The Great Depression is considered the worst-economic downturn with severe declines in industrial output and unemployment. It was not a normal recession because it had years instead of economic quarters, with unemployment passing past ten percent and the economy remaining at an extreme low without any significant rise. The Great Depression was caused because of the availability of easy credit, war debt policies, crashing of businesses and banks, as well as the unequal distribution of wealth.
In 1920s, consumers were relying on credit, by purchasing now and paying later for purchases. Businesses themselves were encouraging americans to continue buying on debt, causing a great deal of trouble when it came to paying off these debts. This caused consumers to reduce their spending money on products of businesses. Not only were the businesses of sales impacted, but even worse, there weren’t many people that had the proper money to purchase expensive products from factories.
After the crash, panic ensued and money was removed from banks. Unfortunately, because people’s money was invested in the stock market from the banks. In fact, in 1933 itself, almost half of America’s banks crashed, causing millions of people to lose their money because the banks weren’t ensured themselves.
In 1930, the Hawley-Smoot Tariff was passed as a high tariff on the foreign agricultural U.S imports, attempting to assist ravaged farmers. Instead, by declining America’s flow of goods, there was less trade between America and foreign nations, with countries in Europe angrily raising their own tariffs.
With the unequal distribution of wealth, the wealthy people continued to amass more money, as those in poverty continued to sink down in debt. The income itself of the wealthiest one percent increase by seventy-five percent, a large increase in contrast to the nine percent increase for Americans as a whole. Clearly, many people did not have the spending money to purchase goods, therefore could not participate towards economic advances of the
country. For these reasons, America’s prosperity depended mostly on the spending power of the extreme wealthy, behaving as a fragile foundation that was infiltrated by debt-ridden spenders.
While such government interventions failed, reforms from the New Deal, such as unemployment insurance, and Social Security exist today. Because of the terribly high unemployment rate and poverty from the Great Depression, the assumption that the federal government should act in times of national economic crisis is now strongly supported. In fact, the Great Depression caused America to grow stronger as a nation, taking on new challenges with a world war.
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Written by: Nayana Sharma
Date Published: 3/14/2021
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