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Speaker 1: Welcome to Brainstuff, a production of iHeartRadio.

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Speaker 2: Hey brain Stuff, Lauren Bogelbaum here with a classic episode

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Speaker 2: from our archives, But this one is about the factors

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Speaker 2: that led to the Great Depression and why economists are

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Speaker 2: concerned that a similar storm could happen again. The episode

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Speaker 2: originally published in June of twenty nineteen, during Trump's first presidency.

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Speaker 2: So a couple examples that we use refer specifically to

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Speaker 2: that time, but lots of them are still very relevant today.

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Speaker 2: So I thought it would be a good one to revisit.

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Speaker 1: Hey Brain Stuff, Lauren vogel Bomb here.

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Speaker 2: If you didn't live through the Great Depression that started

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Speaker 2: in the late nineteen twenties and lasted until the beginning

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Speaker 2: of World War Two, it's hard to imagine just how

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Speaker 2: rough many ordinary Americans had it.

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Speaker 1: At the depression's peak in.

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Speaker 2: Nineteen thirty three, the nation's gross domestic product had been

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Speaker 2: cut roughly in half, and nearly one in four American

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Speaker 2: workers was unemployed since they didn't have money to pay

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Speaker 2: their mortgages. The fore club rate more than doubled, and

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Speaker 2: people who lost their homes found themselves erecting cardboard and

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Speaker 2: scrap wood shacks and living in camps known as Hooverville's

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Speaker 2: on the edge of towns and cities, named after President

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Speaker 2: Herbert Hoover, whom many blamed for the depression. In an

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Speaker 2: interview published by the Federal Reserve Bank of Saint Louis

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Speaker 2: in two thousand and seven, two men who survived the

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Speaker 2: depression describe how people around them often were so desperate

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Speaker 2: for food that they eagerly rooted through garbage bins at

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Speaker 2: markets for discarded vegetables and spoiled chicken carcasses. Even after

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Speaker 2: Franklin Roosevelt's New Deal program eased some of the deprivation,

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Speaker 2: the nation's battered economy continued to struggle right up until

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Speaker 2: the war brought a massive surge in government spending and

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Speaker 2: created jobs at defense plans for those who didn't go

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Speaker 2: off to fight overseas. But why did the Great Depression happen?

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Speaker 2: And could it ever happen again? The Depression's causes have

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Speaker 2: been a long time subject of debate by historians and economists,

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Speaker 2: though there seems to be a consensus that the economic

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Speaker 2: disaster was the result of multiple factors, some of which

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Speaker 2: led to the event, while others worsened or prolonged it,

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Speaker 2: and while the nation's economy, the financial system, and government

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Speaker 2: regulation have changed considerably since the nineteen twenties and thirties,

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Speaker 2: experts warned that were still not immune to some of

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Speaker 2: the same risks that contributed to the catastrophe. Worse yet,

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Speaker 2: some mistakes of that era are now being repeated. At

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Speaker 2: the top of the list is income inequality. We spoke

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Speaker 2: with Robert S. McElvane, a history professor at Millsaps College

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Speaker 2: in Mississippi and author of The Great Depression America nineteen

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Speaker 2: twenty nine to nineteen forty one. He says that the

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Speaker 2: US shifted during the nineteen twenties to an economy heavily

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Speaker 2: dependent upon consumption of mass produced goods ranging from automobiles

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Speaker 2: to radios. While sales of those products drove up profits

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Speaker 2: for factory owners and retailers, most American workers' wages grew

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Speaker 2: much more slowly. Eventually, he notes, people didn't have enough

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Speaker 2: money to buy more things and keep the economy going.

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Speaker 2: Businesses tried to cope by extending consumer credit and allowing

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Speaker 2: people to gradually pay off their purchases, but they didn't

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Speaker 2: have enough income to keep buying new stuff as well.

