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The Roaring 20s

The Roaring 20s

Ford Motor Company Factory

Ford Motor Company factory assembly line workers, 1928

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The 1920s were characterized by significant prosperity and stability following World War I and a post-war recession. Between 1922 and 1929, unemployment averaged 3.7 percent, and the nation experienced an annual 4.7 percent growth in GNP. The growth can be attributed to the emergence of large-scale industrial and commercial enterprises whose needs altered the American capital markets. During the nineteenth century, commercial banks’ regulations restricted their ability to offer large long-term loans. As such, wholly-owned securities affiliates were set up to navigate the restriction. There was a significant rise in such affiliates during the 1920s. The affiliates attracted various new clients, becoming large distributors of bonds and stocks.

The securities market growth allowed firms to replace bonds and stocks for commercial bank loans. The development was instigated prior to the stock market boom, with changes prevailing during the 1920s with the rise of the modern industrial enterprise. The decade was also marked by the decreased role of banks as intermediaries. More importantly, the role of banks as brokers between the industries and the saving public increased. The increased number of inexperienced investors lacking the ability to monitor firms and buy stocks created the perfect conditions for a bubble (Aldcroft and Morewood, 7). Such led to the beginning of the stock market bubble in March 1928.

Stock Market Crash

stock market crash

New York Stock Exchange, 1929.

The prosperous decade, characterized by easy access to credit and risk-taking culture, created the perfect conditions for the nation’s downfall. Bierman (28) attributed the economic decline to misguided government policies, primarily the Federal Reserve conceding to the collapse of the money stock with increased panic concerning the banking system. There was significant growth in the stock market before the subsequent decline during the summer and early fall of 1929. The decline caused panic leading to a massive stock sell-off later in October. The market lost about forty percent in value over a period of one month.

Although only a few Americans had invested in the stock market, the crash had detrimental implications across the nation. Banks incurred significant losses leading them to foreclose on personal and business loans, pressuring clients to pay off their debt irrespective of whether they had the funds. The effects of the crash were increased with increased pressure on individuals. The detrimental implications were further aggravated by the state of the international economy, inequitable income distribution, and the panic’s contagion effect. Although the government expected the economy to rebound, various aspects hindered this, especially the central role of the construction and automobile industries in America. Due to the decrease in major construction project and auto purchases, there was significant wage cuts, decreased benefits, and increased unemployment. Although the Hoover administration suggested higher tariffs on imports as a solution, such resulted in further detriment. Although the period was marked by socialist thinking, there were limited resources to cater to the masses.

Canada and the Depression

canada and depression

The Great Depression of the early 1930s had significant global ramifications, with Canada as one of the most affected nations. The period was characterized by high rates of unemployment, homelessness, and hunger among Canadians. Such was attributed to Canada’s overreliance on-farm and raw material exports. However, the depression had varying implications across the country. Canada’s social welfare proved inadequate, and government responses through policy were misguided. The collapse in international trade greatly devasted Canada because exports accounted for a third of its Gross National Income.

The economic detriment was worsened by years of drought due to hailstorms and grasshopper plagues. Such was especially evident in Saskatchewan, which experienced the highest wheat prices in history, with most of its rural population relying on relief. Although Quebec and Ontario experienced massive unemployment, they were shielded from further detriment due to their increasingly diversified industrial economies (Amaral and MacGee, 97). The impact of the depression was also unevenly distributed between classes, with young people, farmers, the unemployed, and small entrepreneurs bearing a greater burden. Contrarily, standards of living increased for the employed and homeowners.

Despite its best efforts, Canada’s dispensing welfare system was inadequate to compensate the unemployed. The federal government also declined to create work for the jobless, even with unemployment being a national problem. The responsibility was solely left to provincial and local authorities. The federal government’s reluctance led to the financial collapse of four western provinces and numerous municipalities.

The great depression and Roosevelt’s New Deal

The Great Depression

In his initial inaugural address, Franklin D. Roosevelt, the US president, attempted to assess the enormous detriment caused by the great depression following the 1929 stock market crash. The great depression had an immense detrimental impact on the nation’s economy. President Roosevelt’s New Deal was aimed at reforming the nation’s structure and economy to end the poverty caused by the crisis. The programs proved effective by providing economic security and benefits.

The New Deal focused on reinvigorating the economy by promoting consumer demand. It embraced federal deficit spending to expedite economic growth, a fiscal approach affiliated with the British economist John Maynard Keynes. Moreover, the New Deal was also reminiscent of the conclusion of the leanings towards abandoning ‘laissez-faire’ capitalism evident since legislation reforms were introduced during the Progressive era. Roosevelt took over during a period of paralysis within the nation’s banking and credit system. Subsequently, banks were closed and then reopened if they were solvent. Roosevelt’s administration also adopted a moderate currency inflation policy to initiate an upsurge in commodity prices and afford some debtors’ relief. Generous credit facilities in agriculture and industry were also brought about by new government agencies. The new deal also brought about severe regulations on securities sale on the stock exchange and insured sayings-bank deposits up to five thousand dollars through the Federal Deposit Insurance (Fishback and Wallis, 312).

