Recession
An in-depth exploration of past recessions and economic cycles, designed to understand how we can better navigate recessions today and tomorrow.
Recession
The Great Depression: Tariffs and a Stock Market Crash
In this episode of the Recession Podcast, host Daniel Foch explores the pivotal economic event of the 20th century: The Great Depression. Key points covered include:
- Overview of the Great Depression's impact on society, politics, and daily life
- Analysis of the causes, including the 1929 stock market crash
- How radio shaped consumer sentiment
- The 9,000 bank failures that took place during the depression
- The role of credit and stock market speculation in the boom & bust
- What happened to the housing market during the great depression
- How tariffs are seen to have worsened the recessionary environment
- Examination of political responses, from Hoover's initial approach to Roosevelt's New Deal
- Discussion on the relevance of Great Depression lessons to modern economic challenges
- Exploration of cultural shifts, including changes in consumerism and rural vs. urban living
- The role of World War I debts and the Treaty of Versailles in setting the stage for economic instability
- Impact of transportation changes, particularly the decline of railways and rise of automobiles
- Housing market trends in the late 1920s, including the decline of Sears catalog homes
- Changing attitudes towards debt and job confidence leading up to the crash
- The issue of production outpacing wage and population growth
- Political landscape and the rise of Franklin D. Roosevelt
- Key New Deal programs and their effects
- Cultural aspects of the Depression era, including the rise of radio personalities and union movements
This comprehensive episode provides listeners with a deep dive into the complexities of the Great Depression, drawing parallels to contemporary economic issues and emphasizing the lasting impact of this historical period.
For sponsorship & opportunities to support the show, visit recessionpodcast.com
00;00;00;00 - 00;00;23;08
Speaker 1
Welcome to the Recession podcast, where we explore the economic downturns that have shaped our world. I'm your host, Daniel Fish, and today we are diving into one of the most pivotal events in economic history the Great Depression. The Great Depression wasn't just an economic crisis. It was a seismic shift that reshaped our society. Politics and the very fabric of daily life for millions of people around the world.
00;00;23;11 - 00;00;53;07
Speaker 1
From the stock market crash of 1929 to the sweeping reforms of the New Deal to tariffs that were often blamed for worsening the existing recession, this era left an indelible mark on our understanding of economics, government intervention and social responsibility. In this episode, we will journey through the causes, consequences and lasting impact of the Great Depression. We'll explore how the perfect storm of economic factors led to unprecedented unemployment, bank failures and social upheaval.
00;00;53;09 - 00;01;20;23
Speaker 1
We're going to examine the political responses from Herbert Hoover's initial reluctance to Franklin D Roosevelt faults bold New Deal programs. But this isn't just a history lesson As we navigate through our own era of economic uncertainty, the lessons of the Great Depression are more relevant now than ever. We will draw parallels to modern economic challenges and consider what insights we can glean from this tumultuous period.
00;01;20;25 - 00;01;51;03
Speaker 1
So whether you're an economics enthusiast, a history buff, or simply curious about how past crises shape our present and future, join me as we unravel the complexities of the Great Depression and its enduring legacy. So let's dive in and discover how this defining moment of the 20th century continues to echo through our economic landscape today. If you're enjoying the Recession podcast and want to support our mission of exploring economic history, I would love to hear from you.
00;01;51;05 - 00;02;12;06
Speaker 1
If you're interested in sponsoring the show, your support could help us dive deeper into these crucial economic events and bring more high quality content to our listeners to discuss sponsorship opportunities. Just head over to the website for the show in the show notes or send me an email. We're excited to collaborate with partners who share our passion for economic education and historical analysis.
00;02;12;13 - 00;02;46;29
Speaker 1
Before we dive into the Great Depression, let me just quickly share my vision for this podcast. This show is very much inspired by one of my favorite shows, Mike Duncan's Revolutions podcast. My aim is to create a series that does for economic recessions, what revolutions did for political upheavals. We will be exploring various economic downturns throughout history, dissecting their causes, impacts, and the lessons that we can learn from them.
00;02;47;01 - 00;03;11;16
Speaker 1
Each episode will focus on a specific recession or economic crisis, providing an in-depth analysis of the events leading up to it, the key players involved, and the aftermath. And I will examine how these economic shifts changed the course of history. While political theory often takes the center stage. Economic history is equally crucial in understanding the development of societies.
00;03;11;18 - 00;03;42;15
Speaker 1
Just as political revolutions shape nations, economic shifts fundamentally alter the fabric of society, influencing everything from individual livelihoods to global power dynamics. Economic events like the Great Depression have had far reaching consequences that rival and often surpass those of political upheavals. They have the power to topple governments, spark social movements and redefine the relationship between citizens and the state.
00;03;42;18 - 00;04;11;15
Speaker 1
So by studying economic history, we gain invaluable insights into the forces that drive societal change, technological innovation and the evolution of human civilization as a whole. Because economies and debt appear to move in cycles. There are also really important lessons and parameters we can take from history and apply them to present day. Because history doesn't repeat itself, but it often rhymes, as Mark Twain said.
00;04;11;17 - 00;04;42;19
Speaker 1
And so my goal would be to give you practical knowledge of where past recessions do and do not compare to present day. Those who cannot remember the past are condemned to repeat it, said George Santayana. So my goal would be to make sure that we don't do that. This podcast aims to highlight the profound importance of economic history, placing it on par with political history and its ability to explain and predict the course of human events.
00;04;42;22 - 00;05;06;29
Speaker 1
Recessions have shaped societies, influenced political decisions, and transformed the way that we think about economics. At its core, economics is about choices people make with limited resources. The concept could be described as voting with your dollars. Every purchase, investment or financial decision is essentially a vote for what you value and what you want to see more of in the economy.
00;05;07;02 - 00;05;32;05
Speaker 1
When consumers choose one product over another, they're sending a signal to the market about their preferences. This collective voting shapes production, influences business strategies, and ultimately drives economic trends. It's a form of direct democracy in the marketplace where consumer choices can be as powerful as political votes in shaping our world. This idea of economic voting extends beyond just consumer goods.
00;05;32;07 - 00;06;06;19
Speaker 1
It applies to larger economic decisions like where to work, where to live, and how to invest. Each of these choices contributes to the overall economic landscape, influencing everything from urban development to global trade patterns. So just as revolutions helps listeners understand the complex tapestry of political change, I hope to illuminate the intricate web of factors that contribute to economic cycles and try and break it down and distill it to be accessible for everyone by the end of this series.
00;06;06;19 - 00;06;32;03
Speaker 1
It's my hope that you'll have a comprehensive understanding of how recessions have shaped our modern economic landscape. Now let's begin our journey with one of the most impactful economic events in history, the Great Depression. You can't really talk about any recession without discussing the period of time and the policies, cultures and changes that took place during the Great Depression.
00;06;32;05 - 00;07;07;11
Speaker 1
And you can't talk about the Great Depression without talking about the 1920s economic boom or the Roaring Twenties. Before I get into that, I want to briefly touch on three significant sidebars that happened before that. The first one is World War One. The second one often gets left out of the discussion, which is the Spanish flu. But I think that's an important part of the discussion because what today we just went through a pandemic and the final is the formation of the Federal Reserve system that put us into the current monetary policy environment that we exist within.
00;07;07;13 - 00;07;37;29
Speaker 1
Let's start with the formation of the Federal Reserve System. It's crucial to mention this significant event that occurred just before World War One. That was the creation of the Federal Reserve System in 1913. The development would play a pivotal role in shaping the U.S. economy during and after the war. The Federal Reserve Act signed into law by President Woodrow Wilson on December 23rd, 1913, established the Federal Reserve as the central banking system of the United States.
00;07;38;01 - 00;08;08;29
Speaker 1
According to the Cleveland Fed, the story of central banking originated in the 17th century with Sweden's Riksbank in 1668, followed by the Bank of England in 1694. These institutions were established to manage government finances and regulate commerce. Later, European central banks, like France's in 1800, addressed monetary instability. Early central banks typically issued currency and held monopolies on note issuance.
00;08;09;02 - 00;08;31;21
Speaker 1
The United States made several attempts to regulate banks and manage the money supply at a national level before the creation of the Federal Reserve System. Today, the Federal Reserve operates as an independent entity within the government. But outside the three traditional branches executive, legislative and judicial. This unique structure gives it a degree of autonomy in its decision making process.
