What caused "The Great Slump"

[Flabbergasted]

http://en.wikipedia.org/wiki/Great_Depression

The Great Depression (also known in the U.K. as the Great Slump) was a dramatic, worldwide economic downturn beginning in some countries as early as 1928. The beginning of the Great Depression in the United States is associated with the stock market crash on October 29, 1929, known as Black Tuesday. The depression had devastating effects in both the industrialized countries and those which exported raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by 40 to 60 percent.<1> Mining and logging areas had perhaps the most striking blow because the demand fell sharply and there were few employment alternatives.

snip

The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below of peak in September 1929.<2> Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.

In the spring of 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933.

[Faygo Kid]

1. The failure of political leadership.

Many of your choices played a role, but ultimately it was the failure of the leadership of this nation to reign in the excesses and represent the people who elected them to office. Harding, Coolidge and Hoover were disasters, but they weren't alone. The Dems failed to act responsibly, as well, in providing leadership to the citizens of this nation, instead caving in to the GOP and the wealthy special interests. Sounds familiar, doesn't it?

[Flabbergasted]

2. I've change the poll to add that.

[Faygo Kid]

26. Thanks. We DUers are just one big happy family.

Good to be acknowledged, and thanks for posting it.

Amazing how we all get along here, isn't it?

[Yael]

3. It was Laizze Faire policies allowing for unchecked predatory practices

[Flabbergasted]

4. poll modified

[Fierce]

6. Laissez-faire.

If you can modify it again.

[Flabbergasted]

8. Doesn't "Laizze Faire policies allowing for unchecked predatory practices" work?

[Fierce]

9. I keeping thinking it says

Lezzie Faire. Which, ahem, is something else entirely.

[Yael]

11. LOL!!

:rofl:

[Flabbergasted]

17. Maybe that was a factor?

:shrug:

[Yael]

10. My bad on the spelling!

[Flabbergasted]

13. I've corrected your abhorrent spelling taking none of the blame myself.

:)

[Yael]

24. I am forever in your debt

:p

[PDenton]

16. In the 20's there was a huge real estate bubble

as well. In Florida in the roaring twenties, Miami/South Florida real-estate was a big thing. That's one reason a city like Miami is known for its art-deco style. People went crazy over real-estate just like they did recently, buying stuff without a thought for demand in the future.

[Flabbergasted]

18. How widespread was that?

[TahitiNut]

5. It was "trickle down" thinking - the faux notion that more money to the wealthy would help.

What finally caused the recovery was "trickle up" economics ... where business actually had to EARN the hard-earned money of consumers and had to compensate their employees equitably in delivering those goods and services.

The statistical MYTH that the 'average' person's income is raised by making millionaires into billionaires has been a Fool's Errand for far too long.

[Flabbergasted]

7. Is there a "proper" medium level according to the chart?

[TahitiNut]

12. Not in and of itself. Consider ...

... that the latter measures of "employee compensation" include executive compensation that's grown like a cancer on steroids. In over seventy years, we have never seen the kind of excesses in executive compensation that we've seen in the last 20. When we view the trends with that in mind, we can see that today's "10%" is closer to yesterday's "15%" -- so the bare ratio doesn't reflect the inequities within the "employee compensation" itself. Nonetheless, the portrayal is damning enough.

[TahitiNut]

22. It should be noted that I've essentially paraphrased Keyesian economics ...

... in that Keynes emphasized the demand side and national economic policies focused on empowering the consumers and workers were consistent in that regard. It only took two generations for the supply-side cockroaches to come back out of the woodwork, fattened by Keynesian "float all boats" economics and again attempt to assert the entitlements of wealth and return to pre-Depression idiocy.

The single most long-lived Keynesian act was the WW2 GI Bill ... responsible for more doubling the size of the post-secondary education system, the construction industry, and the manufacturing of durable goods. This, more than any other act, created the "middle class" in the 50s, 60s, 70s and 80s ... only to be cannibalized and scavenged by the insatiable appetites of greed and lust for global power.

[PDenton]

14. Irrational expectations?

Deep in the depression, people just stopped buying things period. People learned to make do with less and came to expect that was the way the world was going to keep looking. People that used to use safety razors, for instance, dusted off their straight razors and strops, or they bought gadgets to make their razor blades last longer (I actually collect some of these as a hobby). People started forgoing alot of luxuries they had been buying previously and made do with less. Some people lived off nuts off their trees or food from their gardens, or they bartered. Birthrates also declined to very low levels (far below replacement). If people thought like that, it is easy to see why investmentors would be scared off.

[Flabbergasted]

15. From a personal level this would have been viewed just as "How to Survive"?

[PDenton]

19. of course the corollary

people saved money, under their mattress. People weren't feeding money into the economy, even when they could, because of fear of what would happen (didn't FDR talk about fear?). You can see this pattern repeating in people who lived through that period. They often hoard useless material things, but didn't care about investing in the stock market or real estate. Alot of elderly people from that era walked away with the wrong lesons. That's just my 2 cents.

My grandfather, who grew up poor in the depression, could spot a nickle 20 feet away. Yet his whole house was filled with junk and he never invested money into the stock market, and my grandma is still the same way- afraid to let anything go or trust their money into anything. My other grandfather is the same way, though he didn't hoard as much, but he was tight wiht all his money. He had a little money in oil, but that was all his savings besides his postal pension. People learned to mistrust banks and I think it stuck for life.

Another thing I think caused it, the government wasn't worried at all about a money supply that was out of control and credit was too easy to get, and the government refused to increase deficit spending to stimulate the economy , instead favoring economic policies that "stayed the course"(Maynard Kaynes comes to mind as being an advocate for deficit spending in a recession, a demand side model).

[Flabbergasted]

20. I guess in this case political leadership becomes an indespensible commidity in tough times?

On the other hand it is said the war is what ultimately brought us out of the depression?

[PDenton]

23. From a Keynsian perspective the war stimulated the economy

During the depression, as I said, demand was down, and supply was don as a result. The war icreased demand, and the labor supply had to go up to compensate. Everybody that was unemployed, suddenly had a job. So the war fixed the economy. In fact the Germans initially ridiculed the American doctrine on warfare, calling it "materiel war", because the US overall doctrine was to basicly fire or drop large amounts of artillery shells and bombs on the enemy, whereas the Germans thought their emphasis on manouver was superior (Russians, OTOH, used human waves and artillery as their doctrine, and payed a terrible price for it, but that was all they had). All this demand for ordinance created alot of jobs on the home front, whereas Germany's strategy depended alot on resources such as men and oil, stuff they did not have in abundance.

Now, why doesn't the Iraq war fix the US economy? Why is it draining it instead? We no longer have an economy as labor intensive as we did in the past, nor do we have a military so dependent on legions of soldiers to bring down destruction on moustached dictators.

[Odin2005]

21. The income gap between rich and poor grew so much over the 20s that...

...by the late 20s it caused consumer spending to slow down because people could afford less stuff. The decline in consumer spending hurt businesses, who cut production and laid off workers, hurting consumer spending even more, starting a vicious cycle. As this was happening Congress and Herbert Hoover did the worst thing you could possibly do in a recession, they cut spending, raised taxes and slapped an unnecessary tariff on European goods. Then when huge numbers of unemployed people defaulted on loans the banks started to fail, and The Fed just sat there and did nothing while the banking system collapsed.

[Kingshakabobo]

25. Too much Vodka?