Sunday, May 3, 2009

The Great Depression and the New Deal

The Great Depression began in 1929 and lasted until 1939. It all began on Tuesday October 29, 1929, which is known in American History and Black Tuesday. Black Tuesday reversed the decade of prosperity that American enjoyed during the 1920's. There were many factors that contributed to the depression but those that had the greatest impact were the rampant stock markets speculations, mistakes made by the FED, and the uneven distribution in wealth among the American public. From 1928-1929 the DOW Jones industrial average doubled and Americans were recklessly investing in companies using only a 10% margin. They assumed that they would eventually sell their stock for a higher price and packet all of the profits. That was until Black Tuesday arrived and investors began to realize that the stock market was artificially high, this spurred the massive selling that took place, as creditors called back their loans. As the market plummeted more and more Americans owed more money than they even possessed.

The Federal Reserve than made a series of bad moves that exacerbated the economic chaos. First they reduced the money supply and raised interest rates which made it harder for people to acquire loans. This not only hit hard at home but internationally as well. Then countries like Germany and Austria felt the pinch since they depended on the US for most of it's aid; the ripple affect hit all over Europe, pushing Europe into a depression of it's own. Then to make things worse, the Hawley-Smoot Tariff Act was enacted, which raised tariffs on all sorts of manufacturing goods. The angered our international trading partners, causing them to raise their tariffs. This just made everything worse as international trade declined.
Additionally, most of the economic wealth that was created in the 1920's concentrated into the hands of the wealthiest 20% of the nation. The inequality in wealth had a negative effect on consumption, and the consumer industries that flourished in the 1920's were hurt.

Herbert Hoover, who was elected into office in 1928, was determined to save America from this economic crisis. Initially his strategy was to work with corporate America since he did not favor social welfare to aid the poor. Unfortunately for him, his plan didn't work and if he wanted to truly help America he would have to develop and new strategy. However, he was unable to implement a succesful strategy causing him to lose the 1933 election to Democrat Franklin D. Roosevelt. By the time FDR took office it was very clear that drastic measures were needed to aid Americans, that is how the first New Deal was born.

The first thing that FDR did was to give the bank a holiday, and to seperate commercial from investment banking. He then made the government create the Security Exchange Commission, who was to oversee and enforce the stock market. He than granted economic relief to the poorest of society, and created the Civilian Conservation Corps and the Civil Works Administration. The put a large portion of young unemployed Americans to work on government projects to improve the environment and infrastrusture. He then turned his attention to the agriculture industry that was in dire need of change.

The 1933 Agricultural Adjustment Act lead to the development of the Agricultural Adjustment Administration. They basically paid farmers to keep a portion of their farms from production, in hope that a decline in supply would lead to an increase in prices and revenues. All of these measures excluded the poor, especially Southern African Americans. FDR than pushed for the National Industrial Recovery Act that briefly helped increase wages and reduce the hours per work week. This only lasted a few months, since companies gradually began to violate codes, knowing that there was no way the government could enforce all of them.

The National Industrial Recovery Act also created the Public Works Adminstration which build bridges, roads, sewage systems, schools, libraries, dams, and hospitals all over the country. The Tennessee Valley needed further government intervention in order to endure the depression, this led to the establishment of the Tennessee Valley Authority Act. The government was determined to provide the Tennessee Valley with the infrastruture needed to develop vital industries and businesses. Out of all the areas in the US the Tennessee Valley and South West benefited the most from the first New Deal. This created resentment among the American public, who pushed for more aid and intervention for the poor. This pushed Roosevelt to create the Second New Deal.

FDR first declared the need to abolish evil corporate holdings, as well as increased spending for social programs and public work projects in order to increase the amount of dollars in circulation, which would then boost consumer spending. Two of the most important acts in US history were developed around this time, the Social Security Act and the National Labor Relations Act. The Social Security Act set up a welfare fund that was for the unemployed, elderly poor, and disabled. It gave seniors a form of income upon retirement. The National Labor Relations Act allowed workers to join the union of their choice, and investigated unfair labor practices. The Second New Deal also increased taxes on the wealthy, and abolished the monopolistic holdings of industries like utilities that were notorious for hiking up rates.

Roosevelt's actions allowed him to gain the favor of the poor, and he won the 1936 election. For the first time in American history the African American community voted overwhelmingly Democrat. Although Roosevelt shifted his policies in favor of the poor, it still excluded immigrant farm workers, predominantly Mexican, and Southern African Americans. He did however welcome Jew and Catholics into his administration, who prior to this were excluded from high level government or political positions. Many more women also entered the administrative ranks, who pushed for laws protecting women in labor intensive industries. All of the progress made as a result of the new deal did not pull America out of the Great Depression, the Second World War was around the corner, which would give the economy what it needed to emerge triumphant.

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