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Speaker 1: Welcome to brain Stuff production of iHeart Radio. Hey brain Stuff,

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Speaker 1: Lauren vogelbam here. If you didn't live through the Great

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Speaker 1: Depression that started in the late nineteen twenties and lasted

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Speaker 1: until the beginning of World War Two, it's hard to

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Speaker 1: imagine just how rough many ordinary Americans had it. At

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Speaker 1: the depressions peak in nineteen thirty three, the nation's gross

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Speaker 1: domestic product had been cut roughly in half, and nearly

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Speaker 1: one in four American workers was unemployed since they didn't

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Speaker 1: have money to pay their mortgages. The foreclosure rate more

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Speaker 1: than doubled, and people who lost their homes found themselves

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Speaker 1: erecting cardboard and scrap wood checks and living in camps

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Speaker 1: known as Hooverville's on the edge of towns and cities,

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Speaker 1: named after President Herbert Hoover, who many blamed for the depression.

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Speaker 1: In an interview published by the Federal Reserve Bank of St.

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Speaker 1: Louis in two thousand seven, two men who survived the

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Speaker 1: depression describe how people around them often were so desperate

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Speaker 1: for food that they eagerly rooted through garbage bins at

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Speaker 1: markets for discarded vegetables and spoiled chicken. Carcasses. Even after

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Speaker 1: Franklin Roosevelt's New Deal program eased some of the depper nation,

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Speaker 1: the nation's battered economy continued to struggle right up until

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Speaker 1: the war brought a massive surge in government spending and

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Speaker 1: created jobs at defense plans for those who didn't go

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Speaker 1: off to fight overseas. But why did the Great Depression happen?

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Speaker 1: And could it ever happen again? The depressions causes have

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Speaker 1: been a long time subject of debate by historians and economists,

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Speaker 1: though there seems to be a consensus that the economic

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Speaker 1: disaster was the result of multiple factors, some of which

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Speaker 1: led to the event, while others worsened or prolonged it.

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Speaker 1: And while the nation's economy, the financial system, and government

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Speaker 1: regulation have changed considerably since the nineteen twenties and thirties,

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Speaker 1: experts warned that we're still not immune to some of

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Speaker 1: the same risks that contributed to the catastrophe. Worse yet,

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Speaker 1: some mistakes of that era are now being repeated. At

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Speaker 1: the top of the list is income inequality. We spoke

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Speaker 1: with Robert S. McElvaine, a history professor at Millsap's College

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Speaker 1: in Mississippi and author of The Great Depression America nine

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Speaker 1: ninety one. He says that the US shifted during the

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Speaker 1: nineteen twenties to an economy heavily dependent upon consumption of

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Speaker 1: mass produced goods ranging from automobiles to radios. While sales

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Speaker 1: of those products drove up profits for factory owners and retailers,

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Speaker 1: most American workers wages grew much more slowly. Eventually, he notes,

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Speaker 1: people didn't have enough money to buy more things and

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Speaker 1: keep the economy going. Businesses tried to cope by extending

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Speaker 1: consumer credit and allowing people to gradually pay off their purchases,

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Speaker 1: but they didn't have enough income to keep buying new

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Speaker 1: stuff as well. In the summer of nineteen twenty nine,

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Speaker 1: to avoid having inventory pile up, factories started cutting back

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Speaker 1: on production and laying off workers. Those workers then couldn't

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Speaker 1: buy things, which meant even more products piled up. That

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Speaker 1: started the economy on a downward spiral that contributed to

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Speaker 1: a four day stock market crash in late October of

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Speaker 1: ninety nine, which erased a quarter of the value of

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Speaker 1: the Dow Jones industrial average, wiping out investors and severely

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Speaker 1: damaging public confidence. Circle nineteen twenties, income inequality was exacerbated

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Speaker 1: by a series of tax cuts pushed through Congress by

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Speaker 1: Secretary of the Treasury Andrew W. Mellon, ostensibly to stimulate

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Speaker 1: the economy. As one of the world's richest men, Melon

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Speaker 1: personally benefited from the cuts more than practically all the

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Speaker 1: taxpayers in the state of Nebraska. As one political opponent

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Speaker 1: of the bill pointed out ninety years later, income inequality

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Speaker 1: is growing and it's a threat to an economy which

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Speaker 1: depends upon personal consumption of two thirds of its economic output.

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Speaker 1: And Congress in seventeen passed a massive tax cut package

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Speaker 1: which most Americans see themselves as not benefiting from. In

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Speaker 1: addition to income inequality, there was a lot of investment

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Speaker 1: speculation going on. There's a difference between investing and speculating,

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Speaker 1: which Investipedia defines as putting your money into high risk

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Speaker 1: investments in hopes of making a killing. But in the

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Speaker 1: nineteen twenties, when everything seemed to be booming, investors often

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Speaker 1: were a bit too trusting. We also spoke with Todd Noope,

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Speaker 1: a professor of economics and business at Cornell College in

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Speaker 1: Mount Vernon, Iowa. He said, many people think of the

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Speaker 1: dust bowl or the stock market crash as the proximate

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Speaker 1: cause of the Great Depression, but in reality it was

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Speaker 1: caused by the same factors the have caused financial crises

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Speaker 1: throughout history in the U S and elsewhere. Debt financed speculation.

