Expectations in the Great Depression and the Trump Administration
The Recovery of the Great Depression in the United Stated continues to be a small economic phenomenon. While the conventional view is that the depression as lingered throughout the 1930’s and ending only with the wartime production and deficits of World War II, the US recovered quickly, having large growth in GDP and increased production from 1933 to 1937. This fast recovery can be attributed to the changes in growth and inflationary expectations, which came about from the Roosevelt regime change. The economic boom within the first six months of the trump administration can be attributed to similar changes in growth expectations, which have lasting and powerful impacts on the
…show more content…
economy. In 1929 the Depression began in the United States. This was caused by fiscal and monetary contractions due to the government being stuck on the Gold Standard. Under the gold standard the government could not conduct monetary or fiscal policy. This paired with the 1929 stock market crash, the decision to raise interest rates, and the bank failures created the Great Depression. However, the recovery of the depression, by any standards was tremendously fast. Figure 1 shows how in the span of four years, from 1933 to 1937, the United States GDP increased by almost 30 percent. This is a large recovery in a very short amount of time. From table 2 you can see that from 1933 to 1937 real GDP grew at an average rate of 7.28 percent per year; between 1938 and 1941 it grew at an average of 7.8 percent. Table: 1 Figure 1: Romer (1992) argued that the recovery began in 1933 when President Roosevelt took the United States off the Gold Standard, which allowed for more expansionary monetary policy. The multiplier for the monetary policy expansion was far greater than the multiplier for the fiscal policy expansion. During the 1930’s there was a less than one percent difference between normal and the expansionary fiscal policy done, but by 1940 there was a 50 percent difference between the expansionary monetary policy and normal monetary policy (Romer 1992, 768). Monetary policy was able to have such a significant impact due to the massive gold inflows increasing the money supply, and the transmission mechanism which states that decreases in interest rates will cause increases in investment demand as there is a lower opportunity cost of spending. Romer (1992, p.780) found this mechanism to be very active during the 1930’s as there was a strong negative contemporaneous correlation between interest rates and the growth rates of investment and consumer spending. However, the “recovery” from the depression may have started before 1933, when Roosevelt took office.
It began with Roosevelt promising strong policy changes from Hoover, which allowed for changes in expectations when he took office in 1933. Expectations are what saved the United States from the Great Depression. At the height of the Depression in 1933 there were very low interest rates, high unemployment, decreasing output, appreciation of the dollar, and high inflation. Roosevelt won the election in 1933 and immediately began a strong change in policy. He drastically changed three things that were iconic of the Hoover administration; the gold standard, balanced budget, and old policy dogmas of small government. The improvements that took place in shortly after Roosevelt’s election can be seen in figure …show more content…
2. Figure 2. Roosevelt took the United States off the Gold standard in 1933, which caused a devaluation of the dollar relative to other currencies, which is shown by increases in commodity prices of wheat, corn, cattle, and copper (Eggertsson 2008, p.1478). Roosevelt had laid a foundation for and had now established a new regime. This new regime quickly changed the growth expectations (Romer 2014, p. 389), which is what allowed the economy to recover so quickly. The change in growth expectations was so powerful that the value of cotton increased 90 percent in just a few months after Roosevelt took office (Romer 2014, p.386). After he placed us back on the gold standard there was a large inflow of gold as political tensions in Europe rose. The inflow in gold helped to increase the money supply and help cause inflationary pressure as the federal reserve choose not to sterilize it. As shown by figure 3, Roosevelt also began to run government deficits of 9 percent of total GDP (Eggertsson 2008, p.1477). Deficit spending helped to change the inflation expectations by giving a measure of the change in the inflation incentive of the government. If the government was spending a lot of money, then they probably expected higher inflation, which helped the public to change its own expectations. Deficit spending allows monetary expansion to be credible. Hoover also ran a budget deficit in 1932 (figure 3), however, his were miscalculations due to falls in output (Eggertsson 2008, p.1482). Roosevelt’s budget deficits were intentional expansionary fiscal policy. Figure 3. Using models for the Hoover and Roosevelt administrations had expectations not changed, and the Hoover administration continued in power, output would have declined by 30 percent more by 1937 (Eggertsoon 2008, p.1480). The main reason why Roosevelt succeeded in ending the depression was due to the dramatic regime change. As the regime changed, inflationary and growth expectations changed. This increase in inflationary expectations allowed the future expected money supply to rise. As the change in growth expectations increased this caused there to be more business investment. Romer (2014, p. 389) reflects this by showing an increase manufacturing of durables, and an increase in industrial production specifically iron and steel, whose overall IP rose 57 percent between march and July of 1933. The increase in production of steel and iron within months of Roosevelt taking office, must have been due to the change in growth expectations, as the economy was still in the height of the depression. Figure 4 shows how the stock market, specifically the Dow Jones, increased to its pre-depression levels soon after Roosevelt was elected. The stock market is a reliable way to measure growth expectations as it reflects both expected growth and business investment (Temin 1988). Figure 4.
