The Great Depression, Part I

This article is the first in a series on the Great Depression. I am writing this with the help of New Deal Democrat (who blogs over at Economic Populist). The purpose of this series is simply to talk about the Great Depression. The reason for writing this article is the emergence of the "FDR made the Depression worse" talking point from the Right Wing Noise Machine -- econ division. While none of the stories using this line have any facts to back them up -- no charts, no graphs no data -- they continue to spew this talking point. So, let's get some data -- as in facts -- to see that actually happened.

"I have no fears for the future of our country. It is bright with hope." - Herber Hoover's Inaugural Address, March 4, 1929.

Let me begin with an excerpt from Milton Friendman's Monetary History of the United States (page 299):

The contraction from 1929 to 1933 was by far the most severe business-cycle contraction during the near-century of US history we cover and it may well have been the most severe in the whole of US history. Though sharper and more prolonged in the US than in most other countries, it was worldwide in scope and rates as the most severe and widely diffused international contraction of modern times.

Pause for a moment and consider the above statement. It wasn't just bad, or slightly bad -- it was the worst economic calamity in US history, bar none:

Friday, March 3, 1933. Across the country the banks of the nation had gradually shuttered their windows and locked their doors. The very machinery of the American economy seemed to be coming to a stop. The rich and fertile nation, overflowing with natural wealth,... lay stricken.

....
The fog of despair lay over the land. One out of every four American workers lacked a job. Factories that had once darkened the skies with smoke stood ghostly and silent, like extinct volcanoes. Families slept in tarpaper shacks and tin-lined caves and scavenged like dogs for food in the city dump. In October the New York City Health Department had reported that over one-fifth of the pupils in public schools were suffering from malnutrition. On the countryside unrest had already flared into violence... Mobs halted mortgage sales, ran the men from the banks and insurance companies out of town....[I]n Nebraska ,,,, the farmers organized a posse, called it the 'Red Army', and took [repossessed] trucks back. In West Virginia, mining families, turned out of their homes, lived in tents along the road on pinto beans and black coffee.
[Numerous voices publicly warned of armed revolt:] Edward A. O'Neal, an Alabama planter, head of the Farm Bureau Federation, bluntly warned a Senate committee, "Unless something is done for the American farmer we will have revolution in the countryside within less than twelve months." ...
[The Secretary of War moved troops from places like Texas to staging grounds closer to the large cities of the east and midwest]...
....
[B]ankruptcy of ideas seemed [ ] complete among the intellectuals. ... On the eve of the inaugural, theologian Reinhold Niebuhr pronounced an obituary on liberal society. ... on the assumption that "capitalism is dying and with the conviction that it ought to die" .... "There is nothing in history to support the thesis that that a dominant class ever yields its position or its privileges in society because its rule has been convicted of ineptness or injustice."

- Arthur M. Schlesinger Jr., "The Crisis of the Old Order"

Here are some more bullet points from Friedman:

-- More than 1/5 of commercial banks holding nearly 1/10 of the volume of deposits at the beginning of the contractions suspended operations (page 299)

-- Personal income fell from a bit under $90 billion at the beginning of 1929 to under $50 billion at the beginning of 1933 (chart, page 303)

-- Industrial Production fell from a reading of 60 at the beginning of 1929 to 30 at the beginning of 1933 (chart, page 303)

-- The yield on Baa bonds increased from around 5% at the beginning of 1929 to around 9% at the beginning of 1933 (chart, page 304)

Let's take a look at the degree of the contraction:

Above is a chart that shows the percentage change in GDP from the preceding year. Notice that for the years 1930 - 1933 (the years highlighted in the Friedman excerpt) GDP decreased 8.6%, 6.4%, 13% and 1.3% from the preceding years, respectively. To place those years in further perspective, here is a chart from the St. Louis Federal Reserve that shows the percentage change in GDP from the previous year. The series is for the last century:

Notice the drop from 1929 - 1933 was by far the most severe of any contraction in the last century.

