Great Depression

Definition of Recession

A recession is a contraction phase of the business cycle. The U. S. based National Bureau of Economic Research (NBER) defines a recession more broadly as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. ” American newspapers often quote the rule of thumb that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. This measure fails to register several official (NBER defined) US recessions.

Definition of Depression

A depression refers to a sustained downturn in one or more national economies. It is more severe than a recession (which is seen as a normal downturn in the business cycle). There is no official definition for a depression, even though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.

A GDP decline of such magnitude has not happened in the United States since the 1930s. Characteristics of a Recession vs. Depression The attributes of a recession include declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions are the result of falling demand and may be associated with falling prices (deflation), or sharply rising prices (inflation) or a combination of rising prices and stagnant economic growth (stagflation).

A common rule of thumb for recession is two quarters of negative GDP growth. The corresponding rule of thumb for a depression is a 10 percent decline in gross domestic product (GDP). Considered a rare but extreme form of recession, a depression is characterized by “unusual” increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile/erratic relative currency value fluctuations, mostly devaluations.

Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced given current resources and technology (potential output). A devastating breakdown of an economy (essentially, a severe depression, or hyperinflation, depending on the circumstances) is called economic collapse.

A. The Great Depression was caused by an economic system out of balance. There was too much supply with little demand. This situation was created by monopoly pricing, unsound banking practices, overproduction, high tariffs, and tightening of money supply by Federal Reserve Board. B. A slump in economic activity with over speculation in stock and buying stocks on margin caused the stock market to crash in October 1929. The stock market crash marked the beginning of Great Depression. C.

The Depression was characterized by high unemployment, foreclosures on homes, farms and businesses, closing of banks, and the drying up of credit, low purchasing power, and hunger. Many people grew concern that capitalism had failed and democracy couldn’t provide solutions to problems. D. President Hoover, a strong advocate of “rugged individualism” believed in minimal government interference to deal with Depression. He based his policy upon supplying optimism, expanding works, and loaning money and struggling banks.

E. In 1932 summer, 20000 impoverished veterans from the First World War marched on Washington demanding early payment of a financial bonus that was due in 1945. After the bonus failed in Congress, President Hoover ordered the US army to evacuate the marching veterans from DC. The army, led by Douglas MacArthur, drove the veterans out. The armies’ handling the Bonus March ended Hoover’s chance for reelection and fostered a growing fear of revolution in America. F.

President Hoover and his Republicans were blamed for Depression in election of 1932. Franklin Roosevelt was elected president, promising to save capitalism, help common man, and to provide work. Roosevelt was vague on his plans, except he would try anything. G. FDR’s plan to get nation out of Depression was called the New Deal. New Deal had policies of relief for the poor, recovery from Depression, and reform of the economic system. The first New Deal as passed during the first 100 days of his presidency.

The left wing of politics liked the idea and passed the idea through Congress. Economy fell back into recession. Black Tuesday The day the stock market crashed. No buyers. Rugged individualism Social outlook promoting one’s goals and desires of independence. Hooverville This name was based on Hoover’s blame for depression. Families lost their homes because they couldn’t pay mortgages. Hawley-Smoot Tariff, 1930 Tax increase by Republican congress.

Purpose was to satisfy US business leaders who a higher tariff would protect their markets from foreign competition. In retaliation, European countries made higher tariffs against US goods which reduced trade. Reconstruction Finance Corporation To prop up faltering railroads, banks, life insurance companies, and other financial institutions. Emergency loans would stabilize these businesses. The benefits would go down to smaller businesses and bring recovery. Democrats scoffed at this measure, saying it would only help the rich.

THE COMPARISON BETWEEN GREAT DEPRESSION AND RECENT RECESSION AND THEIR EFFECT IN CUSTOMER SERVICE The Great Depression had a great impact in the United States economy from 1929 to the late 1930s. Many people lost their jobs, savings, and homes. They were not sure about their future.

Also, at the end of 2008, the United States and many developed countries faced a great recession than had paralleled the Great Depression, such as: excessive credit given to normal citizens (which was promoted by Federal Reserve Bank), irresponsible money spending by the people in the United States that spread to the most countries in the world, the stock market crash, and the failure of the real state market.

