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The Effects and Solutions of the Great Depression: How We Can Learn From It Today

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    The Effects and Solutions of the Great Depression:

    How We Can Learn From It Today

          I.            Introduction

    The world watches as America braces itself to face a brutal truth — an economic crises which newly President-Elect Obama describes as one of “historic proportion” in one of his recent weekly public address (“Your Weekly Address from the President-Elect”). Its coming should not have been a shocker. But many had been living in a crystal bubble which means that, a lot of people in America were actually living and spending beyond what their financial resources would have allowed. Also, investment speculation continued to flow, all of which were boosted by economic growth that was dangerously sitting further and further on a precipice of credit.

    However, the effects were still hard in coming.  Had it not been ignored for far too long or had proper authorities not resorted to some sort of denial and acted swiftly and decisively then, the financial market would have not be in danger of facing the kind of turmoil that it is currently getting. A staggering 1.8 million people in the US alone have lost their jobs within a year, and if left unchecked, runs risking of losing more than a million more for the following year. A decline of people’s buying capacity would obviously filter and adversely affect other sectors as well, the way it is has already been occurring and manifesting these days. The month of October for example, saw one of the lowest rates of home purchases in 50 years. As people become more uncertain about tomorrow’s turn of events, they are more likely to hold on to their money and become more conservative about spending. As the level of demand decreases, so will production and trading decrease, which in turn repeats the cycle of massive layoffs. More people will be claiming for unemployment insurance, inviting greater risks for financial deflation and driving the country into further massive debt. If effective policies are not sooner implemented to constrain and correct the country’s financial downturn, the results would be of catastrophic proportion.

    The speculations lately are no longer on the issue of whether the US will face a possible economic recession, but are determining the kind of recession it will be and for how long. It is anybody’s guess. But since people no longer need to guess that hard times are already crouching on almost everybody’s door, the public’s general sentiment tends to compare today’s crisis with that of the Great Depression. For the nation to have risen from this period’s financial rubble, makes it truly remarkable.  Having to go through it once again, could either be a sign of shortness of memory, the height of prideful negligence, or a mere case of abandoning one’s sense of caution.

    Although there’s a myriad of differences from today’s conditions with the way it was 79 years ago, it would do more than good for today’s generation to pay closer attention with yesterday’s solutions that paved the way for the country to extricate itself from fiscal difficulty and did more than rehabilitate its feeble economy. Its corrective measures brought back the country once again to be at the forefront of global competitiveness and the helm of international political leadership. Here then, is a modest attempt to identify the effects and solutions during the Great Depression, and thereby draw courage and valuable lessons which could be applied today to forge America once again into a robust economy by which it has been so closely identified.

       II.            Characteristics and Effects of the Great Depression

    The onset of the Great Depression was to some extent officially signalled by the collapse of the US stock market on October of 1929. The dramatic decline in prices of stocks at the New York Stock Exchange however, had earlier showed warning signs of a downward trend that has been three years in the making. But the preceding years had caused many to be deceived by the upbeat atmosphere which so characterized the roaring twenties (The Great Depression). Economic development drove many to financial excesses, and soon after the growth bubble fell apart.

    For instance, it became apparent that there was an oversupply of agricultural products. This consequently caused a steep fall in prices, and many farmers were forced deep into debts. Several individual and business institutions went bankrupt. There was a massive failure of banks. Almost close to half of existing banks collapsed. Inevitably, business and trading took a downward spiral as confidence in the economy vanished. Hence, as production fell so did the figure of employed Americans which dropped to about 25-30 percent of the total work force (About the Great Depression). Moreover, a bungling of economic policies by the Federal Reserve Board resulted to a dwindling of monetary supply that brought more complications than solutions.

    Another major contributory factor for the crisis was the war itself. The US severely suffered from financing the war. It would appear that there was no single factor that could be blamed for the downturn but rather, the interaction of different issues and the subsequent ‘domino effect’ that escalated the nation’s harsh conditions.

