The Great Depression Era: Learning from the Past

Great Depression is a period from 1929 to 1939 where the world economy plummeted to the worst situation ever. Originated from the United States, after the stock market crash in October 1929.  The New York Stock Exchange was sent into a panic and lose millions of investors. When the United States panic, it made the whole world into a frenzy, causing a spike in unemployment rates and declines in economies in almost every country in the world.

 

The Cause of the Great Depression

If we want to see the real cause of the Great Depression, we must take a step back into the previous era of the United States economy, The Roaring Twenties. The period of 1920 until 1929 appeared to be a flourishing time for America. However, income was not evenly distributed. Those who are wealthy made a great profit, while on the other hand, farmers and working-class citizens had low income and high spending, resulted in heavy debt. The agricultural industry had the worst blow because farmers were pushed to produce a vast amount of food, relying on its income from food exports to European countries. But after the war, these European countries resumed producing their own food and had no money to purchase food from the US. This situation resulted in prices for agriculture fell drastically.

Those Roaring Twenties years appeared as fascinating for the United States citizens. They just won World War I, several inventions were making life easier and entertaining, like moving pictures or radios. Business and manufacturing continuously expanded, with stocks roaring upward beyond realistic values between 1926 and 1929.

By the early of 1929, some financial experts warned the US banks that they were lending too much money for stock speculation. Nevertheless, the stock market continued to rise. Federal Reserve, as the US central bank, could have control the wild speculation, but the banks just ignored all the warnings until it blew in their face.

 

Life Back Then

The Great Depression’s worst point ran from 1929 to 1933. Over these years, consumer spending dropped significantly, impacting a steep decline in industrial output and massive unemployment as failing companies laid workers off. Not to mention, in 1932 a multitude of World War I veterans march with their families in Washington, D.C. These veterans, which most are homeless and unemployed, asked for government promise of a service bonus ahead of its scheduled date.

The Great Depression also took a toll on families. Many families broke apart because of financial problems. Couples had fewer children. Schools shortened the school hours, laying off teachers, decreasing the number of school days, even closed altogether. Without school or work, many people traveled and wandered about the country on the railroads in search of work. These people moved and lived in “Hooverville,” as an insult to President Hoover. Hoovervilles basically is shanty towns, structured of packing crates, cars, or any other scraps that they can find.

The hardest hit was taken by farmers, the elderly, and the minorities. During that time, most African Americans lived in the rural south and worked in farming with almost no income. They were the first laid off from their jobs because of their skin color. The elderly fared no better, many lost their life savings because of bank failures. Without income, these people either moved in with their families or became homeless.

 

The New Deal

In the cities, people lined for blocks as they waited for bread, beans or soup, and coffee. A lot of men, women, even children rummaged the garbage cans or the city dumps for scraps of food. Bank closures were common from 1932 to 1933. People lined up at banks asking for all their money back. And banks did not have any money left since they had loaned the money, these people got nothing even their life savings were gone. Many people became homeless or losing their farms because they can no longer pay on loans.

President Hoover took a very conservative approach in facing the difficulties. He called for businesses to solve the unemployment problem, and depended on charities, and ask people to donate. Dissatisfied with President Hoover, Americans elected Franklin D. Roosevelt, a bold man with a strategy, in 1932. And by the time President Roosevelt took office, the people were exhausted.

Luckily, as bold as he was, President Roosevelt and his advisers immediately set a series of programs, known as the New Deal. The name of New Deal means a new relationship or promise between the US citizen and their government. One of the programs for the New Deal was the WPA (Works Progress Administration) who created jobs for a lot of unemployed youths from construction to the arts. Other than WPA, there was also the National Recovery Administration (NRA) who designed regulations to help the industry. Later came the Social Security System and more agencies to aid Americans during times of hardship.

 

Long Way to Recovery

Despite early signs of recovery at the beginning of 1933, The United States was hit by a recession again in 1937. This recession caused by Federal Reserve’s decision to increase interest for money in reserve. This second recession reversed many advances and prolonged the Great Depression until the end of the decade. The Great Depression also acts as a fuel of extreme political movements in various European Countries, such as the Nazi regime in Germany. These movements led wars to break and the world entered World War II. America entered World War II in 1941, after the Japanese attack on Pearl Harbor. One positive side of the second World War is the factories in the US went back to full production, causing a reduced unemployment rate to below the Great Depression era.

 

Lessons Learned

Economic depression of a similar scale may happen again. Although central banks in each country around the world already learn from the past, we also need to prepare for disasters (Hello 2020!). They must know how to use policy to manage the economy. A few lessons that we all can learn from The Great Depression are ; never put your eggs in the same basket. Also, we need to get out of debt and save some cash. And last but not least, we need to learn more than one trade. There was no such thing as job security, so we need to be adaptable to different fields of work. Learn from the past and remember to focus on what really matters.