HISTORY OF THE US ECONOMY

History of the US Economy

History of the US Economy

The period of 1930s was one of the most important phases in the history of USA. This is the reason why a book was written under the title “A Patriot's History of the United States. There was another book as well which had a title Who Built America? Our main focus will be on the two chapters that were there in the book called “Enlarging the Public Sector, 1932-1940” and Labor Democratizes America, 1935-1939. The main thesis of both the chapters is the poor economic situation that was prevailing in the United States at that time and the steps which they took to recover from this situation. (Friedman, 1963)

The recent economic crisis has been compared by some to the Great Depression, a severe economic recession that struck the world during the decade preceding World War II. While it is true that the crisis that the people have been experiencing had important effects on the worldwide economy, the Great Depression is known to be the most widespread and the deepest depression of the 20th century. The elements which led to this situation are numerous and intertwined, but they must be seriously identified in order to avoid another situation like that. The Great Depression officially started in the United States in the 1920s, and culminated in New York with the stock market crash in October 29, 1929, also known as the Black Tuesday. The recession began in the early 20s, after World War I finished. The cost of the war was three times larger than tax collections and when government cut spending, the whole economy was affected. So the main causes of this event were over-indebtedness and deflation, with which governments all over the world hardly dealt, despite all the measures taken. The interest rates were also cut, and numerous countries raised the tariffs on imported goods in order to protect the national industries. (Garside, 1993)

However, the crisis was out of control and as a result, during the following years many banks, stores, and factories were closed worldwide, which led to a high rate of unemployment. Many people lost their houses, investor's money and the GNP decreased year by year. There were also political consequences of the recession: in Germany, Adolf Hitler became more and more popular and Japan invaded China in order to open mines and develop its industry. Eventually, these new types of governments and actions led to the Second World War, which had in its turn negative effects on world's history. The Great Depression forced investors to cease trades and thus world trade fell sharply. Deflation occurred and is the mostly associated with depressions. Contrarily to hyperinflation, deflation increases the real value of a national currency. This means that one can buy more goods with the same amount of money, but because prices fall, consumers are tempted to postpone the purchase. Furthermore, investors would rather keep money than invest it, and thus a liquidity trap ...