Transcript FROM BOOM TO BUST

HERE COMES THE BUST
The Great Depression
What Went Right
Andrew Mellon served as Secretary of Treasury for 3 republican
administrations
Mellon Program:
• Govt should apply business principles
• Created Bureau of Budget
• Created General Accounting Office
• 3 goals: balance the budget, reduce the debt, and cut taxes
• Federal budget fell from $6 billion to less than $3 billion / a major
cost had been the debt from WWI (26 billion)
• He pushed for lower tax rates ; 4% to 73% (down to .5% to 25%) he
believed that lower taxes encouraged more investment
• Supply side economics – with lower taxes Americans would earn
more money, and the govt. would ultimately collect more taxes
What Went Right
Hoover’s Cooperative Individualism –
• As Secretary of Commerce Hoover will REALLY
encourage businesses to create associations
• He will also bring a balance to govt. regulation
What Went Right
• Coolidge once said “the business of the American
people is business”
• He supported laissez-faire (believed that natural cycle
would solve economic problems)
• Stock market will do well setting new highs
• Buying stocks on “speculation”
• “buying on margin”
• Consumer goods were readily available and affordable
• Money kept pouring into the economy, companies did
well, jobs were created
What Went Wrong?
• With war over, farmers will again be subject to
overproduction
• Agricultural prices dropped drastically
• Congress will pass laws to attempt to fix prices, but
Coolidge vetoed them
• Overproduction will have devastating effects on the
environment
• Poor farming techniques and a severe drought led to
the “dust bowl”
• These storms will displace thousands of families and
make entire towns uninhabitable
What Went Wrong?
The Great Crash :
• Long Bull Market (lasts as long as there are new customers) Sept. 1929,
professional investors began to sense problems
Monday October 21, Groucho Marx received a call from his broker “you’d better get
down here with some cash to cover your margin”
Marx stated “people were shouting orders to sell and others were frantically scribbling
checks in vain efforts to save their original investments”
• October 24 became known as “Black Thursday”
Groucho visited his broker one last time ….
“he was sitting in front of his now stilled ticker tape machine , with his head buried in
his hands, ticker tape was strewn all around him on the floor, and the place …..
Groucho tapped him on the shoulder and said “aren’t you the fellow who said
nothing could go wrong?” “I guess I mad a mistake” the broker wearily replied .
“No, I’m the one who made a mistake “, snapped Groucho, “I listened to you”
• October 29, 1929; “Black Tuesday”, stocks lost 10-15 billion in value; by mid
November more than 30 billion had been lost
• The crash was not the main cause of the depression, but it weakened the
economy’s ability to recover
What Went Wrong?
Banks in a tailspin:
• The crash had weakened the banks
• Banks had lent money to the speculators
• Many banks had invested deposits into the market
• When the market collapsed, banks lost money on their
investments and speculators defaulted on their loans
• Less credit was available to consumers
• Some banks were forced to close
• Customers lost their money
• These bank failures led to “runs on the banks” (1929
and 1930)
Roots of the Depression
• Uneven distribution of income: the top 30% was
owned by the top 5%; average income rose 8% (2500 a
year); many had bought on credit
• Loss of export sales: banks had invested in stock
markets instead of foreign banks; foreign markets were
closing
• Hawley-Smoot Tariff: raised the tariff to the highest
levels in US history; foreign countries responded w/
higher rates
• Mistakes by the Federal Reserve: kept interest rates
low; banks made risky loans, business leaders thought
the economy was still growing, and took loans for
expansion; when the depression hit, they rose interest
rates and tightened credit
Hoover and the Depression
• Unemployment increase rapidly;
homelessness
• People rely on “soup kitchens” and “bread
lines”
• Hoovervilles
FDR Takes Over
1932 Election:
• Franklin Roosevelt against Hoover
• An optimistic demeanor and promise of swift govt.
action
• The first president to use the radio to his advantage
• “fireside chats” – to instill confidence in the banks
• He was ready to experiment w/ govt. power and action
• Direct relief – federal help ; was willing to engage in
“deficit spending”
• Introduced the “New Deal” – a collection of govt.
programs
• First 100 days
The First New Deal
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Civilian Conservation Corps
Agricultural Adjustment Act
Federal Deposit Insurance Corporation
National Industrial Recovery Act
Tennessee Valley Authority
The Second New Deal
• National Labor Relations
• Social Security Act
• Revenue Act
Roosevelt’s Critics
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Roosevelt’s reforms will create controversy
Too much governmental control over business and the economy
Two former “democratic” presidential candidates accused FDR of “socialism” and
showed no respect for the “rights of person and property”
The American Liberty League was formed to teach the necessity and importance of
people’s rights and property
Father Charles Coughlin – a Catholic priest and a well-known radio personality of
the 1930’s and had over 40 million listeners; claimed FDR did not go far enough;
called for nationalization banks and redistribution of wealth; known for antisemitic remarks (Anti-Jewish); eventually forced off the air for his remarks and
praise of Adolf Hitler and Mussolini
Huey P Long – senator from Louisiana; as governor of his state, he had become
head of a political machine; he built his political base through working to help the
poor and underprivileged; as a senator he supported redistribution of wealth and
a guaranteed income of 2000 per family per year, he proposed a law limiting
income to 1 million and the govt. taking the rest in taxes; many believed he would
run for president in 1936, but the son-in-law of one of his political enemies
assassinated him Sept. 1935
The Court Packing Scheme
• Another source of resistance for FDR was the supreme
court
• It had struck down many of his programs as
unconstitutional
• In 1937, after re-election, FDR proposed his “court packing
scheme”
• The constitution did not specify the number of judges, he
proposed increasing the number from 9 to 15
• FDR would then be able to appoint judges that favored his
programs
• Opponents will compare FDR to dictators rising in Europe
• Eventually he had to withdraw his request
Effects of the New Deal
• Although a revolutionary approach, the New Deal failed to end the Great
Depression; on the eve of WWII, unemployment was still high and the
economy was still hurting
• It did, however, provide limited relief and help some stay afloat until WWII
brings an economic boom
• Labor – the New Deal will help labor in many ways; industries were required
to recognize workers “right to unionize”; a powerful new union, Committee
for Industrial Organization (CIO) was formed; in 1937, the Supreme Ct upheld
the Wagner Act causing business to comply with union guidelines; unions
became consistent supporters of the Democratic Party
• Women and Minorities – overall they did not benefit much; federal programs
tended to favor young white males on the grounds that they were the
breadwinners; allowed businesses to pay women less; many minorities still
worked a farmers and migrant workers, as a result their lack of payroll
records excluded them from govt. programs like Social Security; Ne Deal
programs also sanctioned segregation; throughout the Great Depression,
African-Americans suffered the highest rate of unemployment; despite this,
many African-Americans began to switch their loyalty from Republican party
to the Democratic party in the mid 1930’s