00;08;31;23 - 00;09;03;19
Speaker 1
So there's an independence from political pressure. Their self-funded operation. They have policy autonomy and they exercise oversight, not control. While Congress does have oversight response abilities and can amend the Federal Reserve Act, it does not directly control the Fed's day to day operations or policy decisions. The Federal Reserve's formation was a response to a series of banking panics, particularly the Panic of 1907, which highlighted the need for a more stable and flexible banking system.
00;09;03;21 - 00;09;41;03
Speaker 1
Key aspects of the Federal Reserve system included a decentralized structure. It was designed with 12 regional Federal Reserve banks coordinated by the Federal Reserve Board in Washington, D.C., aim to balance regional interests with national economic goals. The Fed was given the power to conduct monetary policy, including the ability to set interest rates and control the money supply. This would prove pivotal in introducing a new economic policy lever outside of the government, playing a significant role during times of economic stress, including the impending World War One and later the Great Depression.
00;09;41;06 - 00;10;14;04
Speaker 1
The Fed was designed to act as a lender of last resort to prevent bank failures and provide stability to the financial system. And it allowed for the expansion and contraction of money supply in response, economic conditions providing more flexibility than the previous gold standard system. The creation of the Federal Reserve marked a significant shift in the US economic policy and had far reaching effects on the country's ability to manage its economy during the tumultuous years ahead, including World War One and the subsequent economic boom of the 1920s.
00;10;14;07 - 00;10;37;16
Speaker 1
World War One had a significant impact on the U.S. economy. The war stimulated rapid growth in U.S. industry as the country became a major supplier of war materials to the allies. Demand for food exports to Europe led to increased agricultural production and rising farm incomes. And before World War One, the U.S. had been a debtor nation borrowing from European powers.
00;10;37;19 - 00;11;13;11
Speaker 1
However, during the war, the U.S. became a major supplier of goods and loans to the allies, which significantly boosted the economy and positioned it as a leading global creditor. By the war's end, many European nations owed massive debts to the U.S., shifting the global financial center from London to New York to meet wartime demands. American industries expanded rapidly, leading to a lot of technological advancements in mass production, such as in automotive and steel manufacturing.
00;11;13;13 - 00;11;40;15
Speaker 1
And this industrial base allowed the U.S. to become an economic powerhouse, supplying both consumer goods and industrial materials to a recovering world in the postwar years. By the war's end, the U.S. emerged as the world's leading economic power, surpassing Britain. This set the stage for perhaps the first truly global recession in almost created the first era of globalization.
00;11;40;17 - 00;12;23;21
Speaker 1
World War One catalyzed unprecedented global economic interconnectedness, particularly among the allied nations. This new level of economic integration set the stage for the Great Depression to become a truly global phenomenon. This era increased international trade and financial interdependence, which created war debts and reparations and complex financial ties between nations. It also standardized a lot of financial practices. There was coordinated war financing needed, and that created more standardized international financial practices.
00;12;23;23 - 00;12;55;29
Speaker 1
This made it easier for economic shocks to be transmitted across borders, not unlike a lot of the financial and technological innovations that we're seeing today. Global supply chains were established by the war effort, and they continued to operate in peacetime, linking national economies more closely than ever before. And finally, allied nations often adopted similar economic policies during and after the war, which created a more uniform global economic landscape.
00;12;56;01 - 00;13;28;03
Speaker 1
This new level of interconnect kindness meant that if one Nation faltered, especially the U.S., the effects quickly rippled across the globe, later turning what might have been a localized recession into the world's first truly global economic crisis. The US returned to a more isolationist stance in the immediate postwar years, but the experience of World War One really positioned it to play a much more active role on the world stage.
00;13;28;05 - 00;13;57;03
Speaker 1
It marked a turning point in American foreign policy, with a growing awareness of the country's influence and responsibilities in global matters. It also helped to spread American culture and ideals abroad, especially through the presence of American soldiers in Europe. U.S. cultural exports, including jazz, music, films and consumer goods, gained popularity, became symbols of status and modernity, influencing lifestyles around the world.
00;13;57;07 - 00;14;28;29
Speaker 1
Throughout the 1920s. World War One also spurred nationalist sentiments and suspicion towards foreigners, especially those from central powers nations like Germany and Austria-Hungary. Anti-immigrant sentiment grew in the U.S. and it led to an increased skepticism, new arrivals and their potential loyalties. The U.S. government responded with new policies to restrict immigration. The Immigration Act of 1917 introduced literacy tests and expanded exclusions, making it harder for immigrants to enter the country.
00;14;29;02 - 00;15;02;20
Speaker 1
After the war, the restrictive 1921 Emergency Quota Act and the 1924 Immigration Act further limited immigration by establishing quotas based on national origin favoring Western European countries over Eastern and Southern Europe. The war made transatlantic travel more hazardous and restricted anyways, as German U-boats threatened ships crossing the Atlantic and wartime blockades hampered movement. These dangers as significantly slowed migration to the U.S. during the Warriors.
00;15;02;22 - 00;15;32;06
Speaker 1
Many potential migrants were conscripted into military service in their home countries, preventing them from leaving anyways. European nations needed able bodied men for the war effort, so emigration slowed down dramatically during the war. The U.S. experienced labor shortages due to the draft and the demand for industrial and agricultural workers increased. This temporarily encouraged migration from Mexico and African-American migration from the rural South to urban centers in the north, known as the Great Migration.
00;15;32;09 - 00;16;06;06
Speaker 1
A brief but sharp recession occurred in 1922 1921, as the economy adjusted to peacetime production. This kind of rhymes with the sharp recession and prompt bounceback. We saw in the 2020 with COVID 19 lockdowns as we adjusted in that regard. The quick recession discouraged immigration further as the labor market became less and less favorable to newcomers. Europe was devastated by the war with its infrastructure, economies and population severely affected.
00;16;06;09 - 00;16;29;24
Speaker 1
In contrast, the U.S. had emerged relatively unscathed. Other than the brief recession we just mentioned, with its economy booming. This position the U.S. as a leader in the global economic recovery and a central trading partner, allowing it to expand its influence over international markets. And so they did. They filled the gap in global markets, exporting goods and services across the world.
00;16;30;01 - 00;16;53;12
Speaker 1
And this solidified America's position as the preeminent economic power and contributed to its dominance in global trade. But as people and goods started to move around the world, something became apparent. A lot of people were sick with a virus that later became a serious headwind for recovery. And it came by surprise because most governments were suppressing media reporting about the flu as part of their wartime effort.
00;16;53;15 - 00;17;23;04
Speaker 1
It turns out that Spain was the only country in the world who is openly talking about this phenomena that later became known as the Spanish Flu, World War One and influenza collaborated. The war fostered disease by creating conditions in the trenches of France that some epidemiologists believe enabled the influenza virus to evolve into a killer of global proportions.
00;17;23;06 - 00;17;47;18
Speaker 1
The 1918 to 1920 flu pandemic is commonly known as the Spanish Flu because of their free press and their role in World War One. Sort of an unfortunate misnomer, really. The outbreak first appeared in a headline of Madrid's ABC newspaper in May 1918 and was blamed on Madrid's annual holidays, which saw people gathered in close contact in ballrooms and parties.
00;17;47;21 - 00;18;14;07
Speaker 1
But that wasn't actually the case. The influenza was present throughout the battlefields for some time. The misnomer, according to an episode of the podcast BackStory, stemmed from geopolitical forces during World War One, when the pandemic broke out, warring nations suppressed or downplayed news of the outbreak to prevent their enemies from discovering their vulnerability and to maintain troop morale and public calm.
00;18;14;09 - 00;18;51;23
Speaker 1
Spain was neutral in the war, so the Spanish media had no problem reporting about the contagious outbreak weakening its population. But this created the false impression from outside observers that this was a Spanish disease. Virologist John Oxford later explained The rest of the world kind of just looked around and was like, What's going on in Spain? And so ever since, much to the annoyance of the Spanish and Spanish virologists, we've called it the Spanish flu and quote, Over the next two years, the virus infected nearly a third of the world's population, an estimated 500 million people in four successive waves.
00;18;51;26 - 00;19;17;01
Speaker 1
Death tolls estimated range from 17 to 50 million, with some people suggesting as high as 100 million, which would make it one of history's most deadly pandemics. This pandemic was followed by a decade of economic and cultural prosperity in the U.S. and Europe, known as the Roaring Twenties. The pandemic's impact on the economy and society was uneven, and some people were left behind.