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Speaker 1: In other words, when people find it too easy to

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Speaker 1: borrow other people's money to speculate on risky ventures, stock spawn,

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Speaker 1: subprime housing, etcetera. Than people risk too much and prices boom,

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Speaker 1: only to eventually bust decades later. Unfortunately, we're still vulnerable

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Speaker 1: to that psychological flaw, Noop said. Markets are prone to

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Speaker 1: thinking that this time it's different, only to find out

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Speaker 1: again and again that it is usually not. In the

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Speaker 1: nineteen twenties, the United States was also dealing with some

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Speaker 1: bad Federal Reserve policy. Today, we're accustomed to thinking of

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Speaker 1: the Federal Reserve the nation central bank as the guardian

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Speaker 1: of the economy. That's because it's board could use monetary

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Speaker 1: policy control of the supply of money and credit to

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Speaker 1: stimulate the economy when it needs a boost, or to

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Speaker 1: put on the brakes when inflation is starting to creep upward.

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Speaker 1: But in a two thousand four lecture, former FED Chairman

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Speaker 1: Ben Bernanke detailed his theory that ninety years ago, the

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Speaker 1: FED dropped the ball with policy blunders that helped cause

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Speaker 1: and prolong the Great Depression. Starting in the FED, hoping

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Speaker 1: to put the brakes on Wall Street, speculators who were

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Speaker 1: investing borrowed money, started raising interest rates. That policy succeeded

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Speaker 1: a little too well, as evidenced by the stock markets

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Speaker 1: catastrophic drop in October of nine. But then, even after

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Speaker 1: the stock market collapsed, the FED kept increasing interest rates.

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Speaker 1: The reason was that the US, like many other countries,

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Speaker 1: was on the gold standard, meaning that the dollar was

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Speaker 1: redeemable in gold and pegged to its value. When panicked

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Speaker 1: investors started trading their dollars for gold, the FED moved

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Speaker 1: to thwart them, Bernankey explained in his speech. To stabilize

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Speaker 1: the dollar, the Fed once again raised interest rates sharply,

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Speaker 1: on the view that currency speculators would be less willing

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Speaker 1: to liquidate dollar assets if they could earn a higher

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Speaker 1: rate of return on them. But the high interest rates

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Speaker 1: made it tough for businesses to borrow to weather the

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Speaker 1: hard times, and many went bankrupt as a result. At

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Speaker 1: the same time, according to Bernanke, the FED also didn't

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Speaker 1: do enough to protect the nation's banks, leading depositors to

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Speaker 1: out their savings and hoard the cash, further worsening the

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Speaker 1: economic crisis. The US wasn't the only country with such problems.

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Speaker 1: We also spoke with Nathaniel Klein, an assistant professor of

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Speaker 1: economics at the University of Redlands an expert on economic history.

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Speaker 1: He said the gold standard helped things along by limiting

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Speaker 1: the policy responsive nations around the world. Things like lower

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Speaker 1: interest rates and government deficit spending were made much more difficult.

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Speaker 1: In addition, while Great Britain provided global economic leadership before

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Speaker 1: World War One, after the war, the US essentially refused

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Speaker 1: to lead despite being the new center of the world economy. Fortunately,

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Speaker 1: this is one area where policymakers learned their lesson, Klein said.

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Speaker 1: In the end, countries dropped the gold standard and many

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Speaker 1: engaged in deficit spending and monetary policy, and the US

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Speaker 1: established its leadership under the Breton Woods Agreement. That pact

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Speaker 1: created the World Bank and the International Monetary Fund, as

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Speaker 1: well as eliminating the gold standard internationally. On the other hand,

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Speaker 1: and as a candidate, Donald Trump said that bringing back

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Speaker 1: the gold standard quote would be very hard to do,

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Speaker 1: but boy would it be wonderful. As president, he considered

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Speaker 1: nominating to the FED Board. Herman Kaine, who wrote in

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Speaker 1: twelve in The Wall Street Journal that the dollars should

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Speaker 1: be redefined as quote a fixed quantity of gold, though

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Speaker 1: in a recent interview came backed away from that position,

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Speaker 1: and Stephen Moore, another past gold standard advocate, told CNN

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Speaker 1: that he now favored pegging the currency to a quote

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Speaker 1: whole basket of commodities. Both later withdrew from consideration in

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Speaker 1: the face of political opposition. One of the other big

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Speaker 1: factors that led to the depression was trade wars. The

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Speaker 1: Smoot Holly Act, which was written in early nine when

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Speaker 1: the economy was still going strong, but became law after

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Speaker 1: the Wall Street Crash, raised US tariffs by an average

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Speaker 1: of sixteen The idea was to keep other countries from

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Speaker 1: hurting US manufacturers by flooding the market with lower priced products,

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Speaker 1: but when those countries responded by imposing their own tariffs,

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Speaker 1: the result was a ruinous global decline in trade. The

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Speaker 1: deepened and lengthened the Great Depression. That bit of history

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Speaker 1: worries many people today due to President Trump's fondness for

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Speaker 1: imposing tariffs in an effort to protect US industries. So

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Speaker 1: many of the factors that contributed to the Great Depression

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Speaker 1: are still risks. Whether they will ever combine in an

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Speaker 1: economic perfect storm is a harder question to answer. Today's

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Speaker 1: episode was written by Patrick J. Tiger and produced by

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Speaker 1: Tyler clayg. Brain Stuff is a production of I Heart

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Speaker 1: Radio's How Stuff Works. From more on this and lots

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Speaker 1: of other economical topics, visit our home planet, howstuff Works

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Speaker 1: dot com, and for more podcasts from my heart Radio,

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