Although, the lessons that governments learned from the Great Depression made them to be creative in preventing the 2008 recession becoming another great depression, or at very least try to postpone this issue by being united to bail out private sectors specially financial institutions. It is very interesting that all the developed countries ignored to correct many problems that could prevent the 2008 recession. After the First World War, Germany and many other European countries tried to recover from the great financial damage that was caused by the war.

They needed money to rebuild their countries, and the United States started to give excessive line of credits to the above countries. Also, because the United States’ economy was booming by growth in the industrial sector which brought many people to work for factories and auto makers. Gradually, many companies started to solicited to sell their product on credit instead of cash, and in the beginning of the 1920s , more families were getting familiar with getting installment loans to buy their needed products. Also, many banks started to loan farmers which brought a great amount of cash flow for many farmers.

Furthermore, this economy boom made the rise in the stock market. It was for the first time that the margin was introduced to the stock market, which simply meant that stock buyers can borrow money against heir stocks as collateral to buy more stocks. Many citizens borrow a lot of money from banks, and put their own savings to buy more stocks. T his greedy action made a bubble in the stock market and made it soared in 1920s, not because of fundamentals or corporations productions and profits, but for false expectations of stock buyers.

Of course, this bubble came to the end at October 29, 1929, that is known as a black Tuesday. In this day stock market was crashed. And over a two years period lost 24 % of its value. Black Tuesday also represents the beginning of the Great Depression; during this period many Americans lost their jobs, houses, and farms, because they couldn’t afford to pay their installment loans any more. For many years American farmers overplanted their farms, and poorly managed their crop rotations.

Between 1930 to 1936, when droughts conditions made a great damage to many farms, and prevailed a cross a lot of Americans plains. Dust bowl was created. The dust storm started to harm some states like Colorado, Texas, Kansas, Oklahoma, and later on spread cross entire United States. The dust bowl got its name after Black Sunday, April 14, 1935. More and more dust storm destroying plains, up to that year. Before the Great Depression because a lot of European countries started to improve their agriculture in mid 1920s, it created a mass produced and great reduction in farming products.

To protect the domestic American farm products against agriculture imports, US government raised US tariffs to the high level, which is also known as the Smoot-Hawley Tariff Act of June 1930. Because there was less demand for consuming products except food, therefore factories had to fire many of their workers which were another cause to the Great Depression. Primary sector industries such as cash cropping, mining and lodging suffer the most. Many Americans were going through a very difficult time and couldn’t even afford to buy foods.

The shelters were full and America and many countries were filing for bankruptcy. The American dollar and many European currencies were not back up by gold any more. The items like cars which were considered a luxury material, and cost fortune at one time, did not worth any more. One of the main other causes for the Great Depression was Failure of the banks around the world including the United States that created by the crashing of the stock market , and filing bankruptcy by all developed countries.

Bank couldn’t loan no more to their customers therefore they began to collapse and were closed. President Roosevelt tried to offset the economy by creating a lot of jobs in public sector in 1930s by making Hoover’s Dam or cleaning streets by the public. This strategy by itself didn’t change the economy per se, so by the end of 1939, there was still no improvement in US economy. The main reason for the recovery was in the beginning of 1941. The World War II made many countries in Europe to import again from the United States that gradually created many jobs by reopening major factories.

One of the great similarities of the Great Depression and the recent recession were the failure of financial corporations, crash in the stock market which was created by the same reason ( giving excessive margin buying power to stock holders) , and greed by wealthy people. Although, the booming real state from 2003-07 could be considered as some distinguished factors. There are a lot of lessons we can learn form the Great Depression and recent rescission that deregulating stock market and financial sector and handing an economy to the big corporations doesn’t have any consequences but a disaster to average citizens.

Customers would lose a lot of their purchase power in a great deal, during recession or depression. Therefore, companies must sacrifice to drop the value price of their services and products, and do whatever it takes in order to keep their customers. During this time it is a customer or a buyer market. If the companies lose their consumers to the competitors due to the lack of customer service, it would be very hard to replace that. The margin profit would be very low and it would leave the companies with no choice but to cut the cost and overhead expenses.

Companies should consider that “the customers are always right and they should be heard at any times”. They have to come with any creative idea to improve their relations with their customers. In conclusion, we have to learn many lessons from the great depression and the recent recession. With comparing the roots for these two economy disasters, we would have the better understanding that how companies improve their customer service during the financial difficulties for their customers and consumers.