From a chained 2000 dollar perspective, total US GDP fell from $865 billion in 1929 to $635.5 billion in 1933. That's a contraction of 26.58%.

Underlying these cold and clinical numbers is the story of human misery on an epic scale:

[By 1930] Across the country the dismal process was beginning, ... Now came the slowdown -- only three days of work a week, then perhaps two, then the layoff. And then the search for a new job -- at first vigorous and hopeful; then sober; then desperate...the unending walk from one plant to the next, the all-night wait to be first for possible work in the morning. And the inexorable news,... "No help wanted here."

And so the search continued, as clothes began to wear out and shoes to fall to pieces...
In the meantime savings were trickling away. ...As savings end, borrowing begins. If there is life insurance, borrowing on that, until it lapses; then loans from relatives and from friends; then the life of credit, from the landlord, from the corner grocer, until the lines of friendship and compassion are snapped. Meat vanishes from the table; lard replaces butter ... the children begin to lack shoes, there clothes are ragged.... Wedding rings are pawned, furniture is sold, the family moves into ever cheaper, damper,dirtier rooms.

[Children cried constantly from slow starvation] [Then] the the apple peddlers began to appear on cold street corners, their threadbare clothes brushed and neat...

(Schlesinger, pp. 167-8)

That was 1930. By 1931,

"With no money left for rent, unemployed men and their entire families began to build shack s where they could find unoccupied land."

"Citizens of Chicago,... could be seen digging into heaps of refuse with sticks and hands as soon the as the garbage trucks pulled out."

As the depression wore on, private charities received less and less in donations in order to attempt to carry out an ever more staggering caselood.

By 1932,

relief resources, public and private, dwindled toward the vanishing point

. (Schlesinger, pp. 171, 174)

Let's add to the picture by looking at the year over year change in CPI from the 1929 - 1933 period:

Notice that starting in 1930 prices dropped big time. For the latter half of 1931 and 1932, prices were dropping 10% on a year over year basis. Let's place that drop in historical context:

Notice that the years 1929 - 1933 saw the sharpest decline in prices over the last century save for a period of earlier deflation that occurred before the roaring 20s.

This period of deflation indicates a deflationary cycle was taking place:

"Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity - contributing to the deflationary spiral.

From an economic point of view, you want a little inflation. This indicates there is a strong enough increase in demand to pull prices higher. But a prolonged price drop indicates there is a serious problem

So the short version is pretty clear. From 1929 - 1933 the US economy experienced the worst economic slowdown in its history:

[By 1932,] National Income which had been $87.4 billion in 1929, fell with the value of the dollar to $41.7 billion in 1932. Unemployment rose: 4 million in 1930, 8 million in 1931, 12 million in 1932. ... Net Investment in 1931 was minus $358 million (in 1929 prices); then next year it fell to a disheartening minus $5.8 billion. .. Wage payments [went down] from $50 billion to $30 billion. And, as prices and income fell, the burdens of indebtedness -- farm mortgages, railroad bonds, municipal and state debts -- became unsupportable.

(Schlesinger, p.248)

In case you were wondering:

The President was a Republican

The Senate was controlled by Republicans

The House was controlled by Republicans from March 4, 1929 - March 3, 1931. From March 4, 1931 to March 3, 1933 the House was tied.

And one thing the Republicans and the plutocrats of the day were sure of, was that government should do absolutely nothing to help its destitute citizenry. When in 1930 a long summer drought killed cattle and crops in the southwest, Hoover asked Congress to appropriate money for government loans to enable farmers to buy seed, fertilizer, and cattle feed. But when Democratic senators sough to apply the same program to human beings in addition to livestock, Hoover "reaffirmed his unwavering opposition to such proposals." (Schlesinger, p. 170)
Hoover appointed Walter S. Gifford, president of AT&T, to the "President's Organization on Unemployment Relief." Appearing before a Senate committee,

"Gifford disclosed imerturbably that he did not know how many people were idle, that he did not know how many were receiving aid, that he did not know that the standards of assistance were in the various states, that he did not know how much money had been raised in his own campaign, that he knew nothing of the ability of local communities to raise relief funds ,, that he did not consider most of this information as of much importance to his job....