00;19;17;04 - 00;19;48;21
Speaker 1
However, the following factors contributed to the economic boom deflated prices, pent up demand, lower interest rates, foreign investment, economic growth and advances in public health. That actually led to a very significant change in workforce dynamics. So basically prices came down after the pandemic, even against a nation returning and recovering from war after the flu pandemic and World War One.
00;19;48;23 - 00;20;20;15
Speaker 1
There was a strong desire to return to normalcy and enjoy life, which led to increased consumer spending, not unlike what we've seen in the post-pandemic days. Today, people begin to splurge on goods and entertainment, especially with a surge in industrial production to meet this demand. In 1921, the newly appointed Secretary of the Treasury, Andrew Mellon, lowered interest rates.
00;20;20;17 - 00;20;45;21
Speaker 1
During the same time, foreign investors flooded the economy with gold and the need to replace wartime goods and rebuild industries spurred economic growth. The pandemic, coupled with the traumatic effects of World War One, created a sense of disillusion with old social norms. People saw new ways of living, leading to shifts in fashion, music and lifestyle. This started the Jazz Age.
00;20;45;23 - 00;21;21;03
Speaker 1
Symbolizing a break from the past and embracing bold expressions of individuality and modernity, Women had taken on more roles in the workforce during the war and the pandemic, and they started to become more prominent in public life. This shift contributed to the push for women's rights, including the right to vote, which gained significant ground during the 1920s. I do want to explain this phenomenon, especially with one final note regarding public health and infrastructure spending, because I think it's a good indication of how the economy can really shape the future.
00;21;21;05 - 00;21;57;20
Speaker 1
The pandemic led to advances in public health, much like the COVID pandemic of 2020. It was able to shine a light on the state of the health care system. You remember the emergency measures hospitals overflowing regardless of how well these measures actually accomplish their goals. The masks, the social distancing, lockdown and hand sanitizer, hand-washing these were all things that were done with the intention of lessening the burden on health care because global health care infrastructure wasn't prepared for something like this.
00;21;57;22 - 00;22;26;02
Speaker 1
This really underscored the importance of public health systems, sanitation and disease prevention. And so many countries began to invest more in public health infrastructure, setting up the Foundation for Modern epidemiology and public health policies during the Spanish Flu area. Public health became a component of infrastructure. Infrastructure spending by the government can significantly boost an economy in several ways.
00;22;26;05 - 00;22;56;18
Speaker 1
It can create jobs. It has a multiplier effect as workers spend their wages, it stimulates demand across various sectors of the economy. It can improve productivity and enhance overall economic efficiency. Good infrastructure can also make regions more attractive for business. Encouraging private sector growth and governments began to see and feel that infrastructure investments could yield returns for decades supporting sustained economic growth.
00;22;56;20 - 00;23;16;19
Speaker 1
Health care very much became part of this infrastructure. One of the interesting components of public spending on health care employment was the outsized impact it had on women. If you fast forward to World War Two, you see Rosie the Riveter, a powerful cultural icon in the United States, representing the women who worked in the factories and shipyards during World War Two.
00;23;16;21 - 00;23;40;08
Speaker 1
These women, many of whom produced munitions and war supplies, often took on entirely new roles, filling the jobs of men who were not there because they joined the military. But we often miss the groundwork that was laid for Rosie the Riveter during World War One by women in health care. On the war front, women had taken on a much more prominent role in health care during that period.
00;23;40;12 - 00;24;03;28
Speaker 1
With many male doctors and nurses deployed to the front lines. Women stepped in to fill crucial roles in hospitals and medical facilities. The war provided opportunities for women to gain medical experience and training, leading to increased representation in the health care professions. After the war, many women continued their medical careers, contributing to advancements in public health and medical research.
00;24;04;00 - 00;24;37;01
Speaker 1
During the 1920s, in the 1920s, the majority of nurses were women with white women representing the overwhelming majority of professional nurses. In 1920, there were 117 professional nurses with women representing the majority. By 1930, there were 230,000 professional nurses, with women representing 98% of all nurses. This is one of the largest increases in female employment observed in history, and it changed the dynamics in optimism and consumer sentiment during the 1920s.
00;24;37;01 - 00;25;05;18
Speaker 1
But it also changed the exposure to unemployment during contraction periods. It created this normalization of women in professional roles and the rise of two income households, which has pretty obvious impacts on increased consumer spending during the Roaring Twenties. But it also created this reliance on dual incomes that meant economic shocks could have a more severe impact on households if both jobs were lost.
00;25;05;20 - 00;25;25;28
Speaker 1
And as jobs became more scarce, there was sometimes tension and competition between men and women for available positions. You were seeing this very large increase in the size of the workforce. At the same time, you were seeing an increase in unemployment. But I'm getting a little bit ahead of myself here. We still need to talk about the Roaring Twenties.
00;25;26;00 - 00;25;54;13
Speaker 1
The 1920s was a significant period of economic growth and prosperity in the United States, and this post-pandemic expansion, coupled with the return of soldiers from World War One. And there were several key factors here. After years of wartime rationing and pandemic related restrictions, consumers were eager to spend on goods and services. So there was a degree of pent up demand.
00;25;54;15 - 00;26;34;07
Speaker 1
You also saw a industrial reconversion. There were a lot of factories that were producing raw materials, and they quickly shifted to civilian goods production, which stimulated economic growth. There were a lot of technological advancements from technologies developed during the war that were applied to civilian industries, and global trade networks were reestablished. So American exports increased significantly. This rapid industrial growth and technological advancements led to mass production techniques like such as assembly lines, which dramatically increased manufacturing efficiency.
00;26;34;09 - 00;27;06;28
Speaker 1
The automotive industry boomed, with car ownership becoming widespread. Electrification expanded, powering new appliances and industrial machinery. Radio technology revolutionized communication and entertainment. I'm going to talk quite a bit about this one. And aviation made significant strides setting the stage for future air travel. These advancements fueled economic growth. They created new industries and transformed daily life for many Americans.
00;27;07;00 - 00;27;37;00
Speaker 1
The assembly line space officially pioneered by Henry Ford in the automotive industry, was quickly adopted across various sectors, including home building and the production of durable goods, like your stoves or fridges. In the context of home building, mass production techniques led to standardization of housing components and the ability to construct homes more quickly and efficiently. This resulted in a boom in suburban development and the rise of kit homes that could be ordered from catalogs and assembled on site.
00;27;37;02 - 00;28;11;00
Speaker 1
However, the efficiency of mass production also created the potential for overproduction and oversupply. Assembly lines dramatically lowered production costs, allowing companies to produce goods in larger quantities than ever before. Mass production techniques significantly reduced the time needed to manufacture goods from cars to household appliances. And while these were efficient, they were not flexible or agile. Once set up, they were not really designed to change their pace.
00;28;11;05 - 00;28;43;22
Speaker 1
They were designed to produce at a constant rate, making it difficult to quickly adjusted changes in demand. These mass production systems also required significant capital expenditure or CapEx. There were substantial upfront costs to setting up assembly lines and purchasing specialized machinery, and companies often took on debt or issued stocks to finance these investments, creating long term financial obligations, but also financial izing the production system in the U.S..
00;28;43;25 - 00;29;15;04
Speaker 1
This exposed Wall Street and the banking system, as well as Main Street and the regular American to the financial health of these organizations. Due to the high initial costs, it often took years before the investments became profitable. And this created a bit of what's called a sunk cost bias or a sunk cost fallacy where individuals and organizations continue investing in a project or venture because of past investments of time, money or effort that they've already put into it.
00;29;15;08 - 00;29;44;25
Speaker 1
Despite evidence suggesting that the cost of continuing might outweigh the expected benefits, this bias often leads to irrational decision making, as it ignores the principle that rational decisions should be based solely on future costs and benefit, not past expenditures that cannot be recovered. This psychological bias may have led to continued production, even in the face of declining demand, exacerbating oversupply issues.
00;29;44;27 - 00;30;11;25
Speaker 1
Having heavily invested in these systems, owners and corporations, as well as banks and investors in the stock market, were often reluctant to scale back or abandon their investments even when the market conditions changed. This made companies vulnerable to economic fluctuations because if demand stopped, they still had a loan that they had to pay and they use that to buy the assembly line or equipment.
00;30;11;26 - 00;30;49;03
Speaker 1
This created a degree of contagion from the manufacturing sector because the banks who lent them money on these were now vulnerable if the manufacturers couldn't service those loans. The issue of manufacturing lead time also became particularly problematic during economic downturns. Assembly lines were new and they lacked the flexibility to quickly respond to sudden drops in demand. This rigid production system meant that you could get a build up of inventory when demand decreased, and manufacturers often can tinued producing at the same rate.