The United States of America has gone through many different economic ups and downs, two of the most horrific downturns would be the current recession and The Great Depression though out 1929 to 1939. The cause of these two economic events cannot be blamed on one single person or a group, but on the United States as a whole who neglected to perform their economic duties. While these two deflationary periods in our economy have several differences, they have many similarities as well, such the difficulty in receiving money from bank banks but they differ in that the Great Depression was much more difficult to go through.

These two economic hardships have very similar beginnings. In the 1920’s it was known as installments, today it is known as the credit. Both are the same concept, and then you pay back the original price along with a certain amount of interest. It is a great concept since the companies are earning money on the interest but when too much credit is given out it can adversely affect the economy. During the Great Depression everyone began buying stocks with money that was loaned out by banks.

While the Great Recession the banks were lending too much money for mortgages. Eventually when the stock market and housing markets crashed, the banks didn’t have any money because all of it was given out on loans. What differs though between these economic time periods, would be that the Great Depression was significantly harder to live during. The Recession only lasted for 2 years while the Depression was throughout the entire 1930s. Also during this time, the center states were dealing with a severe drought.

Unemployment rate was also much higher at 25% compared to the 8% to 9% now. Social security, medicare, variety of public assistance programs like unemployment payments and food stamps were largely non-existent in the 1930s. These two time periods of economic downfall were horrible times for people. While these two periods in our economy have several differences and many similarities as well, such the difficulty in receiving money from bank banks but they differ in that the Great Depression was much more difficult to go through.

John Bauman and Thomas Coode’s In the Eye of the Great Depression is not simply a study of how the Federal Emergency Relief Administration (FERA) studied American poverty in the early years of the New Deal; it is also a pointed critique of the biases that affected reformers in general in the early twentieth century. The book’s chief theme is how FERA-appointed reporters explored and depicted the mood of the American people, as filtered through their own assumptions about poverty and ethnic groups.

The result, the authors claim, was a new understanding of American culture that transcended the material and looked more at folkways and beliefs, though it was not a totally radical view perspective. They write that FERA’s reporters redefined the “ of life” by studying the folkways and beliefs of the middle- and working-class population. FERA’s study shaped the creation of a national welfare system, but Bauman and Coode argue that it did not radically break from traditional views that blamed individuals for their poverty, not their environments.

The reports FERA chief Harry Hopkins recruited were largely educated, middle-class, products of the Progressive Era who believed in positive social change yet often feared and disdained the poor. They tended to divide the poor into groups deserving or undeserving of assistance, based on arbitrary or bigoted criteria. One reporter, Martha Gellhorn, considered poverty the result of “incompetence and emotional lassitude” (Bauman and Coode 27).

Some were ambivalent toward the South, while others noted poor people’s ambivalence toward welfare; for example, Maine’s Calvinist Yankees refused help and disdained their French-Canadian neighbors for accepting it (Bauman and Coode 126-127). Nonetheless, they adhered to Hopkins’ orders to report everything they witnessed and link it to a sense of decay in American culture. Bauman and Coode seem generally fair in their treatment of the FERA reporters, using a post-revisionist approach to criticize the writers’ class and race biases while also acknowledging their good intentions and valuable work.

The authors maintain that, despite their Progressive influences and aims, FERA’s writers were often insensitive to urban blacks’ problems and blamed intermarriage for Appalachian poverty (Bauman and Coode 64, 102). They do not depict the New Dealers here as either heroes or villains, but as individuals shaped by their times and experiences who performed unprecedented tasks generally well, if not flawlessly. What emerges is a realistic look at reformers at large and how their outlooks shaped the imperfect yet necessary federal relief programs of the 1930s.

Bauman and Coode incorporate a wide array of sources. The primary materials include FERA reports, department correspondence, biographical information about the reporters, contemporary studies of the poor, and other academic and journalistic writings of the 1930s. The secondary sources include various general histories of the Depression and New Deal, including works by eminent historian William Leuchtenberg, as well as regional histories of the places the FERA reports studied.

The authors use these well, drawing from them an even-handed picture of the people who performed this work and the prejudices and higher aims that guided them. In the Eye of the Great Depression is an even-handed work that looks less at the relief programs themselves (about which much has been written) than at the methods and biases its employees used to determine the mood and needs of those affected by the crisis. It works well as not so much as a history of reform, but as an understanding of how reformers thought and perceived the situations they tried to remedy.