Tuesday, March 4, 2008

The 1930s and 40s: The growing beast

In 1932 Franklin Deleno Roosevelt was elected in a Landslide. While he was never able to end the Great Depression, he, via his great speaking ability, managed to restore confidence in the American people.

A theory by a great economist and thinker by the name of Maynard Keynes was growing in popularity at this time, and it was termed Keynesian Economics. He believed an economy becomes depressed because people stop spending money. Thus, there is no demand for the goods and services.

Since people stop spending, businesses and industries don’t make a profit. Many of them will lay off workers, many others will close their doors altogether.

To solve this problem, Keynes proposed that it was the role of government to increase demand for these goods and services.

FDR, desperate to end the Great Depression, adapted Keynes economic policy. Thus, with the New Deal, he proposed several government programs that would increase government spending. In essence, FDR created Big Government. (He did not, however, intend on it becoming the beast it is today.)

The Great Depression dragged on for years until it ran out its course by the end of WWII. Experts will continue to argue whether it was something FDR did that ended the Great Depression, whether it was WWII, or whether it was just inevitable that it would end.

Most history books note that increased spending by the government during WWII was what brought the nation out of the depression. Others experts contend that the fact the government forced people to use rations, and ultimately forced Americans to sell all their gold to Uncle Sam, are proof that the economy was still depressed through the war.

However the depression ended, many modern historians and economists will argue that the depression dragged on because the government compounded the problem by tinkering with it. Prior to the Great Depression, the role of government regarding recessions and depressions was relegated to fixing the banking or money problem that resulted in the depression, and that was it.

During the Panic and Depression of 1893-95, President of the Massachusetts Institute of Technology, at a Senate Committee in 1883, said, “I believe in general that the government is best which governs least, and that interference with trade or manufactures is very undesirable. Yet I recognize the fact that evils may and do exist which require correction by the force of law.”

That depression was caused because the government fed the economy with silver notes, and, thus, artificially inflated the money supply. Of course this created a short- term boom, but a crash was inevitable. To solve the problem, Grover Cleveland proposed an end to the government dollars backed by silver.

Other than that, Cleveland did nothing. He didn’t even do anything about unemployment, as Joy Hakiim in her series, “A History of Us,” writes, “President Cleveland didn’t believe it his job to do anything about the unemployed. Most leaders agreed with him. Employment and working conditions were thought to be the responsibility of business.”

Likewise, during the depression of 1896, Grover Cleveland said, “The lesson should be constantly enforced that though the people support the Government, Government should not support the people.

Because the government did did very little to end a depression prior to the Great Depression that started in 1929, all the depressions up to that point lasted only one or two years.

That all changed when FDR was elected, and we can debate whether it was for the better or for the worse. However, most economists and history books do contend that it was not Roosevelt’s New Deal that ended the Great Depression. In fact, some even contend the New Deal actually lengthened it.

We can debate that later.

As the economy soared to record highs, and as the quality of American life soared to near euphoric levels during the roaring 20s, Americans were so soaked in their glory that they were blinded to a few holes in the system. While the “Happy Day’s are Here Again” crowd enjoyed the day, a few insidious crooks were poking their greedy heads through the holes, causing the material to tear until the small holes were now gaping holes in the huge umbrella protecting Uncle Sam.

On Black Tuesday, that umbrella collapsed, and the “Happy Days” came to a screeching halt, sending America deep into its darkest and longest depression ever:

FDR, as part of his New Deal, decided that the days of the president sitting aside during such hard times was over, and he proposed a bandage for filling in those gaps. This, in my opinion, was the greatest achievement of FDR, and , perhaps, the single most important reason there has never been another depression.
Here’s what was good about the new deal: it instituted regulations on industries to protect common people from greedy crooks trying to take advantage of a booming economy, a na├»ve public, and very few laws protecting the people.

Yes, some such laws did exist prior to FDR, but most presidents believed it was not the role of government to enforce them.

Now, with the New Deal, banks are insured by the FDIC up to $100,000, the SEC regulates the stock market, elderly are guaranteed social security, there are codes for fair competition, minimum wages. We have the FCC to regulate radio and TV, FHA (now with HUD) to regulate interest rates and terms of mortgages to assure that even the poorest people can afford a mortgage on a house.

FDR also created the welfare state. And, to pay for all these New Deal programs, he increased taxes. This, as many believe, caused America to spiral into an even deeper depression. By FDR’s sixth term, the people seemed to have lost faith in him, and voted the democrats out of the House and the Senate. The prospects were looking grim for him, or any other democrat, winning the presidency in 1940.

Yet, with a war raging in Europe, and the people not wanting to jump ship with a war looming, Roosevelt was elected by a large margin again in 1940.

1 comment:

Nikki said...

Very good post...I love this stuff. I am a nerd and this is exciting for me to read, more people should look to the past to analyze the future or current state of affairs, too often we try to do the same with a different result, the difinition of insanity!!....keep up the great writing!!! :)N