But on one question Gifford was clear: he was against federal aid."...that it would reduce the size of private charity." His "sober and considered judgment" was that "federal aid would be a 'disservice' to the jobless."

Gifford was hardly the only precursor of the malign right wing ideology of today:

Albert H. Wiggin of the Chase Manhattan Bank said, "There is no commission or any brain in the world that can prevent [business downturns]." Senator La Follette asked "whether he thought the capacity of human suffering to be unlimited." "I think so." the banker replied.

....
"The fact that we have let nature take its course," said Richard Whitney of the Stock Exchange, "may augur well for the ultimate prosperity of the country." And if recovery were inevitable, then the state must take care to do nothing which might hold it back....
....
Of all the threatened forms of governmental interference, the most sinister, in the judgment of many businessmen, was the dole for the jobless.
....
"If this country ever voted a dole, said Silas Strawn, now head of the United States Chamber of Commerce, "we've hit the toboggan as a nation."...[M]any conservatives affected to regard federal aid to idle men and women as spelling the end of the republic."

(Schlesinger, pp.177-180)

It is worth re-reading the first vignette from Schlesinger above. Republicans today, just like Republicans then, believe that the appropriate response in the face of the ultimate failure of the economic system to provide jobs, housing, or even to prevent a large percentage of its citizenry from starving, was to DO NOTHING.

Comments

[Desmo]

I like how you quote Friedman's monetary history of the united states, but manage to omit the monetary policy that was a leading cause of the depression

[pbg]

There's an aspect to the Great Depression that you gratifyingly pointed out--that besides the problem of a shrinking economy, there was the problem of fear, misery, pestilence and death.
The New Deal was designed both to restart the economy, but also to abate the colossal misery of the time. No matter what one may think of the first , it was its success in the second that pulled America back from disaster.
What would a Great Depression America look like without a New Deal? Two possibilities: famine, cholera, and plague in the cities, and a new Bonus Army numbering in the millions march on Washington­--supporte­d by the mutiny of sailors aboard Navy battleships, who sail them up the Potomac and train their guns on the Capitol and the Winter Palace.
Or the rise of Huey Long to become Chancellor of America. take your pick.

[Harrier]

First thing you do is beef up regulatory funding that Regan cut, then simply work back up. Remove the oil subsidies and use that to develop green technology and create an accounting system that promotes hiring labor and capping executive salaries or an unbiased regulatory board. Buy the patents GM sold for the electric car and pass a law that oil companies cannot own that technology unless they wish to use it within 2 years. Hire more attorneys to bring the financial executives and businessmen behind bars-get baby boomers retirement back and get a workers and patient bill of rights. Build up the FDA and clean up agencies. Clean up 40% of the waterways in this country that were polluted during Republican administrations

[DuganS1]

Was there any real recovery from 1933-193? Let's look at FDRs second term inaugural address from 1937:

"I see on third of a nation ill-housed, ill-clad, ill-nourished."

A mob at that time had circled the White House chanting, "We don't want promised, we want jobs."

In one year the natinoal debt was up seven billion dollars, and in spite of a $3 billion public works program, 440,000 more men were out of work in 1937 than in 1934. .....Despite all that spending there were still 10 million people without jobs.

[Bonddad]

See the statistics from the second installment. I'm sure you will find a way to make them unsatisfactory to you.

[DuganS1]

I hope the article contains better writing than this below, which we both know is completely false:

"Republicans today, just like Republicans then, believe that the appropriate response in the face of the ultimate failure of the economic system to provide jobs, housing, or even to prevent a large percentage of its citizenry from starving, was to DO NOTHING."

[William1950]

"There are lies, damn lies, and statistics." someone smarter than I said this... sometime.

