10.3 The Great Depression and the New Deal

The Great Depression, triggered by the 1929 stock market crash, plunged America into economic turmoil. Overproduction, uneven wealth distribution, and reckless speculation led to widespread unemployment, bank failures, and a global recession that lasted nearly a decade.

President Franklin D. Roosevelt's New Deal aimed to provide relief, recovery, and reform. While programs like the CCC and Social Security Act offered immediate aid and long-term security, critics argued they expanded federal power too much. The New Deal's legacy continues to shape debates on government's role in the economy.

The Great Depression's Impact

Economic Causes and Consequences

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• The Great Depression, the worst economic downturn in modern history lasting nearly a decade, began with the stock market crash in October 1929
• Overproduction, underconsumption, and uneven distribution of wealth contributed to economic instability that led to the Great Depression
• Speculation and excessive borrowing in the stock market, coupled with lack of government regulation, played a significant role in the stock market crash (Black Tuesday)
• The Smoot-Hawley Tariff Act of 1930 raised tariffs on imported goods, leading to retaliatory measures by other countries and a decline in international trade, exacerbating the global economic crisis
• Bank failures, caused by lack of confidence in the banking system and a series of bank runs (Failure of the Bank of the United States), further deepened the economic crisis
• The Great Depression led to widespread unemployment, with the unemployment rate reaching 25% in the United States by 1933 (13 million unemployed)
• The economic downturn caused a sharp decline in industrial output (50% decline), agricultural prices (60% decline), and international trade (65% decline), leading to a global recession

Global Impact and Trade

• The Great Depression had a global impact, causing a sharp decline in international trade and leading to a worldwide recession
• Countries that relied heavily on exports, such as Germany and Japan, were hit particularly hard by the decline in global trade
• The Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 imported goods, led to retaliatory measures by other countries (Canada, Europe, and others), further reducing international trade
• The collapse of international trade contributed to the spread of the Great Depression to other countries, as reduced demand for exports led to factory closures and job losses worldwide
• The global nature of the Great Depression highlighted the interconnectedness of the world economy and the need for international cooperation to address economic crises

Social Impact of the Depression

Effects on Different Social Groups

• The Great Depression affected Americans across all social classes, but the impact was particularly severe for the working class, farmers, and racial and ethnic minorities
• Urban industrial workers faced massive layoffs (10 million jobs lost), reduced wages (average income dropped 40%), and poor working conditions as factories closed or scaled back production
• Rural farmers, already struggling due to overproduction and falling crop prices in the 1920s, faced further hardships during the Depression, leading to foreclosures (1 million farms lost) and displacement
• African Americans, who already faced discrimination and limited economic opportunities, experienced even higher rates of unemployment (50% in some cities) and poverty during the Depression
• The Great Depression exacerbated racial tensions and led to increased discrimination and violence against racial and ethnic minorities (Mexican Repatriation, anti-Asian sentiment)

Regional Disparities and Migration

• The impact of the Depression varied across regions, with the industrial Northeast and Midwest experiencing the most severe economic downturns, while the South and West were relatively less affected
• The Dust Bowl, caused by severe drought and unsustainable farming practices, forced thousands of farmers in the Great Plains (Oklahoma, Texas, Kansas) to migrate to other regions, particularly California, in search of work and better living conditions (Okies)
• The migration of Dust Bowl farmers to California led to increased competition for jobs and resources, exacerbating social tensions and leading to discrimination against migrants (Hoovervilles)
• The Great Depression led to a significant shift in population from rural to urban areas, as many Americans sought work in cities after losing their farms or jobs in small towns
• Regional disparities in the impact of the Depression highlighted the need for targeted federal intervention and relief programs to address the unique challenges faced by different areas of the country

New Deal's Effectiveness

Relief and Recovery Programs

• President Franklin D. Roosevelt's New Deal programs aimed to provide relief, recovery, and reform to address the challenges of the Great Depression
• The Emergency Banking Act of 1933 helped stabilize the banking system by allowing the Federal Reserve to issue emergency currency and providing a framework for reopening sound banks (4,000 banks reopened within a week)
• The Federal Emergency Relief Administration (FERA) provided direct financial assistance ($500 million) to state and local governments for relief programs, helping millions of unemployed Americans
• The Civilian Conservation Corps (CCC) employed young men (3 million) in conservation projects (planting trees, building trails), providing work relief and promoting environmental conservation
• The Agricultural Adjustment Act (AAA) aimed to raise agricultural prices by paying farmers to reduce crop production, though it faced criticism for benefiting large landowners at the expense of tenant farmers and sharecroppers
• The National Industrial Recovery Act (NIRA) attempted to stimulate economic recovery by establishing codes of fair competition and promoting collective bargaining, but it was later declared unconstitutional by the Supreme Court (Schechter Poultry Corp. v. United States)

Limitations and Criticisms

• While the New Deal programs provided relief and helped stabilize the economy, they did not fully end the Great Depression, which lasted until the outbreak of World War II
• Some critics argued that the New Deal programs expanded the federal government's power too much and created a culture of dependency on government assistance
• The New Deal faced opposition from conservatives who believed in limited government intervention and from business leaders who felt threatened by increased regulation and labor reforms
• The New Deal's relief programs were often criticized for being insufficient to meet the scale of the economic crisis and for not addressing the underlying structural issues in the economy
• The New Deal's agricultural programs, such as the AAA, were criticized for benefiting large landowners and agribusinesses at the expense of small farmers and sharecroppers, particularly in the South

New Deal's Lasting Legacy

Expansion of Federal Government's Role

• The New Deal marked a significant expansion of the federal government's role in the economy and social welfare, setting the stage for the modern welfare state
• The Social Security Act established the foundation for the modern social safety net, providing retirement benefits, unemployment insurance, and aid to vulnerable populations (elderly, disabled, dependent children)
• The New Deal's labor reforms, such as the National Labor Relations Act (Wagner Act) of 1935, protected workers' rights to organize and engage in collective bargaining, strengthening the labor movement (formation of the CIO)
• The New Deal's public works programs, such as the Tennessee Valley Authority (TVA) and the Public Works Administration (PWA), invested in infrastructure projects (dams, bridges, schools) that modernized the nation and provided employment opportunities
• The Federal Deposit Insurance Corporation (FDIC), established during the New Deal, provided insurance for bank deposits, helping to restore public confidence in the banking system and prevent future bank runs

Continuing Debate and Influence

• The New Deal's agricultural programs, such as the AAA and the Soil Conservation Service, introduced concepts of agricultural subsidies and conservation that continue to shape modern agricultural policy
• The New Deal's legacy includes a debate over the proper role and size of the federal government in addressing economic and social issues, which continues to influence American political discourse
• Supporters of the New Deal argue that it saved capitalism by addressing the excesses and inequalities of the free market system, while critics contend that it represented a dangerous expansion of government power
• The New Deal's emphasis on social welfare and government intervention has influenced subsequent Democratic administrations, such as those of Lyndon B. Johnson (Great Society) and Barack Obama (Affordable Care Act)
• The New Deal's legacy continues to shape debates over issues such as health care, labor rights, social security, and the role of government in regulating the economy and providing a social safety net