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Speaker 2: In the summer of nineteen twenty nine, To avoid having

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Speaker 2: inventory pile up, factories started cut out back on production

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Speaker 2: and laying off workers. Those workers then couldn't buy things,

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Speaker 2: which meant even more products piled up. That started the

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Speaker 2: economy on a downward spiral that contributed to a four

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Speaker 2: day stock market crash in late October of nineteen twenty nine,

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Speaker 2: which erased a quarter of the value of the Dow

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Speaker 2: Jones industrial average, wiping out investors and severely damaging public confidence.

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Speaker 2: Circa nineteen twenty's, income inequality was exacerbated by a series

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Speaker 2: of tax cuts pushed through Congress by Secretary of the

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Speaker 2: Treasury Andrew W. Mellon, ostensibly to stimulate the economy. As

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Speaker 2: one of the world's richest men, Melon personally benefited from

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Speaker 2: the cuts more than practically all the taxpayers in the

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Speaker 2: state of Nebraska. As one political opponent of the bill

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Speaker 2: pointed out ninety years later, income inequality is growing, and

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Speaker 2: it's a threat to an economy which depends upon personal

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Speaker 2: consumption of two thirds of its economic output. And Congress

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Speaker 2: in twenty seventeen passed a massive tax cut package which

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Speaker 2: most Americans see themselves as not benefiting from. In addition

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Speaker 2: to income inequality, there was a lot of an investment

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Speaker 2: speculation going on. There's a difference between investing and speculating,

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Speaker 2: which Investipedia defines as putting your money into high risk

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Speaker 2: investments in hopes of making a killing. But in the

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Speaker 2: nineteen twenties, when everything seemed to be booming, investors often

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Speaker 2: were a bit too trusting. We also spoke with Todd Noupe,

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Speaker 2: a professor of economics and business at Cornell College in

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Speaker 2: Mount Vernon, Iowa.

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Speaker 1: He said many people think of.

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Speaker 2: The dust bowl or the stock market crash as the

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Speaker 2: approximate cause of the Great Depression, but in reality it

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Speaker 2: was caused by the same factors that have caused financial

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Speaker 2: crises throughout history in the.

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Speaker 1: US and elsewhere. Debt financed speculation.

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Speaker 2: In other words, when people find it too easy to

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Speaker 2: borrow other people's money to speculate on risky ventures, stocks, bond,

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Speaker 2: subprime housing, etc. Then people risk too much and prices boom,

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Speaker 2: only to eventually bust decades later. Unfortunately, were still vulnerable

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Speaker 2: to that psychological flaw. Noop said, markets are prone to

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Speaker 2: thinking that this time it's different, only to find out

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Speaker 2: again and again that it is usually not. In the

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Speaker 2: nineteen twenties, the United States was also dealing with some

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Speaker 2: bad Federal Reserve policy. Today, we're accustomed to thinking of

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Speaker 2: the Federal Reserve the nation central bank, as the guardian

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Speaker 2: of the economy. That's because its board could use monetary

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Speaker 2: policy control of the supply of money and credit, to

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Speaker 2: stimulate the economy when it needs a boost, or to

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Speaker 2: put on the brakes when inflation is starting to creep upward.

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Speaker 2: But in a two thousand and four lecture, former FED

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Speaker 2: Chairman Ben Bernanke detailed his theory that ninety years ago,

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Speaker 2: the FED dropped the ball with policy blunders that helped

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Speaker 2: cause and prolong the Great Depression. Starting in nineteen twenty eight,

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Speaker 2: the FED, hoping to put the brakes on Wall Street

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Speaker 2: speculators who were investing borrowed money, started raising interest rates.

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Speaker 2: That policy succeeded a little too well, as evidenced by

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Speaker 2: the stock market's catastrophic drop in October of nineteen twenty nine.

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Speaker 1: But then, even after.

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Speaker 2: The stock market collapsed, the FED kept increasing interest rates.