[Rule Of Law]

I've always thought it was Mark Twain--but it could be Hank Paulson :)

[WeTellTheTruth]

I'm a progressive but I'm conservative on economic issues.
We can interpret all the numbers and charts in an infinate number of ways ......... so I ask a simple question. Apparently the governement flooded the economy with stimulus in the early 30's only to yank it away in I believe it was 1937.... whereupon the ecomony went right back in the tank........ Isnt that proof that the stimulus didnt create "Real" growth, it only made us addicted to stimulus?
We cant let people starve and be out of work.........this is a complicated issue and I dont belive there is a single answer....... which is why we need a national dailogue.
Bondad....thanks for keeping the dailogue going on Huff Post.

[research]

Like we are addicted to clean air, water food?

This is our economy, we depend on it.

The 1937 downturn proves that spending on public works stimulates the economy.

Is Rove there, encouraging all you people to rewrite history?

Rove's favorite story is about a shadowy group of rich folks who commission a secret new encyclopaedia of a completely different world, with different animals, etc..

As they finish the encyclopedia and start publishing, the world start to turn into the Imaginary encyclopedia's world.

That's Roves favorite story.

[DuganS1]

The 1937 downturn proved you need much more than govt spending to stimulate the economy - you need private investment. After massive deficit spending every year from 1930 thru 1939 the country remained mired in a depression and unemployment remained extremely high in the 15-25% range. AFter WW2 government spending went down dramatically, soldiers lost their govt paid jobs, and private investment went up dramatically and the result was that the economy boomed and the unemployment was 3.8% in 1948 (not 15%, not 20%, not 25% like in the 30s - but under 4%!).

[WeTellTheTruth]

Whoa there research
I am a progressive and I have done battle with the right countless times in my life...... and I do my own thinking and speaking 100% of the time. When you make ad hominem attacks against other posters then that reflects badly on you.... not me...... because you obviously have run out of relevent ideas and comments. Ive seen your posts on other threads and I know you are a smart person who makes intelligent comments. You should get back to that.
I agree we depend on our economy. We depend on well thought out, intelligent, creative, and honest solutions that benefit the country as a whole rather than kneejerk poorly thought out responses that benefit no one.

[realpolitic]

Yes, Rove probably read the novel 1984 as a how-to novel. He wanted to achieve such a totalitarian regime.

[DuganS1]

Absolutely. In contrast, the government sharply reduced spending in 1946, 1947, 1948 and cut millions of workers (military) and yet economic growth continued. The post WW2 period was a real recovery with high levels of real private investment and high employment. The 1933-1937 period was a deficit spending bubble, with very low private investment and very high unemployment.

[Bonddad]

Then why was debt/GDP at a constant ratio throughout the depression -- hovering right around 40% from 1933-1941?

http://en.wikipedia.org/wiki/File:Debt1929-50.jpg

[realpolitic]

Well, after a major world war is over it is feasible that a country would sharply reduce spending. Much of it was probably military spending.

[Tom95134]

You are correct, the government did yank it away in 1937 when the Republicans forced FDR to move towards a more conservative approach. The recovery was slow but there had been some indication that a recovery was starting. However, the Republicans fought against FDR in everything he was trying to do and in 1937 they had enough power to force FDR to reduce the stimulus and increase taxes. BRILLIANT! Simply BRILLIANT. Today Republicans, if they get a chance, will do the same thing and attempt to destroy any recovery program Obama brings to Congress.

But then they are Republicans and, like the poisonous snake that bit the person who was good enough to carry it across a river, it is the nature of Republicans.

[DuganS1]

Government spending was cut dramatically in 1946, 1947, 1948, and 1949 and millions of people lost their govt jobs (soldiers mostly); yet, the economy strengthened significantly. If govt spending was the only thing that kept the economy alive from 1933-1937, then the recovery was a failure.

[realpolitic]

No, it does not indicate that the stimulus did not create real growth, but that the stimulus needed to be continued for a couple more years or so until the country got on its feet. As economist Paul Krugman said, what was WW11 except for one huge government stimulus program? Why is spending for war necessarily more productive than government spending on roads, bridges and other infrastructure. By definition, it is not. The bombs we build during wartime are exploded once and then useless, but the schools and roads will build will lay the foundation for the future economic growth of the country. Look at India now, where the dismal infrastructure and electrcity power outings are really limiting the growth of the country.