00;30;49;06 - 00;31;30;14
Speaker 1
And this led to excess inventory or excess supply which can become deflationary. By the time manufacturers could adjust production levels, markets were often already oversaturated with goods. The costs associated with storing excess inventory and the capital tied up in unsold goods put significant financial pressure on these businesses. And so this combination of increased production capacity and inflexible manufacturing processes contributed to the oversupply of goods that exacerbated economic challenges during the Great Depression, when demand finally collapsed, many industries found themselves with vast surpluses of unsold inventory.
00;31;30;16 - 00;32;16;20
Speaker 1
Further deepening the economic crisis, the growth of new industries, particularly automobile and radio during the Roaring Twenties, played a pivotal role in shaping consumer culture and creating unified consumer psychology through media. Today, we have a way to track consumer sentiment through the University of Michigan Consumer Sentiment Index. But back then there was this term coined by famous British economist John Maynard Keynes to describe how people arrive at financial decisions, including buying and selling securities in times of economic stress or uncertainty.
00;32;16;27 - 00;32;43;21
Speaker 1
In his 1936 publication, he later talked about this idea of animal spirits as the human emotion that affects consumer confidence. Alluding to this biological nature that we are all animals and have these embedded reactions in our psyche, people think that the Internet is the beginning of the information age because we could get information instantly. But I would argue live radio.
00;32;43;21 - 00;33;15;09
Speaker 1
And then later television revolutionized news and information in the same way far before the Internet was created. The rise of radio had a profound impact on American society. Radio ownership skyrocketed from 60,000 households in 1922 to 10 million by 1929. Radio created the first truly national medium connecting Americans across vast distances, and it became a powerful tool for national advertising campaigns.
00;33;15;10 - 00;33;47;28
Speaker 1
So brands no longer had to only market to local communities. They could travel across state lines. This contributed to a more unified consumer psychology by having media communication available in real time. National advertising campaigns promoted consistent brand images and consumer desires. It created the sense of aspirational consumerism. Radio and print ads portrayed idealized lifestyles, encouraging consumers to aspire to certain products and brands.
00;33;48;01 - 00;34;16;26
Speaker 1
Radio Much like the Internet educated consumers, it taught them about new products and how to use them, creating shared knowledge and expectations. And they created common cultural touchpoints across the country, which was great for moments of growth. But was it a double edged sword? Nobody really seemed to wonder what this media would do against moments of spreading fear or weakness and its potential to create hysteria.
00;34;16;28 - 00;34;52;12
Speaker 1
Even though the stock market became accessible to the regular middle class people of Main Street, the majority of money in the stock market still belonged to wealthy people on Wall Street. But during the stock market crash, these wealthier folks were jumping out of windows. On Wall Street, the suicide rate in the United States increased as the Great Depression continued growing almost 24% from 17 to 21 suicides per 100,000 people.
00;34;52;15 - 00;35;16;10
Speaker 1
Life was difficult for many wealthy people, and the problem was that the rest of America could learn about that instantly. People could get information much more easily, but they could also get more information. People were listening to the content of the radio throughout the day, not unlike how people are consuming content on their phones throughout the day now.
00;35;16;12 - 00;35;45;04
Speaker 1
The first commercial car radio came out around 1926. It later became the Philco and was eventually acquired by Philips. But it was the precursor to Motorola Galvin Manufacturing Corp. that introduced the first mass market car radio in June of 1930, just as the Great Depression was getting to its worst. So now you've got people listening to the radio at home.
00;35;45;06 - 00;36;15;08
Speaker 1
They were listening at work, in many cases on the assembly line or in the office, and they listened in the car as they drove to work or went places with their family. And so the rise of the radio and the volume of news created a unique environment where for the first time in history, an economic shock could be experienced in granular detail almost instantly and simultaneously across a wide geographical area.
00;36;15;10 - 00;36;45;02
Speaker 1
This created a synchronized reaction with this more homogenous consumer culture that was embedded before, from advertising on radios. People across different regions were more likely to react or be impacted similarly and simultaneously to these economic news. Previously, economic shocks might have been felt more gradually and unevenly across different regions. Radio created a more uniform national experience of these economic events.
00;36;45;04 - 00;37;13;00
Speaker 1
This combination of instant information and shared consumer psychology meant that spending habits can change dramatically and quickly across the entire nation. In response to economic news. Imagine radio broadcasts in the summer of 2029, optimistic Jazz, Age Roaring Twenties, and then in the fall, just as were returning from summer break, those broadcasts to a stock market crash and despair spread across the nation.
00;37;13;02 - 00;37;36;10
Speaker 1
The Wall Street crash of 1929, also known as the Great Crash. The crash of 29 or Black Tuesday, was an American stock market crash that occurred in late 1929. It began in September with a sharp decline in share prices on the New York Stock Exchange and ended in mid-November. Now, this would be a good place to really examine the significance of radio.
00;37;36;12 - 00;38;07;05
Speaker 1
If you were a shopkeeper in New York City, you probably already knew about the stock market crash immediately before radio existed. You knew about the people jumping from the buildings on Wall Street because you lived nearby and people were talking about it. But if you were a miner working in Appalachia or a factory worker in Detroit or a farmer in Iowa, it may have taken a few quarters or months for you to hear about and then respond to the economy that was collapsing around you.
00;38;07;08 - 00;38;34;00
Speaker 1
And by that point, much of the work to fixing it could have already been done in New York. So previous crashes didn't really have this unified impact. By the time Main Street Detroit factory workers heard about it, New York may have already been recovering. But now things were different because you heard about it much quicker. Not instantly, but certainly more instantly than before.
00;38;34;03 - 00;38;54;24
Speaker 1
The introduction of radio dramatically altered the flow of economic information across the United States compared to the newspaper era. Let's paint a picture how news traveled in the pre radio era. Imagine a significant event occurs in New York City on day one. The event happens and reporters gather information on the two journalists, write their stories and submit them to editors.
00;38;54;24 - 00;39;20;18
Speaker 1
On day three, the newspaper is typeset and printed overnight. On day four, papers are distributed locally in New York City days, 5 to 7 papers are mailed to nearby cities and states. Days 8 to 14 news reaches more distant parts of the country and days 15 to 30. The most remote areas are finally receiving the news. So there's this great disconnect based on geography.
00;39;20;20 - 00;39;49;08
Speaker 1
This process meant that by the time some parts of the country heard about an event, it could be weeks old. The news cycle was much slower and local events often took precedent over national stories simply due to their immediacy. In many cases, economic impacts were often felt locally. National news arrived. The radio era completely upended that flow of communication.
00;39;49;10 - 00;40;15;07
Speaker 1
It allowed for near instantaneous transmission of news across vast distances. Early radio transmissions could reach considerable distances depending on various factors, and stations could potentially reach hundreds of miles during the day and even farther at night due to ionospheric reflection. And you often hear about these stories of our grandparents all sitting around the radio at night to listen to a war announcement and a president speaking or a baseball game.
00;40;15;08 - 00;40;46;12
Speaker 1
The radio very quickly became a deeply entrenched part of American culture. High power, Clear Channel stations, your national news stations of today could be heard across multiple states, sometimes up to a thousand miles or more under favorable conditions. However, reliable reception was typically limited to a radius of about 100 or 200 miles for most stations. But 100 or 200 miles was a very long distance for news to travel under the previous system.
00;40;46;14 - 00;41;17;14
Speaker 1
And so now national economic trends can influence local behavior before local conditions changed. This is perhaps the first time in history when the market was able to be forward looking and anticipatory with the newspaper. News felt like history, something distant that happened a couple of days ago. Whereas with radio, the news and national culture always felt so close and accessible, it was always waiting for you at the end of a workday where you could sit around the radio with your family into the evening.
00;41;17;17 - 00;41;53;27
Speaker 1
Today, it's hard for us to comprehend because we have instant access to information. But radio is the same information age revolution as the Internet. It dramatically sped up how quickly consumers could get information. And since it was brand new, the world and the markets were not really prepared for the ramifications of this. The interconnectedness and uniformity of consumer behavior, while beneficial during times of prosperity, could have ultimately contributed to the depth and breadth of the Great Depression's impact across American society and the deep despair felt by the country.