Post-World War II Economic Policies (Western countries)

Post World War 2

Refugees displaced from East to West Germany

World War II had immense changes on the entire world, especially concerning the economic and cultural shift and recovering from the shift. In the West, various countries, primarily in Europe, experienced a significant change in GDP. In Britain, policies facilitating the change in GDP can be attributed to the welfare state established by the newly formed Labour government.

The period immediately after the war marked Labour’s first independent parliamentary majority in history. However, Britain faced various challenges, including lost foreign financial resources and significant ‘sterling credits’ to the sum of several billion pounds. The economy was also in disarray, with significant disparities between industries. British had no exports to pay for its imports, including food. It also owed a significantly large debt to the United States and a smaller one to Canada. Such led to the introduction of Labour’s social welfare legislation. The government drew from the Beveridge Report to establish a comprehensive national insurance program (Béland et al., 320). Based on Keynes’s recommendations, Britain increased capital income taxes, which is considered to have caused its poor macroeconomic performance following the Second World War.

Britain’s experiences significantly differed from West Germany, which experienced a significant economic rise. Such was especially evident with the introduction of a new currency and the termination of the black market. The rise was facilitated by the Marshall Plan or the European Recovery Program. The program deposited fifteen billion dollars from the US in Europe, with the majority going to Germany.

Stagflation in the 1970’s

Stagflation in the 1970s

Prior to the 1970s, economists suggested a stable inverse link between unemployment and inflation. As such, a rise in inflation resulted in decreased unemployment, and a decrease in inflation led to increased unemployment. Increased demand also resulted in a rise in prices, which increased employment. Such was until the 1970s’ stagflation characterized by a rapid increase in prices accompanied by slow growth, contrary to prior assumptions (Goutsmedt, 568).

The period was marked by rising federal budget deficits aggravated by military spending and Great Society’s social spending programs focused on decreasing poverty. A significant rise in crude oil prices was also observed during the period. Frequent recessions during the period also increased unemployment impacting inflation. The Federal Reserve was unable to offset the increased prices. Such conditions during the 1970s resulted in a toxic rise in living standards and diminished confidence in economic policy. External economic shocks forced policymakers to tolerate entrenched inflation expectations, dampening investment.

During the 1970s, the US monetary policy relied on the Keynesian economic school of thought. Economists believed that lower interest rates and increased government spending would offset aggregate demand downturns. Federal Reserve policies in the 1970s allowed increased inflation as a suitable alternative to increased unemployment, resulting in detrimental inflation expectations. The increased inflation necessitated two immense recessions to equipoise it. The subsequent rise in interest rates led to decreased employment and output with no impact on rising prices.

Reaganomics & Thatcherism

Reagonomics

Economic strategies adopted by Thatcher and Reagan focused on five key aspects: eliminating inflation, decreasing the rate of public spending, tax reforms and reductions, decreased government involvement, and economic expansion focused on the private sector.

Reagan’s economic objectives focused on regulating two primary economic detrimental aspects, unemployment and inflation. He considered the approach ideal for decreasing the tax burden, reducing inflation, and creating jobs. On the other hand, Thatcher’s government hoped that the policies would decrease unemployment. Both programs appealed to the middle class despite various informed observers considering them experimental (Steger and Roy, 34). Numerous economists also doubted the practicality of monetary theories as they were founded on theory rather than empirical evidence. In mid-1979, Britain went into recession, while Reagan overlooked the fact that fiscal stimulus and monetary restraint in early 1980 might result in a significant economic downturn.

Both nations were probably headed for recession due to increased oil prices. In 1981, there was a sharp decline in American shares due to the implication of Reagan’s policies and increased budget deficits. Although both countries managed to regulate inflation in the long run, inflation worsened in both countries during the period, especially in Britain. Although inflation fell in both countries to below four percent, this was partly due to recession and high unemployment, and the low import prices. Both Thatcher and Reagan were unproductive in regulating the increase in public expenditure caused by legislative and public resistance due to cuts in key aspects of welfare and social security.

The Fall of Communism and increasing Economic Freedoms (Gorbachev)

The Fall of Communism

The collapse of the Soviet Union refers to a sequence of events leading to the dissolution of the Soviet Union at the end of 1991. The events can be linked to the demise of Soviet communism, which was instigated by the 1991 coup despite CPSU’s influence existing since the beginning of Gorbachev’s reform regime.

Following his appointment as the CPSU’s General Secretary in 1985, Mikhail Sergeyevich Gorbachev sought to conduct a root-and-branch reform of the Soviet system, liberalize the regime, and establish transparency (Mitchell and Arrington, 462). The policy’s successful implementation relied on Gorbachev’s capacity to regulate USSR’s international commitments and decrease military expenditure to curb the nation’s economic and moral decline. Such led to resuming dialogue between the Soviet Union and America regarding nuclear arms, which led to the Washington Treaty (1987), the Paris Treaty (1990), and the initial Strategic Arms Reduction Treaty. Gorbachev also terminated Soviet participation in various parts of the world, including in Afghanistan, the Mengistu regime, and terminated economic aid to Cuba.