[DuganS1]

"1.) Growth resumed very strong rates starting in 1934 when GDP increased 10.8% and 1935 when it increased 8.9%.

2.) Their argument is entirely theoretical. They are comparing what happened to what they think would have happened."

The GDP growth rate in 1934 and 1935 means nothing considering how large the GDP drop was preceding it. An 11% and 9% annual gain in a stock isn't much good when you consider it had dropped 50-60% in the year preceding those gains.

The reality is that private investment took far too long to recover, never reaching 1929 levels until 1940. In depressions before 1930s - there were many - private investment recovered much more quickly and substantially, plus after WW2 private investment increased dramatically despite huge drops in govt spending and govt (military) employment. Overall there was a net loss in private investment over the 1929-1939 period and New Deal legislation and general militant attitude toward business and investor class was a major reason for that. Krugman said PI remained weak during the 1930s because of high unemployment, but that is not supported by data before or since. Employment is a lagging indicator, not a leading indicator. Employment traditionally picks up "because" of private investment. PI occurs because of incentives and overall confidence in business conditions. It's obvious PI remained down because incentives were removed and confidence remained low because of anti-business FDR admin (until they became more pro-business 1940).

[Bonddad]

"
The GDP growth rate in 1934 and 1935 means nothing considering how large the GDP drop was preceding it. An 11% and 9% annual gain in a stock isn't much good when you consider it had dropped 50-60% in the year preceding those gains."

Considering the economy lost 25% of it's capacity from 1929 - 1933, those are very impressive growth rates. In addition -- if those growth rates occurred under a "supply-side" administration you would be telling use how wonderful they were.

Actually, real total private investment was 91.3 billion in 1929 and 91.7 billion in 1937 in chained 2000 dollars. Also see the Higgs study where total private investment as a percent of GDP was at 1929 levels in 1937 levels.

http://www.independent.org/publications/tir/article.asp?a=430

[DuganS1]

Real total private investment then collapsed in 1938. By 1939 the New Dealers were gone. The rate of growth from 1933-1935 in GDP was almost all the result of govt deficit spending, something you criticize the Republicans relentlessly for on this very forum. There was also huge deficit spending in 1931 and 1932, something FDR criticized Hoover for. Also, I like how you boost about the "percentage growth rate" from the trough of the crisis, but at the same time criticize George W Bush's job creation record when he didn't have the luxury of having such a low starting point trough. It's easy to have high growth rates when you start from a low base, and much harder to have high growth rates from a high base.

[realpolitic]

Yet the rate of growth under Hoover, the policies you advocate, had a negative growth rate. Considering how much Hoover's policies got the country in a hole, a 10% growth rate is excellent. You seem to be saying that FDR failed because his successes were not large enough, which is again a theoretical argument.

The low levels of private investment throughout the 1930's was like Krugman said because of undercapacity. Who is going to build new factories when the existing ones are idle for the most part?

Then you say an anti-business class attitude prevailed. Do you consider what the business class attitude would have been without the reassuring New Deal programs and the increased employment generated by the New Deal? Re-read many of the quotes that Bonddad put together. The times were reaching a crisis stage where the next step was widespread violence.

Dugan, ask yourself why is spending on war and the military necessarily more productive than domestic spending on roads, bridges, schools, and other infrastructure? What was the magical quality about WW11 that rescued us from the Depression other than that it was a huge government "stimulus" program and after the war we were one of the few countries left with an industrial capacity?

[DuganS1]

I don't' advocate Hoover's policies. Where did I say anything along the lines of that. Second, a 10% growth rate is weak if GDP had just been cut in half. BTW a 50% drop means you need 200% growth just to get back to where you were. Third, there are always things to invest in. Money needs to go somewhere. It can't stay under a mattress or in very low yielding treasury bonds forever. Four, of course an anti-business attitude prevailed. Do you know what legislation was passed in the first and second New Deal? Have you read any books about the period? Any other than New Dealers themselves? Five, many of the New Deal programs put the govt into direct competition with private enterprise. The govt also took away much of the incentive for private investors/­corporatio­ns to invest (ie undistributed profits tax, excess profits tax, price fixing, govt competition, higher tax rates, higher labor costs, etc). Last, I never said that military spending was more productive than domestic spending on roads, bridges, schools, and other infrastructure. Where does that come from?