The lessons learned from the recovery during the depression are that expectations matter. When the economy is declining or stagnant, a change in growth and inflationary expectations can have massive impacts. This is seen as the regime change done by Roosevelt caused immediate changes in the expectations, which caused increased in output, industrial production, commodity prices, employment, exchange rates, and stock prices.
Donald Trump, during his presidential campaign, made countless speeches of increasing employment especially among low income workers, bringing back manufacturing in the United States, and “draining the swamp.” This is similar to Roosevelt, as Trump declared that his policy, if elected would be to drastically change the political and economic system, which is a sudden regime change. The Obama administration had a similar economic policy to the one proposed by Hillary Clinton, so she acts as the Hoover who is stuck in their old political dogmas. Trump clearly set a president for a regime change, and this was reflected similarly to the depression, as there were clear increases in growth expectations shortly after his
election. If there were changes in growth expectation, then it would show up as upward trends in the stock market (Temin 1988). This is shown in figure 5, as the Dow Jones had sharp spikes near his election and continual growth into his Presidency. If there was a change in growth expectations due to the Trump administrations regime change and ideas for large economic growth especially in the manufacturing sector, the we would expect to see increased in industrial production similar to the increased production and employment. This is shown in Figure 6, as both the number of people employed, and industrial production have both gone from relatively stagnant growth to upward trends. During the recovery from the Depression there was a depreciation of the US currency or an increase in commodity prices. As shown in Figure 7 there is clearly a depreciation of the US dollar relative to the euro, which is similar to the depression era deflation. Lastly, there has been a sudden increase in GDP since the start of the trump administration. There does not appear to be a clear increase in commodity prices or in GDP as shown in figure 8.
In 1932, people decided that America needed a change. For the first time in twelve years, they elected a democratic president, President Franklin D. Roosevelt. Immediately he began to work on fixing the American economy. He closed all banks and began a series of laws called the New Laws. L...
The era of the Great Depression was by far the worst shape the United States had ever been in, both economically and physically. Franklin Roosevelt was elected in 1932 and began to bring relief with his New Deal. In his first 100 days as President, sixteen pieces of legislation were passed by Congress, the most to be passed in a short amount of time. Roosevelt was re-elected twice, and quickly gained the trust of the American people. Many of the New Deal policies helped the United States economy greatly, but some did not.
The region later became known as the dust bowl. The election of Franklin D Roosevelt and the introduction of the new deal in 1932 helped restore the confidence in the United States and marked the beginning of the end of the depression there. In many countries the great depression resulted in a big shift in public attitudes and in government policy towards welfare provision. The second reason was the unpopularity of Hoover. Hoover was the 31st president of the United States and held office during the great depression.
The Great Depression hit the United States while Hoover was serving his first and only term as president. In the end, the public saw Hoover as a man who began his presidency as a liberal, but who’s beliefs began to resemble those of a conservative towards the end of his term. The Progressive Age had come to an end by 1910 and big business thrived as Harding, Coolidge, an...
The Roosevelt administration's response to the Great Depression served to remedy some of the temporary employment problems, while drastically changing the role of the government, but failed to return the American economy to the levels of prosperity enjoyed during the 1920's.
Because of the plague known as the Great Depression, Herbert Hoover is often seen as one of the worst presidents in American history. He enacted policies such as the Hawley-Smoot Tariff that flushed America deeper into the depression. Hoover didn't understand that to solve a crisis such as a depression, he needed to interact directly with the people by using programs such as social security and welfare. Instead, Hoover had the idea that if he were to let the depression run its course, it would eventually end. There are three things that can be used to define Hoover's presidency during the depression, his actions, his mentality toward fixing things, and the fact that he helped pave the way for the “New Deal”
Roosevelt immediately gained the public's favor with his liberal ideas. In the first 100 days, Roosevelt stabilized banks with the Federal Bank Holiday. In the New Deal he fought poverty with the TVA, NRA, AAA, CCC, PWA, and CWA. These policies were definitely liberal in the 1930's and because of the new programs, Roosevelt received false credit for ending the Depression. Ironically Roosevelt succeeded only a little more than Hoover in ending the Depression. Despite tripling expenditures during Roosevelt's administration, (Document F) the American economy did not recover from the Depression until World War II.