00;41;53;29 - 00;42;21;28
Speaker 1
It's very possible this played a crucial role in creating the depression aspect of this economic downturn, separating it from recessions that happened before. This was literally the first time in economic history that everyone was hearing about and feeling all the same things all at the same time. You had this simultaneous emotional reaction across the country, amplifying feelings of fear and despair and capitulation.
00;42;22;00 - 00;42;57;24
Speaker 1
This synchronized response created a collective mindset of gloom that was more pervasive and enduring than previous downturns because this was a brand new phenomena. Nobody really knew how to deal with it. From politicians to central banks, and this transformed formed what might have been a severe recession into a prolonged depression. Another very new phenomenon came along with radio and increased consumer spending here, and that phenomenon was the widespread use of credit to purchase household goods.
00;42;57;26 - 00;43;23;25
Speaker 1
So the Roaring Twenties saw a significant increase in consumer spending and the rise of a distinct consumer culture with economic prosperity. Many Americans had more disposable income to spend on consumer goods, entertainment and the adoption of the assembly line techniques mentioned before. Made goods more affordable and widely available. Radio was perfected as a method of communication during the war, but it also turned into a great consumer facing product.
00;43;23;26 - 00;43;53;01
Speaker 1
New marketing techniques and the rise of radio advertising fueled consumer desires. This world of advertising led to significant cultural shifts. You had jazz becoming immensely popular, symbolizing the era's spirit of freedom and experimentation. This distinctive art deco style influenced architecture, design and visual arts. Women gained a more social and economic freedom. Flapper dresses challenged traditional female stereotypes with new fashion and behavior.
00;43;53;08 - 00;44;19;20
Speaker 1
More women entered the workforce, particularly in office and health care jobs. The 19th Amendment gave women the right to vote, increasing their political influence. Confidence in the market and people's ability to pay. Led to a credit expansion. The introduction of installment plans and easier credit allowed more people to purchase more items. And so music, art and culture wasn't the only thing roaring.
00;44;19;26 - 00;44;44;07
Speaker 1
The stock market was getting attention from the layperson, and the radio was helping people from all over the country take an interest in investing. This democratization of stock market participation in the 1920s was significantly influenced by the rise in radio broadcasts. The new medium played a crucial role in transforming stocks from an exclusive domain of the wealthy to a more accessible investment option for the average American.
00;44;44;09 - 00;45;12;17
Speaker 1
Radio stations began broadcasting stock prices and market news throughout the day, allowing ordinary people to follow trends without needing to be physically present on Wall Street or in Chicago. Radio programs dedicated to financial advice and stock market education emerged, helping to demystify investments for the general public. Stock market discussions became a regular feature on talk radio shows, making investing a topic of everyday conversation across the country.
00;45;12;19 - 00;45;44;18
Speaker 1
With the ability to reach a mass audience, stock brokerage firms also began advertising their services on radio, targeting middle class listeners and promoting the idea that anyone could invest in stocks not unlike today's Internet platforms. That revolutionized the market by giving people the ability to trade their own stocks on their phones. The constant stream of market information and success stories broadcast on radio contributed to this speculative fever of the era, encouraging more and more people to try their hand at investing and.
00;45;44;21 - 00;46;10;10
Speaker 1
Many of these people were using margin, which is borrowed money to invest in stocks. And so this increased the financial exposure of the banking system to fluctuations in the stock market, but it also increased the exposure of Main Street to the financial system. Main Street now owed money to the banks who lent them the money to buy the stocks.
00;46;10;16 - 00;46;42;26
Speaker 1
And so and so their investment profiles took on a risk that never really existed before. You had regular people borrowing money to trade on margin for the first time in history. It introduced to economic problems almost instantly. The first one was this exposure to debt and the potential for a credit cycle, and the second was the introduction of this more irrational consumer to the market, which was your less educated by comparison to the traders of Wall Street.
00;46;42;28 - 00;47;23;13
Speaker 1
Your main Street investor who was operating on perhaps lower quality information, but also more emotion and and more dependance on an outcome and the need for this to succeed for the future wealth of their family. And because the economy booming, it created this perception that the stock market was a place for people to get ahead. And so the stock market experienced unprecedented growth during this period, with the Dow Jones Industrial Average rising from 63 in August of 1921 to 381 in September of 1929.
00;47;23;16 - 00;47;47;03
Speaker 1
Investment trusts and other financial innovations made it easier for average Americans to invest in the stock market. And among these new financial products, banks started competing a lot more and offered easier credit terms for mortgages, allowing people to buy homes, often with little money down. Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crash.
00;47;47;05 - 00;48;25;25
Speaker 1
One of the hallmarks of the Great Depression was the bank failures. 9000 banks failed, taking with them $7 billion in depositors assets, which would be equivalent to about $168 billion incinerated overnight. Today. And so credit and accessibility of the market created this speculation among the layperson and almost moved into a sense of mania. And this also existed in real estate because of the new competition in mortgages, the housing market also experienced a boom with widespread property speculation and rapidly rising home prices.
00;48;25;27 - 00;48;49;00
Speaker 1
The combination of speculation and easy credit led to a housing bubble in many urban areas, similar to what was happening in the stock market. By 1929, many stocks and homes were trading at values far exceeding their actual worth, creating what appeared to be a bubble in hindsight. It's typically only after a bubble bursts and prices collapse that the previous overvaluation becomes clear.
00;48;49;02 - 00;49;17;03
Speaker 1
Allowing for this retrospective analysis and identification of that bubble period, these speculative frenzies contributed to the stock market crash of 1929, which marked the beginning of the Great Depression. The crash highlighted the risks of unchecked speculation and the need for better financial regulation in the markets. But another one of the hallmarks of the Great Depression was people living in these lead to shacks that later became known as Hoovervilles.
00;49;17;03 - 00;49;41;25
Speaker 1
And we're going to get into the politics of this in a minute. But this really led to housing and the way people were housed playing a very big role in what happened during the Great Depression. You'll hear me talk a lot about housing throughout these episodes. And there's an important reason why the housing market serves as a crucial barometer for the overall health of the U.S. economy for several reasons.
00;49;41;27 - 00;50;05;14
Speaker 1
There's this great line in The Economist magazine that states that financial media focus most of their attention on stocks and bonds. But the world's biggest asset class is actually residential property, with an estimated value today of $200 trillion, homes are collectively worth about three times as much as all publicly traded shares. And more than 50% of Americans own their homes today.
00;50;05;19 - 00;50;29;18
Speaker 1
So the outcome of housing and mortgage debt can greatly impact sentiment. Many depend on their homes for savings vehicles and consider them an investment to fund their retirement. Owning one's home has long been considered part of the American dream. In 2000, two and three, householders in the United States owned their homes. In 1900, however, less than half owned their homes.
00;50;29;21 - 00;51;00;15
Speaker 1
The homeownership rate declined slowly but steadily from 1900 in 1920. A robust economy in the 1920s raised the homeownership rate. The Great Depression drove the rate down to its lowest level of the century, which was 44% in 1940. Home equity is often the largest asset for many American families. And so just like you saw in the stock market and the contraction in wealth coming out of New York, a wealth effect tended to exist.
00;51;00;16 - 00;51;35;23
Speaker 1
Changes in home values significantly impact consumer spending and confidence, especially when it's tied to debt. Housing, construction and related industries such as durable goods like furniture, appliances, etc., contributed substantially to GDP and employment. Mortgages were a major component of the banking system. Housing market fluctuations greatly affect financial stability, and we've seen this over many different economic cycles that I'm going to cover in subsequent episodes in the U.S. and around the world.
00;51;35;25 - 00;52;05;21
Speaker 1
Housing market trends often precede broader economic shifts, making it a valuable predictive tool. Typically, the greatest exposure that individual households have to the credit cycle is through mortgage rates. During the Great Depression, home values plummeted, with some estimates suggesting declines of 30 to 40% major cities. As unemployment rose and incomes fell. Many homeowners defaulted on their mortgages, leading to widespread foreclosures, and thus the decline in the homeownership.
00;52;05;24 - 00;52;36;22
Speaker 1
And many of the people who lost their homes ended up basically building these lean to shacks that you see in photos that reflect the Great Depression. New home construction virtually halted at this time with housing starts falling by about 80% between the late 1920s and 1933, which is the peak of the Great Depression. Many homeowners found themselves underwater, owing more on their mortgages than their homes were worth.