[DuganS1]

The argument is not that the New Deal made the depression worse, but rather that it made the recovery worse than it would have been otherwise and actually resulted in prolonging the depression, which is obvious by looking at the statistics. The fact is that the economy strengthened from 1935 until early 1937 but only because of govt spending. Since private investment didn't increase back to normal levels, the economy was inflated by government debt spending and pretend jobs. AFter WW2, for example, private investment increased dramatically and government spending declined dramatically at the same time yet the economy recovered permanently. The big difference between the 1933-1939 period and the 1946-1952 period, was the administration's attitude and policies vs the investor class and the result was obvious - very low investment in the 33-39 period and very high investment in the 46-52 period. The former period saw another disastrous drop into depression in 1937-1938, while the latter period witnessed a boom which continued nearly unhindered until 1973.

[Bonddad]

We'll be debunking your entire claim in the installments 2 and 3.

[DuganS1]

Don't always let partisanship be the factor in determining conclusions or manipulating the data. This has been happening far too often in many of these articles. This is from one investor/amateur economist to another.

[worldtraveller]

Well in all fairness after 45 the USA was the only country with industrial capacity that was not blown to itty bitty pieces and it was selling to a reconstructing europe. I agree with everything else though. Making GDP go up with borrowing and saying GDP went up is like looking at Starbucks net income without looking at same store sales. Of course opening a 1000 stores a month will increase revenue but that doesn't mean you don't look at the balance sheet also.

Silly silly people who like to prove arguments with half truths. I am very disappointed in Hale on this one.

[DuganS1]

The export/import market was a very small part of the economy in the 1930s and late 1940s. Most exports were in agriculture, which was hurt the most by Smoot-Hawley. There was never much competition at that time in either industrial goods or consumer goods from foreign producers, so the dramatic increase in private investment after the war could hardly be credited for that.

[realpolitic]

With employment at 25%, an economy needs government spending. Your Starbucks analogy is simplistic and would have been turned into a Hooverville during the Great Depression.

[Bonddad]

I will add something that won't be in the next two articles:

The post WWII period was great for the US economy for one primary reason: we had bombed our competition into nothingness. We couldn't help but do well.

[DuganS1]

ridiculous. Private investment came back 39-41+46-52 when+after FDR got rid of the last New Dealers and brought in large number of businessmen to rejuvenate the economy. FDR then initiated large number of pro-business reforms including cost-plus contract (superceded low bid contract) and accelerated depreciation allowance to get around excessive profits tax, generous terms for corporations to run facilities built on direct govt investment, handing over govt facilities after war to corporations at extremely generous terms, the elimination of the undistributed profits tax, etc. Such moves allowed corporations to make large sums during the war, enabling them to invest substantially after war making economy grow despite the large drop in government spending and loss of millions of soldiers jobs (war over). FDR in New Deal, in contrast, attacked corporations, attacked what profits they had, increased taxes on investor class, fixed prices driving out competition (NRA), increased costs for businesses via minimum wage and pro-labor legislation plus a wave of strikes thru Wagner Act, etc.

Overall, it's extremely foolish to place no blame on continued weak private investment on all the anti-business legislation of the New Deal and to think all the pro-business legislation afterwards didn't result in increasing it. Krugman says the continued low PI numbers were due to high unemployment but that's not supported by data from prior depressions or recessions afterward. Employment is a lagging indicator, not a leading indicator. Incentives are a much more significant factor in determining PI.

[realpolitic]

The point is that there would have been no recovery without the New Deal. Where were the signs of a recovery when FDR took office? How does a depression era economy with no safety net pull itself from a depression. If there is no FDIC insurance, sure there will be runs on banks. Without social security, sure the elderly would be the most destitute class of citizens as they were before this program.