The Great Depression of 1929 to 1940 began and centered in the United States, but spread quickly throughout the industrial world. The economic catastrophe and its impact defied the description of the grim words that described the Great Depression. This was a severe blow to the United States economy. President Roosevelt’s New Deal is what helped reshape the economy and even the structure of the United States. The programs that the New Deal had helped employ and gave financial security to several Americans. The New Deals programs would prove to be effective and beneficial to the American society.
The Web. 16 Mar. 2014. The 'Standard' of the 'Standard'. http://www.harp.gov/About>. Agricultural Adjustment Administration (AAA). "
President Roosevelt initiated the only program that could pull the U.S. out of the Great Depression. Roosevelt’s New Deal got the country through one of the worst financial catastrophe the U.S. has ever been through. Diggerhistory.info biography on FDR states,” In March 13 million people were unemployed… In his first “Hundred Days”, he proposed, and Congress enacted, a sweeping program to bring recovery to business and agriculture, relief to the unemployed and those in danger of losing their farms and homes”(Digger History Biography 1). Roosevelt’s first hundred days brought relief to the unemployed. He opened the AAA (Agriculture Adjustment Administration) and the CCC (Civilian Conservation Corps.). The administration employed many young men in need of jobs all around the country. Roosevelt knew that the economy’s biggest problem was the widespread unemployment. Because of Roosevelt’s many acts and agencies, lots of young men and women around the country were getting jobs so the economy was healing. According to Roosevelt’s biography from the FDR Presidential Library and Museum, “Another Flurry of New Deal Legislation followed in 1935, including the WPA (Work Projects Admi...
The Wall Street Crash of 1929 marked the start of the great depression which hit America and much of the industrialised world during the 1930’s. The cycle of prosperity turned into a spiral of depression as consumer spending fell by almost half, unemployment rose to over 12 million and there was widespread poverty and homelessness. The Hoover government’s ‘rugged individualism’ meant that people did not receive any relief from the federal government and led to a loss in support for Hoover as people blamed him for their problems. After his landslide victory in 1932, President Roosevelt vowed that through his reforms and economic policies, America would return to the road of prosperity. In 1933 he set out the ‘New Deal’ which sought to deliver relief, recovery, and reform. It could be argued that although the New Deal was effective in certain aspects such as short term relief, it did not end the depression; rather the war was the decisive factor.
But economically, Roosevelt and his “brains trust” had no idea what they were doing. They attempted one failed intervention after another. The Great Depression was a disaster, and sadly an avoidable one.” (Edwards, 2005)
After the depression America was in a state mass hysteria as the Wall Street crash had caused a massive crisis among the American public because the impact of the wall street crash caused 12 million people out of work, it also caused 20,000 companies to go bankrupt and there were 23,000 suicides in one year because of the wall street crash this was the highest amount of suicides in a year ever. The main aims of the new deal were Relief, Recovery and Reform, Relief was for the Homeless and Unemployed, recovery was for Industry, Agriculture and Banks and Reform was to prevent the depression form happening again. The structure of The New Deal was the First Hundred Days (1933) where he would focus on relief by helping the homeless and unemployed and recovery by helping industry, agriculture and banks, there was also the Second New Deal where he would focus on Reform, preventing the depression from happening again. Roosevelt believed that the government should help those people worst affected by the depression, this is why he created over 50 alphabet agencies to deal with the problems caused by the depression, this is why he introduced the new deal because he wanted to ease the pressure
Since being founded, America became a capitalist society. Being a capitalist society obtains luxurious benefits and rather harsh consequences if gone bad. In a capitalist society people must buy products and spend money to keep the economy balanced, but once those people stop spending money, the economy goes off balance and the nation enters a recession. Once a recession drastically takes a downturn, the nation enters what is known as a depression. In 2008 America entered a recession and its consequences were severe enough for some people, such as President Barack Obama, to compare the recent crisis to the world’s darkest economic depression in history, the Great Depression. Although the Great Depression and the Great Recession of 2008 hold similarities and differences between the stock market and government spending, political issues, lifestyle changes, and wealth distribution, the Great Depression proved far more detrimental consequences than the Recession.
The Stock Market Crash of 1929 caused the Great Depression, allowing Herbert Hoover and Franklin D. Roosevelt to take some action as president. Hoover however did much less than FDR. Roosevelt was fully prepared for action as soon as he took office unlike Herbert Hoover, who has been said to be a “do-nothing” president. Luckily with Roosevelt’s efforts, his Bank Holiday, and the New Deal the U.S. was taken out of the depression and the federal government became much more involved in people’s everyday economic and social lives.