Blog #7 - The Great Depression and the New Deal

The Great Depression and the New Deal

In Chapter 21, Strayer spoke about the circumstances leading up to the Great Depression following the collapse of the stock market in 1929, and President Franklin Delano Roosevelt's response to stimulate the economy with a plan he unveiled in 1933 called the New Deal (Strayer, Pages 634-636).  I was surprised by Strayer's view on the New Deal where he stated "Ultimately, none of the New Deal's programs worked very well to end the Great Depression," but rather it was World War II that made the difference (Strayer, Page 636).  From Grade School to High School, I was taught the New Deal brought us out of the depression.  In the last decade, I heard arguments to that theory in news talk shows and business channels, but never found the time to find the information written in a recognized textbook until now.

I saw history repeat itself with the Great Depression II.   This time its the early 2000's stock market and housing market.  Everything was hitting on all cylinders in the United States.  The NASDAQ was almost as high as the DOW.  Median home prices seemed to rise daily.  My parents house; which was purchased brand new in 1972 for approximately $35,000 was now worth $700,000 "as is."  Home loans were being handed out like candy on Halloween.  Then the "rug was pulled from under us" and everything went into a free fall.  My parents house was now only worth @$400,000.  Hundreds of thousands of people defaulted on their loans.  The NASDAQ was now well below 5,000.  It was bad.

Then came the New Deal II.  The government's response for the Great Depression II was the big bailout (both Republicans and Democrats were involved in creating this mess - in spite of what each says).  This included giving financial institutions loans with little oversight, creating the "cash for clunkers" program, and  the "making homes affordable" refinancing project.  Billions of dollars have been spent so far, but has this infusion of cash and government backing really helping?  Based on principles learned in business classes, and from practical experience, I say no.  What is the incentive for a corporation to use sound lending practices when they are deemed too big to fail?  What is the incentive for a person to live within his/her means when the government chops off hundreds of thousands of dollars from their home loan - while others who stayed within their means are paying off every last dollar borrowed?  What is the incentive of an auto manufacturer to look to the future in auto sales when they can't go bankrupt either.  

Strayer also said it was World War II that really helped the United States out of the depression.  Without being a "conspiracy theorist," have we not also been at war since 2001 (Iraq, Afghanistan, Syria, Osama), which has helped our defense contractors and private security?  These arenas and persons have divided our world.  Fortunately we have been able to keep the arena "small" up to this point, but that can always change.  We have already had the Great Depression II and the New Deal II.  One spark in Syria (with the events in Iraq, Iran, Afghanistan, Egypt, etc.) could lead to World War III - a moment in history I hope will not be repeated.