Dugan, you are arguing the economy got better only because of government sending. It was the conservative policies that created the depression and very high leverage ratios allowed on the stock market that led to its collapse. So without the government spending at the time, what is the magic bullet that would have pulled us out of the Great Depression? The private investment was not crowded out by the public sector, but was a result of the undercapacity that was created by business conditions during the depression.

The boom that was seen after WW11 that you like to point to as being so successful because it was led by the private sector was also a time of considerable government infrastructure spending. i mean, Eisenhower built the interstate highway system. Many former GIs went to university on the GI Bill. which created our country's first widely educated class. I think you, Dugan, are vastly simplifying what took place.

[DuganS1]

The economy bottomed in late 1932/early 1933 and began to recover before most the New Deal legislation was even passed and well before the vast majority had time to impact the economy. The second New Deal legislation passed by mid-1936 and look how the economy did in mid-1937 through mid-1938 (answer -depression became worse).

[mattjs85]

I can't wait for the other installments.

Also, Bonddad, could you come up with a list of economists, if any, that predicted the great depression.

[theeconomicfractalist]

The temporal post hoc ergo propter hoc fallacious logic found in this article's opinion should not be applied to the new president during whose first years US GDP will be strikingly negative and unemployment sharply rising above double digits.

To understand macroeconomics in terms of the exact quantitative science that saturation macoeconomics is, is to conclude that no individual or entity could have changed the asset valuation devolution, job devolution and decrease in GDP that occurred from 1929 to 1932. Too much debt caused by too easy credit, too great of over supply, and too great of asset valuation all occurring at a natural macroeconomic time-based fractal end point for the same - that was the cause of the 29-32 natural economic decay. Stimulus policies began by Mr. Hoover were continued by Mr. Roosevelt. The deficit spending and governmental programs intended to be temporary by Mr. Hoover represent the current elements that will likely make the coming depression more profound. The credit leverage leading to this generational macroeconomic asset valuation saturation area is much greater than 1929; asset devolution will be greater.

[DuganS1]

There wasn't a corporate debt problem in 1929. In fact, so many of the best US companies had paid off or down their debt leading into and during the 1927-1929 period that there was actually a scarcity of investment grade securities/ bonds in the early days of the Depression. This meant that many assets owned by the banks were below investment grade and saw huge devaluations during the crisis making crisis worse (like the mortgage backed securities now).

[realpolitic]

One of the main problems during the Great Depression were the concentrations of wealth in society and the huge gaps in wealth. If you want to consider an anti-capitlaist class, it is because the rewards of capitalism were so selective at the time.

[Oldbuck]

The Republicans started this down fall during the Reagan Administration and went through the GW Bush, their trickle down theory is BS of major portion. The Republican started in 1980 to deregulate Big Business. Basically we let the Fox guard the hen house with greed and crooks taking over Wall Street . Their mantra of lower Taxes is the biggest falsehood ever pulled on the American people. Reagan said he lowered taxes which is a lie he reworked the income tax system and collected more taxes than ever before. They did the same type things in the 1920s and destroyed our economy during the Great Depression. We can not let the few Republicans left in Congress stand in the way of use working our way out to this mess.

[DuganS1]

Most deregulation was done by President Carter - a Democrat - during the late 70s and 1980. It's amazing that most people don't know that. Carter did more on the deregulation front than Reagan, it's just that Reagan publicized it more. Most deregulation was/is actually extremely beneficial to consumers.

[realpolitic]

Well then give some examples? Besides it was deregulation that got us into our present economic crisis! Consider the disastrous 2004 change to the SEC's "net capital rule." This allowed America's five largest investment banks to greatly increase their leverage ratios, from 12-1 to as much as 40-1.

[texastrixie]

Finally someone with credentials to refute these bozos who keep saying FDR's policies prolonged the Depression!