    Although it could be said that the financial crisis started in the US, soon after, a rippling-effect started which caused it to spread out to other countries. Due to the close inter-connection of America’s financial market with the rest of the world, it easily transmitted its economic woes worldwide. Europe’s finances also heavily leaned on US investment credits. Initial response by every nation was to employ drastic measures to protect its domestic market. But the imposition of raising existing import taxes and limiting the number of imported products proved to be a double-edged sword; while it sought to protect itself, it adversely lowered the activity of international trading, and thus dragged down the economy further down to depression.

    The Great Depression created a total shift on the people’s way of life. Prior to this period, opulence was almost everyone’s manner of living. In fact, President Hoover’s vision was to see a car for every American home (Amoss 2006).  Since the collapse, everyone’s dream though was just to survive. Countless people were driven to hunger and degradation (Great Depression Holds Lessons for Surviving Tough Economy 2008). It is a blaring proof and clear reminder for all time just how far an economy could fall, no matter how prosperous it may be.

    III.            Economic Measures To Correct the Problem

    The Great Depression also ushered the change in political scenes as well. President Roosevelt introduced bold measures that can be briefly distinguished by 3 Rs namely:

    ·         Relief for those who had been forced out of work

    ·         Reforming economic policies

    ·         Recovery for the country’s depressed financial state

    The “First New Deal” and the “Second New Deal” were the two major reforms implemented. Some of the aspect of the First Deal dealt with modifying banking laws, creating more jobs, and giving of assistance to those who were hardly hit by the crisis (Bottom 1933). The Second New Deal included encouraging labour unions that raised the worker’s wages and the creation of the Social Security Act.

    What officially bailed out Americans from this dire predicament was the onset of World War II.

    IV.            Conclusion

    The subject of the Great Depression is still a matter of interest and study by economic experts today. What continuous to be a matter of debate is to be able to accurately identify and pin down the root cause of the problem. Such a pursuit is relevant for today and the following generations, in order that the same mistakes will be avoided.

    However, the crisis that threatens to subject the country once again to another depression of great proportion contains some eerie parallelism from the past. It almost holds the same preceding elements that had set up the stage for the tragic economic crash of 1929. Prior to a downturn, there was a seemingly robust economy that created an overly optimistic view of the economy; there was excessive spending which was basically financed by heavy borrowing; and the government’s coffers were greatly reduced by financing wars.

    We could however, learn from the solutions taken by the past who had successfully overcome such difficulties. It would also be of great advantage to look into the measures done by Japan such as doing more deficit spending and by devaluing its currency which cushioned the worldwide impact of the Great Depression and thereby saving its own economy.

    The slump in our country’s economy did not grow overnight. Although it is clear that nobody plans a disaster, one can at least try to consider the warning signs. The crisis is looming to crush the people’s spirit but the nation should take courage to believe what John D. Rockefeller, one of the most successful survivors of the Great Depression had said, that prosperity will have its own way of returning (Schultz 1999).  But holding an optimistic view would not be enough to weed out the financial mess the country is in. One of the best steps that government had done so far was — to acknowledge the fact that we have a problem in our hands. It has been ignored for far too long.

    The country could not simply afford to push back its people to go back to the kind of hardships during the Great Depression. It also runs risking of tilting the balance of power and send negative rippling effects to other countries. It is also not enough to look and learn from the past, government must also look for other innovative ways which the present times demand. Decision making is like walking on a tightrope.

    While the current leadership is steering the country to bring back stability and restore a robust economy, such as creating policies that will put people back to work, other immediate simple steps should be given, while being in the process of achieving such goals.

    Solution should also include massive media campaign that will calm, educate and warn people of the things that they should avoid doing, such as yielding to panic withdrawals of deposits that will result on bank runs that will cause more complications. Instead of dwelling on generalities, financial advises from government backed experts should be specific which will do more than good for the general public.


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    The Effects and Solutions of the Great Depression: How We Can Learn From It Today. (2017, Feb 12). Retrieved from

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