Despite Gorbachev’s popularity in the West, he was not beloved in his own country, where his reforms disrupted the centralized planning system without actual market mechanisms. Such resulted in decreased production, social discontent, and shortage, leading to strikes. The discontent could be openly expressed in the newly established transparency system. Gorbachev eradicated the taboos established by the Communist regime, which liberated dissidents and intellectuals who took full advantage.

The Economic Crisis of 2008 (The Great Recession)

The Economic Crisis of 2008

The Great Recession marked a significant decline in economic activity in the late 2000s. It was the most significant downturn in the period following the Great Depression. The ‘Great Recession’ refers to the US recession between December 2007 and June 2009, the 2009 global recession (Verick and Islam, 48).

The recession can be attributed to the decline of the US housing market, which led to numerous mortgage-backed securities and derivatives losing value. Thirty months after the start of the Great Depression, most Americans had lost all hope regarding their children’s future and their retirement. The recession disrupted the borrowing and spending habits of various Americans who shared concerns regarding the time it would take for their family finances and house values to recover. At least fifty-five percent of the American labor force experienced work-related hardship, including pay cuts, reduced working hours, involuntary transfer to part-time work, or unemployment. The pre-recession stock and housing bubbles had also decreased the household wealth of average Americans by about twenty percent.

Although the recession affected almost the entire American population, the impact was disproportionate. For instance, Hispanic and Black populations experienced the highest rates of unemployment and housing foreclosures. Young adults were also immensely affected on the employment front. Americans were forced to significantly decrease their pre-recession spending and borrowing habits, indicative of the left economic shift.

Canada’s Economic Action Plan

Canada's economic action plan

The Canadian Economic Action plan was established to mitigate the impact of the global recession through a significant stimulus to protect families and safeguard employment rates. It was also designed to sustain Canada’s long-term economic prosperity through important productive investments. Concentrating stimulus spending over a period of two years enabled the government to run short-term deficits without exposing the nation’s long-term fiscal gain.

Canada’s Economic Action Plan has been effective, as evident in the tax relief and stimulus spending delivered since its implementation while supporting the government’s recovery. The initiative has effectively shielded the nation’s residents from the detrimental impact of the global recession. Since July 2009, numerous projects have been implemented to facilitate employment in local communities, which have been immensely successful.

Despite the conclusion of most initiatives in 2011, Canadians have benefited from the Economic Action Plan initiatives to date. Canada’s Economic Action Plan has made lasting contributions to the nation’s economic prosperity by promoting an increasingly highly skilled labor force, competitive business settings, and industrious investment in infrastructure. The plan successfully sustained employment in Canada despite the fragile global economic recovery. The government has continually prioritized measures aimed at long-term economic growth and job creation. Lastly, Canada’s Economic Action Plan is more reminiscent of collective thinking.

Works Cited

Aldcroft, Derek, and Steven Morewood. “Post-War Reconstruction and Instability Problems in the 1920s.” The European Economy Since 1914, 2012, pp. 55–86., https://doi.org/10.4324/9780203094761-11.

Amaral, Pedro, and James MacGee. “The Great Depression in Canada and the United States: A Neoclassical Perspective.” Great Depressions of the Twentieth Century, 2007, pp. 85–112., https://doi.org/10.21034/mo.9780978936006.ch4.

Bierman, Harold. “The 1929 Stock Market Crash.” Routledge Handbook of Major Events in Economic History, 2013, pp. 24–32., https://doi.org/10.4324/9780203067871.ch11.

Béland, Daniel, et al. “Translating Social Policy Ideas: The Beveridge Report, Transnational Diffusion, and Post‐War Welfare State Development in Canada, Denmark, and France.” Social Policy & Administration, vol. 56, no. 2, 2021, pp. 315–328., https://doi.org/10.1111/spol.12755.

Fishback, Price, and John Wallis. “What Was New about the New Deal?” The Great Depression of the 1930s, 2013, pp. 290–327., https://doi.org/10.1093/acprof:oso/9780199663187.003.0010.

Goutsmedt, Aurélien. “From the Stagflation to the Great Inflation: Explaining the US Economy of the 1970s.” Revue D’économie Politique, Vol. 131, no. 3, 2021, pp. 557–582., https://doi.org/10.3917/redp.313.0239.

Mitchell, R. Judson, and Randall S. Arrington. “Gorbachev, Ideology, and the Fate of Soviet Communism.” Communist and Post-Communist Studies, vol. 33, no. 4, 2000, pp. 457–474., https://doi.org/10.1016/s0967-067x(00)00016-7.

Steger, Manfred B., and Ravi K. Roy. “2. First-Wave Neoliberalism in the 1980s: Reaganomics and Thatcherism.” Neoliberalism, 2010, pp. 21–49., https://doi.org/10.1093/actrade/9780199560516.003.0002.

Verick, Sher, and Iyanatul Islam. “The Great Recession of 2008-2009: Causes, Consequences and Policy Responses.” SSRN Electronic Journal, 2010, https://doi.org/10.2139/ssrn.1631069.

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