Whenever someone posts on HuffPo that the govt should just stand back and let the economy crumble, I try to ask them to describe how this process is supposed to work,

I understand the concepts of putting more money into the system via tax cuts, govt spending on work projects of whatever nature, extending unemployment benefits, etc. The people who say we should do nothing never seem to explain how doing nothing is supposed to work, or how long it is supposed to take, etc.

I don't know if Obama's plan will work. It seems like a new economic crisis needs to be tweaked anew each time, so I won't be surprised if he has to make adjustments along the way as different policies don't work the way they were intended - like the bank bailout (somewhat).

Thanks for this series.

[Bjarni]

Typical "post hoc ergo propter hoc" argument.

There was only 1 thing that happened in history and we ended up getting out of the depression, but in a large economy it is fallacy to say that the "New Deal" is solely responsible for the economy recovering. Therefore for scholars to speculate whether our recovery was faster or postponed due to the New Deal is up for evaluation.

Our problem is that our Government is fully in the pockets of businesses, and businesses use the politicians to pass regulations to interrupt the free market so that their already well established business has an advantage against upstarts that are trying to challenge the big corporations market share. There were many other things that played into the recovery, destruction of productive capacity in Europe for example.

Comparing our problems now to the New Deal is also invalid. Our problem now is that we are the largest debtor nation in history of the world.

The saddest thing is that people today do not understand what free market systems are. The US hasn't had one since before 1913. There have been periods of the system being left alone more than at other times, but government and central agencies have been at the wheel for this whole mess. And to blame "deregulation" for our problems means that people trust the government to have only good regulations on the books. This is the same government that brought us Nixon and other crooks.

[Trebor1]

So - there were no panics or depressions prior to 1913, right?

[jeffrey678]

Peter schiff on CNN said of the auto workers and the midwestern United States to"LET THEM STARVE". The news person said "what" then Peter Schiff said again "LET THEM STARVE" speaking of the Midwestern United States. This was on a special CNN program on the auto loans.

[Bjarni]

Sound-bites, lovely.

Peter Schiff has long been warning against the problems that we are facing, and both of our parties ignored all the warning signs he was pointing out. Others have been making the same argument as Schiff, such as Jim Rogers and Mark Farber. You need to look more into the issues they are pointing out and try to understand that what we've had has been a controlled economy by political influences that have set regulations and standards for the market to obey. Politicians made our banking system fail safe and had their institutions "fannie/freddie" buy up bad dept and over leverage those companies so that banks could lend out more money.

There is a larger picture people need to start looking at, we have very few fiscally conservative people in Washington, and most of them are Dems. Republicans have become more wasteful when it comes to government spending and to boot they want to reduce taxes to increase our debt to other nations or debase our currency.

For you if you have the capacity to listen to people you might not agree with 100% for a different perspective and further information there is a chain of videos at
http://www.youtube.com/view_play_list?p=F00907580B00E7B7&playnext=1

[senorlou]

History repeats. Great article.

[worldtraveller]

History repeats but not exactly. One of the things that always frightened me about letting economists touch real money is that as is happening here they take multi variable problems and assume ceterus paribus in order to make conclusions. The physical laws remain the same but this is not 1930 in way too many respects.

[Kassandra]

It sure isn't......I think the biggest factor everyone's ignoring is the climate change we are experiencing which will make the Dust Bowl look like a tempest in a teapot.
I believe our only hope as a nation is in "green" technology.

In the last Great Depression, the factories were idle, yes, but at least we still had them. All we have now is a self perpetuating financial scam; taking down the entire world economy. Check this out:
As Trade Slows, China Rethinks Its Growth Strategy
http://www.nytimes.com/2009/01/01/business/01exports.html?ref=asia

People moved to the cities in the last huge depression to avoid starving in small town. It didn't do them much good. Now, we're pretty much ALL in cities with no land to grow food on, even if the climate change permits.

My parents lived through the last one, and it changed them profoundly. One of my surviving aunts believes this one will be worse. Add to that a collapse of a civil society and we may well have anarchy.
I'm concerned that Obama will be blamed for the sins of his predecessors. Very concerned.