00;52;36;24 - 00;53;17;03
Speaker 1
Not unlike the global financial crisis of 2007 2008, farm foreclosures were particularly severe, contributing to rural poverty and migration out of rural areas. And this crisis led to eventually the creation of institutions like the Homeowners Loan Corporation or HLC, in 1933 to refinance home mortgages and prevent foreclosures. The housing market's collapse during the Great Depression really highlighted the interconnectedness of the housing sector with the broader economy and led to significant reforms in housing, finance and policy in subsequent years.
00;53;17;05 - 00;53;51;23
Speaker 1
The housing market collapse wasn't really ever noted as a key point in the timeline of the Great Depression. Rather, the stock market crash in 1929 ended up being what many marked as the beginning of the Great Depression. It occurred over several days with the most significant drops happening on Black Thursday, October 24th, and then more notably on October 29th, Black Tuesday before for the major crash on Black Tuesday, there was an attempt by a group of bankers led by J.P. Morgan Junior to stabilize the market.
00;53;51;26 - 00;54;23;23
Speaker 1
On October 24th, 1929, Black Thursday, these Wall Street bankers met at the offices of J.P. Morgan and Co, and they pulled their resources to buy up blue chip stocks above current market levels, attempting to boost investor confidence. This action briefly halted the market slide and seemed to restore some stability on Friday and Saturday. But alas, despite these efforts, the intervention proved insufficient to prevent the massive sell off that ended up occurring on Black Tuesday, October 29th.
00;54;23;25 - 00;54;52;23
Speaker 1
The Dow Jones Industrial Average fell 25% in just four days, wiping out billions in market value. Investors then rushed to sell their stocks, causing prices plummet even further. Many investors who had bought stocks on margin with borrowed money were forced to sell when prices dropped, exacerbating the crash. This is where debt really started to come into play. And as panic spread across the country more quickly now due to radio.
00;54;52;26 - 00;55;27;26
Speaker 1
Many people rushed to withdraw their savings all at once, leading to bank failures across the country, not just in isolated areas. During the Great Depression, over 9000 banks failed, representing about one third of all banks in the United States. For context, in the 2008 financial crisis, approximately four and 65 banks failed. Between 2008 and 2012, the scale of bank failures during the Great Depression was significantly larger, both in absolute numbers and as a proportion of the total banking system.
00;55;27;29 - 00;55;54;28
Speaker 1
And relative the population, which was much smaller at the time, this massive wave of failures contributed to the severity and duration of the economic downturn. Millions of Americans saw their savings and investments wiped out almost overnight. And the key difference here than past crashes was, they actually knew about it overnight. They didn't just find out about it the next time they went to a bank or a broker or maybe a week later.
00;55;54;28 - 00;56;25;25
Speaker 1
By the time Wall Street News made it to the newspaper, they knew about it almost instantly from hearing about the wealth destruction on the radio. And this led to a sharp decline in consumer confidence and spending and widespread panic. The crash and its aftermath led to a loss of faith in the government and economic institutions, not dissimilar to what we've seen today, paving the way for major political changes in the coming years.
00;56;25;28 - 00;56;50;21
Speaker 1
These immediate consequences set the stage for deeper and more prolonged economic that would become known as the Great Depression. It is important to note that the stock market crash was more a symptom of deeper economic problems rather than sole cause of the Great Depression. However, it's psychological impact on consumer confidence and spending patterns played a crucial role in the economic contraction that followed.
00;56;50;23 - 00;57;36;14
Speaker 1
We've already discussed a handful of preliminary things that people might call causes of the Great Depression, the stock market, speculation and crash. Similarly, housing market speculation and crash bank failures and monetary contraction decline in consumer spending and business investment and the sense of panic that was able to spread very quickly through this new medium of radio. What we haven't really got too, is the subsequent changes in policy and international factors and trade policies that likely exacerbated what was already a very deep decline in the U.S. economy.
00;57;36;16 - 00;58;11;05
Speaker 1
And this activity likely turned them into this lasting and unforgettable economic crisis. Two of these key factors were the gold standard and trade policies. The gold standard tied currencies to a fixed amount of gold limiting monetary policy flexibility. Countries tried to protect their gold reserves by raising interest rates and reducing money supply, exacerbating deflation. The gold standard facilitated the spread of economic crisis across borders, and this transmitted these economic shocks around the world.
00;58;11;07 - 00;58;36;19
Speaker 1
Countries that abandoned the gold standard earlier generally recovered faster from the Depression. The United Kingdom was one of the first major economies to abandon the gold standard in September of 1931. The decision allowed the British government to more flexibly adapt their monetary policy, helping to stimulate economic recovery. But their departure from the gold standard was also cited as a reason for their loss of global reserve currency status.
00;58;36;19 - 00;59;04;26
Speaker 1
Later, after the Great Depression in 1944. The dollar became a global reserve currency in the aftermath of World War Two. In the 1944 Bretton Woods conference, and many believe the U.S. was able to maintain a sense of monetary superiority during World War Two. And the U.S. didn't leave the gold standard until 1971. And I know there's a series of charts that served the hockey stick in 1971 on that website.
00;59;04;26 - 00;59;40;15
Speaker 1
What happened in 1971 dot com. A lot of Internet folk speculate that many things changed in the U.S. economy after that date. So we could logically deduce that a similar amount of things changed for the UK, which was the reserve currency at that point in time in 1931. The next key factor, and probably among the most worth discussing, factors ahead of a Trump presidency, very focused on tariffs heading into 2025 was trade policy.
00;59;40;18 - 01;00;15;06
Speaker 1
The Smoot-Hawley Tariff Act of 1930 significantly increased tariffs on imports leading to retaliatory measures from other countries, and this created a price volatility in goods. Obviously, things are significantly today with the U.S. having global reserve currency and something like a 95% self-sufficiency rate. But these tariffs were among the suggested causes of the Great Depression, or at the very least, something that greatly exacerbated the severity of the economic downturn.
01;00;15;08 - 01;00;40;25
Speaker 1
Big business petitioned Congress to raise tariffs because they couldn't compete with cheaper foreign businesses. And what happened when the U.S. raised their tariffs while Canada responded with increased tariffs on certain U.S. goods in 1930. Then France raised tariffs on American automobiles and other goods. In 31, the U.K. abandoned its free trade policy and imposed the general tariff in 32.
01;00;40;28 - 01;01;11;26
Speaker 1
Germany, same thing, 1930 and 31. Italy raised tariffs on wheat and other agricultural products. Spain increased duties on American goods, particularly cars. In 1931, China and Japan took similar measures in 1930 and 32. And so what started as a domestic economic issue very quickly became an international and geopolitics phenomena. Economic nationalism evolved quite a bit, which is obviously a common theme in today's world.
01;01;11;29 - 01;01;39;22
Speaker 1
Many countries adopted protectionist policies which further hampered global economic recovery, and this is probably a good point to introduce the idea of a political business cycle where you kind of see this fluctuation in economic activity that results from an external intervention of political actors. It is mainly used to describe the stimulation of the economy just prior to an election and in order to improve prospects of the incumbent government getting reelected.
01;01;39;25 - 01;02;18;26
Speaker 1
There is another stream of literature and theory on political business cycles that I will get to after regarding the difference between leftist versus rightist parties and their fiscal monetary preferences, because it does have some bearing on what took place later with subsequent U.S. elections during the Depression period. And as these economic problems were growing in scope by expanding outside of the U.S., they also grew in scale due to the growing efficiency of the manufacturing base and the overcapacity that was developed.
01;02;18;26 - 01;02;47;13
Speaker 1
So there is this industrial and housing overcapacity that potentially worsened this downturn because of the lack of agility for businesses to be able to respond to changes in the economy. So you almost had a shift from Bertrand competition where firms compete by setting prices, assuming that their competitors will keep prices constant and an effort to undercut them to capture market share.
01;02;47;15 - 01;03;15;01
Speaker 1
Firms had to shift to compete by changing their quantity or output level. So in a deflationary environment, when the prices for things were going down, firms found it difficult to compete by lowering prices or participating in Bertran competition as it would lead to unsustainable losses because they couldn't run their company on a negative margin or they couldn't run their overhead loss due to credit exposure because they had bank loans to service.
01;03;15;03 - 01;03;44;21
Speaker 1
So instead they might resort to competing by adjusting their output levels, which means many instantly reduce their output and cut all their overhead, especially workforce expenses and wages, rather than reducing their prices. And this is one of the big reasons why the Great Depression had such a pronounced impact on employment. Reducing output as a competitive strategy could indeed lead to decreased employment, as fewer workers would be needed to produce this smaller quantity of goods.
