Poor Government Policies During The Great Depression

The Great Depression is described by many as the greatest economic downturn in history. It was a global financial crisis that began in 1929 and spanned more than a decade. This essay will explore the causes of this global economic crisis, which can be attributed to the crash of the US stock market. Secondly, the heavy reliance on the United States economy during that period, and the impact it had, will be explored. It will further explore the Gold Standard, which also played a crucial role in the crisis. Finally, it will examine the impact of poor government policies and how the Depression led to changes in these policies. Furthermore, the period before depression known as 'the Roaring Twenties' will be discussed, and how this period also contributed

On October 24, 1929, famously known as “Black Thursday” the US stock market crashed as millions of Americans sold their overpriced shares, a record 12,9 million shares were sold only for that record to be smashed again five days later when 16 million shares were sold, and this day is infamously known as “Black Tuesday” (Editors, 2009). This highlights how much the American population trusted the stock market and the banks that some had placed their entire life savings into these shares, which were now worthless. Calomiris & Mason (2003) argue that bank distress in America further exacerbated the economic decline, and it significantly affected the borrowers and economy. They go on to state that it also meant that millions of Americans would be in debt as they had taken loans or credit to purchase these shares (Calomiris & Mason, 2003). Moreover, this stock market crash led to record levels of unemployment, a sharp decline in production, and a fall in prices (Graff, Kenwood & Lougheed,

This was because the US Federal Reserve was unable to follow optimal monetary policy. For example, the US government at the time only considered decreasing government expenditure instead of increasing it, which they eventually did under FDR in 1932. It signaled the beginning of more expansionary policies by the US government. “Government spending increased from 3.2 percent of real GDP (Gross Domestic Products) in 1932 to 9.3 percent of GDP by 1936” (Libretexts, 2023). This was part of a programme called the New Deal which demonstrated a shift in monetary and stabilising policy and a “more aggressive policy” which was financed by budget deficits. This illustrated how severe the problem was that the US government had to spend more than it had collected. Policy makers were trying to revive the economy, and it eventually paid off. Furthermore, by moving away from the gold standard, countries could not increase their money supply