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Speaker 2: The reason was that the US, like many other countries,

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Speaker 2: was on the gold standard, meaning that the dollar was

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Speaker 2: redeemable in and pegged to its value when panicked investors

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Speaker 2: started trading their dollars for gold, the FED moved to

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Speaker 2: thwart them, Bernanki explained in his speech. To stabilize the dollar,

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Speaker 2: the Fed once again raised interest rates sharply, on the

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Speaker 2: view that currency speculators would be less willing to liquidate

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Speaker 2: dollar assets if they could earn a higher rate of

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Speaker 2: return on them. But the high interest rates made it

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Speaker 2: tough for businesses to borrow to weather the hard times,

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Speaker 2: and many went bankrupt as a result. At the same time,

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Speaker 2: according to Bernanki, the FED also didn't do enough to

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Speaker 2: protect the nation's banks, leading depositors to out their savings

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Speaker 2: and hoard the cash, further worsening the economic crisis. The

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Speaker 2: US wasn't the only country with such problems. We also

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Speaker 2: spoke with Nathaniel Klein, an assistant professor of economics at

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Speaker 2: the University of Redlands and an expert on economic history.

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Speaker 2: He said the gold standard helped things along by limiting

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Speaker 2: the policy response of nations around the world. Things like

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Speaker 2: lower interest rates and government deficit spending were made much

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Speaker 2: more difficult.

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Speaker 1: In addition, while.

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Speaker 2: Great Britain provided global economic leadership before World War I, one,

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Speaker 2: after the war, the US essentially refused to lead despite

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Speaker 2: being the new center of the world economy. Fortunately, this

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Speaker 2: is one area where policymakers learned their lesson, Klein said.

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Speaker 2: In the end, countries dropped the gold standard and many

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Speaker 2: engaged in deficit spending and monetary policy, and the US

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Speaker 2: established its leadership under the Breton Woods Agreement. That nineteen

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Speaker 2: forty four pact created the World Bank and the International

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Speaker 2: Monetary Fund, as well as eliminating the gold standard internationally.

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Speaker 2: On the other hand, as a candidate, Donald Trump said

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Speaker 2: that bringing back the gold standard quote would be very

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Speaker 2: hard to do, but boy would it be wonderful. As president,

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Speaker 2: he considered nominating to the FED Board. Hermann Kine, who

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Speaker 2: wrote in twenty twelve in The Wall Street Journal that

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Speaker 2: the dollars should be redefined as quote, a fixed quantity

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Speaker 2: of gold, though in a recent interview came backed away

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Speaker 2: from that position, and Stephen Moore, another past gold standard advocate,

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Speaker 2: told CNN that he now favored pegging the currency to

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Speaker 2: a quote whole basket of commodities. Both later withdrew consideration

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Speaker 2: in the face of political opposition. One of the other

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Speaker 2: big factors that led to the depression was trade wars

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Speaker 2: the Smoot Hawley Act, which was written in early nineteen

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Speaker 2: twenty nine when the economy was still going strong, but

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Speaker 2: became law after the Wall Street Crash raised US tariffs

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Speaker 2: by an average of sixteen percent. The idea was to

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Speaker 2: keep other countries from hurting US manufacturers by flooding the

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Speaker 2: market with lower priced products, but when those countries responded

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Speaker 2: by imposing their own tariffs, the result was a ruinous

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Speaker 2: global decline in trade that deepened and lengthened the Great Depression.

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Speaker 2: That bit of history worries many people today due to

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Speaker 2: President Trump's fondness for imposing tariffs in an effort to

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Speaker 2: protect US industries. So many of the factors that contributed

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Speaker 2: to the Great Depression are still risks. Whether they will

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Speaker 2: ever combine in an economic perfect storm is a harder

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Speaker 2: question to answer. Today's episode is based on the article

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Speaker 2: five Causes of the Great Depression? Could It Happen Again?

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Speaker 2: On has Stufforkstone? Written by Patrick J. Higer. Brain Stuff

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Speaker 2: is a production of iHeartRadio in partnership with HowStuffWorks dot

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Speaker 2: Com and is produced by Tyler Klang. Four more podcasts

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Speaker 2: from Myheartradio, visit the iHeartRadio app, Apple Podcasts or wherever

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Speaker 2: you listen to your favorite shows,