01;03;44;23 - 01;04;09;10
Speaker 1
And eventually this combination of reduced employment and lower production contributed to a deflationary spiral where falling prices lead to further cuts in production and employment, meaning lower household income and lower household spending. I think this is a fascinating one in the context of today where inflation had just made a really major role in the US election and people are really battling the idea of cumulative inflation, right?
01;04;09;10 - 01;04;39;20
Speaker 1
So we've had several years of piling up and so goods today are maybe ten or 20% higher in price than they were three or four years ago. And so people fantasize about deflation being this necessary evil that will bring prices back down. The challenge is that when you bring prices back down or when are falling or in deflation, people stop spending money because they think that goods are going to be cheaper in the future.
01;04;39;24 - 01;05;12;20
Speaker 1
So why would they buy those goods today? And so deflation can very easily create more deflation. Now, let's quickly examine the actual impacts of all of this taking place. There were obviously devastating impacts unemployment, unprecedented levels of joblessness and economic hardship for millions of Americans and people around the world. Peak unemployment in 1933 was 25% of the labor force and it was likely much worse than that.
01;05;12;27 - 01;05;45;20
Speaker 1
If you account for people who are underemployed or working part time jobs only now remember the 1920s did see a significant increase in the U.S. labor force, particularly due to women entering the workforce and people returning from the war. The female labor force grew by 25% between 1920 and 1930, from about 8.2 million to 10.3 million women. By 1930, women constituted nearly 22% of the total U.S. workforce, up from about 20% in 1920.
01;05;45;23 - 01;06;12;25
Speaker 1
Many people who retained jobs during this downturn faced reduced hours or wages, further straining household finances. Unemployment remained above 14% throughout the 1930s. In fact, unemployment did not return to pre depression levels until World War Two. This is where you often hear the idea of wars being started to save the economy. And this is where the Great Depression really becomes dynamic.
01;06;12;26 - 01;06;41;08
Speaker 1
If you look at Europe, Germany was already struggling with war reparations. Germany was hit exceptionally hard. The economic crisis contributed to political instability, ultimately facilitating the rise of the Nazi Party. By 1932, unemployment in Germany reached 6 million people, or around 30% of the workforce. I think it was among the worst unemployment rates in the world, creating widespread discontent and desperation among the German people.
01;06;41;11 - 01;07;11;06
Speaker 1
And they lost faith in democratic institutions. The the Weimer Republic was unable to effectively address the economic crisis. In fact, today the word Weimar is honestly often synonymous with inflation or hyperinflation. When you hear those stories of people running to the bank with wheelbarrows to fill with cash that took place in Weimer in mid 1922, 320 marks equaled one U.S. dollar.
01;07;11;12 - 01;07;37;28
Speaker 1
But by November of 1923, one U.S. dollar was worth four point to 2 trillion marks. The Nazi Party capitalized on economic hardship by promising radical solutions and scapegoating minority groups for Germany's problems and Hitler was appointed as chancellor in 1933, basically at the peak of the Great Depression in the U.S.. Comparably, significant changes took place in other economies.
01;07;37;28 - 01;08;09;13
Speaker 1
The U.K. decided to abandon the gold standard, as mentioned before, in 1931. And it was a pivotal moment in economic history with far reaching consequences for central banking. This gave the U.K. the ability to pursue more flexible monetary policies, adjusting interest rates and money supply, independent of how much gold they had. This led to a significant devaluation of the pound, which improved the UK's competitiveness as an exporter and helped stimulate their economic recovery.
01;08;09;15 - 01;08;34;24
Speaker 1
Though this was likely a negative externality and not an intentional outcome and it later led to them being exposed to losing reserve currency, the void was later filled by the US dollar, especially after World War Two and the Bretton Woods agreement. This shift laid the groundwork for modern monetary policies and foreshadowed the eventual transition to floating exchange rates in the 1970s.
01;08;34;27 - 01;09;01;08
Speaker 1
It also marked the beginning of the end of the UK's economic dominance on the world stage. As the center of global finance gradually shifted from London to New York. France was actually less effected due to lack of exposure to financial markets. They weren't speculating as much with the stock market or taking on as much debt to do so, but eventually did see decrease production and rising unemployment in the mid 1930s.
01;09;01;10 - 01;09;30;15
Speaker 1
In Latin America, Chile, Brazil and Cuba were particularly affected due to their reliance on commodity exports to the Western world. Canada, obviously the U.S. is largest trading partner, experienced a sharp decline in exports, particularly wheat and other agricultural products. Unemployment rose dramatically there, reaching 27% at its peak in 1933. Australia was among the worst as well, facing severe economic downturn due to falling wool and wheat prices with a 29% unemployment in 1932.
01;09;30;18 - 01;10;08;26
Speaker 1
Japan was initially affected but recovered relatively quickly due to expansionary government policies and, increased military spending, and China was already dealing with internal conflicts. The depression exacerbated the economic difficulties and social unrest that were taking place There. The point of highlighting all of these is to illustrate the interconnectedness of the world economy that led to significant changes in economic policies in international relations in the following decades, but also to show you that this was probably one of the first examples of a global ized world that we had ever seen.
01;10;08;28 - 01;10;34;26
Speaker 1
World War One really set the stage for that, as I mentioned at the beginning of this episode. The war also created the opportunity for the export of American to the remainder of the English speaking world and beyond, with notable figures like Hemingway as an example. Who was actually living in Paris during the Roaring Twenties, though his first book, The Sun Also Rises, is said to have perfectly captured the period between World War One and the Great Depression.
01;10;34;28 - 01;11;02;25
Speaker 1
People were really getting excited for heroes of American culture. There were sports stars like Lou Gehrig. There was also an odd obsession with criminal enterprises groups like Moll Barker and the Barker Gang. America became fascinated by bank robbers and true crime, reflecting a growing sentiment the financial system that they feel had wronged them. John Dillinger was one of the most famous people in America at the time.
01;11;02;29 - 01;11;31;19
Speaker 1
Bonnie and Clyde, who died in 1934, were symbols of anti-establishment and escapism that kept many Americans focused on anything other than the dire living situation. These people were villains that you could get behind. Kind of like the world rallying around anti-establishment politicians in present day because they're unhappy with the status quo. Donald Trump's win of the popular vote and the ousting of the elite that people blame for the status quo.
01;11;31;21 - 01;11;52;25
Speaker 1
And I will get to the politics of the Great Depression shortly. But another book that stood out during this period of time was John Steinbeck's The Grapes of Wrath, which was a fictional work based on interviews that he had done with displaced farm families across America, most notably this family who was forced to leave an Oklahoma farm in search of work in California.
01;11;52;25 - 01;12;22;22
Speaker 1
And during this period of time, there was a massive of people from Oklahoma to California. They later became known as Okies. It started off as a playful, fun term and identify and later became a slur when they were blamed for taking work away from native Californians. Pouring salt in the wound of, the Great Depression and environmental disaster took place in 1934 to 1940 called the Dust Bowl.
01;12;22;24 - 01;12;49;10
Speaker 1
The Great Plains suffered basically a combination of severe drought and poor farming practices leading to widespread soil erosion and dust storms. Parts of Oklahoma, like I mentioned, as well as Texas, Kansas, Colorado and New Mexico, were hit the hardest, earning the nickname the Dust Bowl. This disaster devastated agricultural production, forcing many farmers off their land and intensifying the economic crisis.
01;12;49;13 - 01;13;13;18
Speaker 1
There were these massive dust storms that would take place when the wind would blow. And similar to what you would see in the movies, these sandstorms in desert films and afterwards, all of the farm equipment would be covered in layers of dirt. Hundreds of thousands of people. These were the people I mentioned that were referred to as Okies, migrated particularly to California in search of work and better living conditions.
01;13;13;20 - 01;13;43;05
Speaker 1
The Dust Bowl and the Okie migration of the 1930s brought over a million migrants to California, and it left a gaping hole in the places that they came from. 1954 million people or a quarter of all of those born in Oklahoma, Texas, Arkansas or Missouri had left the region. And I think that this is really important in contrast, in comparison to the massive interstate migration that we're seeing today.
01;13;43;08 - 01;14;13;14
Speaker 1
Much of the migration can be seen as economic, but also cultural and psychological. And the effects of the Great Depression had profound and lasting cultural and psychological impacts on American society. Many Americans developed a more frugal mindset, emphasizing saving and self-reliance, consumerism. There almost became this disdain for consumer culture because they felt that the consumer culture of the 1920s, the Roaring Twenties, is what got them there.
