy out of it. • Keynesians • Explanation #2: A market economy goes through natural ups and downs, but the Federal Reserve let the money supply collapse in the early 1930s, turning a normal downturn into the Great Depression. • Monetarists

  13. Explanations of the great depression • Explanation #3: The Federal Reserve fueled the stock market boom of the 1920s with its easy-money policies. After the crash, the Fed did the wrong thing by cutting rates and propping up unsound institutions. Hoover and FDR's interventions in the economy only made things worse. • Austrian economic school

  14. The monetarist view • Milton Friedman and Anna Schwartz – A monetary history of the US • The decline of aggregate demand was caused by a decline of the money supply • This led to a reduction in output, income, employment and prices – and this led to the further reduction of money supply • In order to replenish their losses, banks decreased lending • Starting point – First bank panic in November 1930 (Bank of the United States – key failure)

  15. The Austrian view • F. A. Hayek, Maurice Rothbard • Main reason - excessive loosening of the financial discipline before the crash in 1929 • Too much Federal Reserve effort • The normal self-correcting mechanisms of the market could not work

  16. The Keynesian view • Keynes – The General Theory of Employment, Interest and Money (1936) • Self-correcting mechanisms that some economists claimed should work during a downturn may not work in practice • According to the classical economists, lower interest rates would lead to increased investment spending and demand would remain constant. However, Keynes states that there are good reasons why investment does not necessarily increase in response to a fall in the interest rate. • Businesses make investments based on expectations of profit. Therefore, if a fall in consumption appears to be long-term, businesses analyzing trends will lower expectations of future sales. Therefore, the last thing they are interested in doing is investing in increasing future production, even if lower interest rates make capital inexpensive.

  17. Hoover and the Great Depression • President Hoover took aggressive action to stem the depression by using the power of the federal government – “New Deal light” • Important policy – “wages should not decrease and industry should keep employment” • He created a wide variety of agencies and boards that contained the best minds in American business to suggest solutions • Agriculture - Federal Farm Board • Industry – Federal Building program

  18. Responses - Smoot-Hawley Tariff Act • The Smoot-Hawley Tariff Act was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels • The act was originated by Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon • President Hoover opposed the bill and called it "vicious, extortionate, and obnoxious" because he felt it would undermine the commitment he had pledged to international cooperation • Result - U.S. imports decreased 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports decreased 61% from US$5.4 billion to US$2.1 billion, both decreases much more than the 50% decrease of the GDP

  19. Responses -Glass-Steagall Act • Two Acts of the same name • The first Glass-Steagall Act was passed in February 1932 in an effort to stop deflation and expanded the Federal Reserve's ability to offer rediscounts on more types of assets such as government bonds as well as commercial paper. • The second Glass-Steagall Act was passed in 1933 in reaction to the collapse of a large portion of the American commercial banking system in early 1933. • The second Glass-Steagall Act introduced the separation of bank types according to their business (commercial and investment banking) • This division ended in 1999

More Related