01;14;13;16 - 01;14;42;11
Speaker 1
This almost created a bit of a generational trauma. Those who lived through the Depression often carried lifelong habits of thrift and fear of financial insecurity and passed those attitudes to their children. And even more notably, the crisis led to increased political awareness and activism among many Americans influencing voting patterns of those generations for decades. By 1933, many families were left destitute.
01;14;42;14 - 01;15;10;16
Speaker 1
Shantytowns, nicknamed Hoovervilles, sprang up across the country, housing those who had lost their homes and livelihoods. And Hoover became synonymous with failure during his term as president. Hoover's initial responses to the Great Depression were characterized by a belief in voluntary action and limited government intervention. He encouraged businesses to maintain wage levels and avoid layoffs, hoping that this would help maintain consumer purchasing power.
01;15;10;23 - 01;15;44;22
Speaker 1
There were some works investments like the Hoover Dam to create jobs, but it was on a very limited scale compared to later New Deal programs of his competitor. There was an RF C Reconstruction Finance Corporation established in 1932, which provided emergency loans to banks, railroads and other businesses in an effort to prevent bankruptcies, as well as the Federal Home Loan Bank Act, passed in 1932, which was aimed to support homeownership in the housing industry by providing a credit reserve for home mortgage lenders.
01;15;44;25 - 01;16;14;26
Speaker 1
Hoover generally resisted providing direct federal aid to individuals, fearing it would undermine self-reliance and create dependency on the government. This approach ultimately proved inadequate to address the scale of economic crisis that was taking place in the U.S. and his eventual policies were seen as too little, too late. This contributed to his eventual defeat in the 1932 election and paved the way for Franklin Roosevelt's more interventionist New Deal policies.
01;16;14;29 - 01;16;41;01
Speaker 1
Comparing this to present day where the 2024 election was won by a large margin and 40% of U.S. voters said the economy was their top issue. FDR was elected president in 1932 amid the depths of the Great Depression. So he obviously had a difficult setup ahead of him. But his approach to addressing the economic crisis was markedly different.
01;16;41;04 - 01;17;08;27
Speaker 1
Hoover. FDR his policies, collectively known as the New Deal, represented a significant shift in the role of the federal government in managing the economy and providing welfare. In economic terms, the shift represented a move towards Keynesian economics and increased government intervention in the economy. More specifically, fiscal policy, which embraced the use of government spending as a tool to stimulate economic growth and create jobs.
01;17;09;00 - 01;17;57;01
Speaker 1
A key tenet of Keynesian economics, which you're going to get to in a minute. Keynes theory of fiscal policy had kind of gone untested until this moment in time. FDR really focused on boosting consumer demand and demand side economics through job creation and social welfare programs, rather than relying solely on supply side measures. This was kind of this shift away from laissez faire capitalism towards a mixed economic system with greater government involvement, economic planning and regulation, which almost sounds a little bit like the economic planning appeal that people were in the Soviet Union's planned economy during the Great Depression, making it more attractive to some Americans.
01;17;57;03 - 01;18;25;17
Speaker 1
There was a big rise in Communist ideology. Communist Party membership in the 1930s increased from about 75 members in 1930 to about 75,000 members at its peak in 1938. And it played a really active role in labor, organization and social movements. The new deals approach to economic planning represented, a bit of a middle ground, incorporating elements of government intervention while preserving the fundamentals of a market economy.
01;18;25;19 - 01;18;51;28
Speaker 1
This really laid the groundwork for modern macro economic management and expanded the role of government in economic affairs, which was a paradigm that began to dominate the remainder of the 20th century. I'm sure we quickly rifle through the key elements of the New Deal here. There was an Emergency Banking Act in 1933 that stabilized the banking system by temporarily closing banks for inspection and reopening only those that were deemed solvent.
01;18;52;03 - 01;19;23;21
Speaker 1
Agencies like the Works Progress Administration, WPA and the Civilian Conservation Corps provided employment for millions of Americans on public works projects. The Social Security Act of 1935 established a system of old age pensions and unemployed in insurance. The National Labor Relations Act of 1935 protected workers rights to unionize and engage in collective bargaining and the SSI, the securities and Exchange Commission was created to regulate the stock market and prevent fraudulent practices.
01;19;23;24 - 01;19;55;02
Speaker 1
This new deal truly represented a fundamental shift in American governance, expanding the role of the federal government in economic and social affairs. It didn't end the Great Depression entirely. It provided relief to millions of Americans and implemented reforms that shaped the postwar economy and gave America the ability to become a global leader economically. It was not without controversy, argued that it represented an overreach of federal power and that some programs were ineffective or even counterproductive.
01;19;55;04 - 01;20;26;15
Speaker 1
The debate over the proper role of government in the economy sparked by the New Deal continues to influence American politics to this day. Part of this dialog was the intense debate among economists about the best approach to address economic crises. Two prominent figures emerged with contrasting views. John Maynard Keynes and Friedrich Hayek. Keynes advocated for government intervention in the economy during downturns and argued that increased government spending could stimulate demand and create jobs.
01;20;26;22 - 01;20;53;00
Speaker 1
Hayek Championed free market principles and minimal government intervention and argued that the government interference would distort market signals and prolong economic crises, emphasizing the importance allowing free market forces to naturally correct imbalances. While it was clear which direction FDR, his policies leaned, no event really tested, the ability for government spending to stimulate the economy like World War Two.
01;20;53;02 - 01;21;15;24
Speaker 1
World War Two played a crucial role in the U.S. recovery from the Great Depression. Massive government spending was a big part of that. The war effort required unprecedented level of government expenditure, creating millions of jobs and stimulating economic growth. There was a surge in industrial production, and the need for military equipment and supplies led to a dramatic increase in industrial output.
01;21;15;28 - 01;21;53;13
Speaker 1
Revitalizing many industries. The war effort effectively ended unemployment, with many civilians finding work in factories and women entering the workforce in large numbers. It also spurred rapid technological progress, which had long term benefits for a postwar economy. The U.S. later emerged from the war as the world's leading economic power with its industrial base intact. Unlike many European nations and years of rationing and limited consumer spending during the war led to a surge in consumer demand in the postwar period, fueling further economic growth and the baby boom.
01;21;53;16 - 01;22;19;17
Speaker 1
So to wrap up here, the Great Depression was a pivotal moment in economic history that continues to offer valuable lessons for today's world. It highlighted the interconnectedness of global economies and the far reaching impacts of economic crises. For the first time ever, and the period demonstrated the potential consequences of unregulated financial markets and speculation and led to a handful of reforms in policy.
01;22;19;20 - 01;22;43;28
Speaker 1
It sparked debates about the role of government in managing economic downturns, leading to new economic theories and policies, and proving to be a basically a testing ground for a lot of economic theory. The New Deal programs introduced during this time laid the foundation for many modern social welfare systems, and the advent of new technologies allowed information to spread and consumer sentiment to become much more powerful during this period of time.
01;22;44;00 - 01;23;10;10
Speaker 1
The recovery process, obviously accelerated by World War Two, showed the potential impact of large scale government spending on economic growth. Studying the Great Depression provides insights into economic analysis, policy responses and societal impacts of severe economic downturns. And I hope that it will serve as a reminder to us as the importance of economic stability, effective regulation and the need for adaptive policy responses in times of crisis.
01;23;10;12 - 01;23;35;11
Speaker 1
In our next episode, we will fast forward to the late 1990 and early 2000s to explore another significant economic event that is tied more closely to today's themes of technology. And that is the dotcom bubble. We'll dive into the rapid rise and spectacular fall of Internet based companies during this period, examining the parallels between the speculative frenzy of the dotcom era and today's tech start.
01;23;35;13 - 01;24;06;08
Speaker 1
AI and cryptocurrency landscapes. We will discuss the factors that fueled the com boom, including technological advancements and changing investor attitudes. We will evaluate any similarities between the dot com bubble and current trends in the tech investment, and we will apply any lessons learned from the bubbles burst and their relevance to today's tech driven economy, as well as the long term impacts from the dot com era on the modern digital landscape, economic landscape and trading environment.
01;24;06;10 - 01;24;28;05
Speaker 1
So join us next time as we unpack this more recent economic phenomenon and explore its implications for our current tech driven world. So make sure you subscribe and don't miss this fascinating look at how past speculative bubbles inform our understanding of present day economic trends. And if you get a chance, please leave us a review and share the podcast with your friends if you enjoyed this episode.