Economyc Depression - Research Paper Example

? Economic Depression Economic Depression Bottom of Form Bottom of Form Bottom of Form Introduction and Definition A severe downturn that lasts for long duration is known to be an "Economic Depression" by the economic critics.Moreover, economists believe that is much worse and intense in magnitude than a recession, which is assumed to be a part of the business cycle.In accordance with view of few economic experts, in comparison with recession, economic depression is of rare and severe sort. An economic depression is surmised by its length, by rarely increased unemployment rate, low rate of credit availability; due to financial and banking instability, low production, large number bankruptcies, also because of the debt defaults, considerably little amount of imports and exports, financial crises and different other factors on which the economy of a country depends. Although the economists do not propose an agreed definition of Depression but it is generally believed that phases named to be under economic depression are characterized by substantial and continued shortfall of the capability to buy commodities relative to the amount that might be produced by utilizing current resources. Depression is also defined on the basis of two general rules: A decline in real GDP over and above 10%, or A recession constantly experienced for 2 or more years. These days, the term “Depression” is frequently associated with the Great Depression of the 1930’s, though the very term had been in use for quite long before then. History of Economic Depressions There have been many periods of long-drawn-out economic downfall in different countries/regions since 1945, but naming these as "depressions" is contentious. The most considerable worldwide economic crisis in the history after the Great Depression, the recession of late-2000s, has also been named as “Depression” at times, but this terminology is not in general use, even though economic researchers name them as “Great Recession” (Krugman 2009). The “Great Depression” The Great Depression was an event which started on October 1929, when the stock market in the United States dropped swiftly. More than hundreds of financiers and investors drowned their capital and got bankrupted, even the history writes them to be raised to the grounds and were compelled to live on the streets, time and again going without food. These circumstances resulted to the Great Depression. In modern times, the resulting period of ten years was categorized as the most terrible time-span with extremely high unemployment rate and near to the ground business activity. Almost all of the industries, business hubs, factories, shopping stores and trade centers left numerous Americans out of work, rendered homelessness, and caused people to live without food. A gigantic number of people were depending on the State administration or else charity organizations, to provide them with food (Shannon 1960; Parker 2007). Almost all countries were severely affected by this massive and worst economic downfall and came forward as facing “The Great Depression” of 1930’s. It led to a sharp turndown in world trade as each country tried to protect their industries. The Depression led to political turmoil in many countries such as Germany where poor economic conditions led to the rise of Hitler. Franklin D. Roosevelt was elected President in 1932 and his 'new deal' reforms gave the government more power and helped slow the depression. By the time, as nations enhanced the production of weapons and other war equipments, the Great depression began to stroll towards an end. The increasing production of war materials led to open job opportunities for masses and resulted in the injection of big sums of money back into the business flow. Many of the factors resulted into the great depression; one of them being the lack of diversification in the economy of United States. The overall economic success of America used to be dependent on very few industries; for instance construction and the automobile and these began to fall in the late 1920’s. When those two industries began to decline, there was not enough strength in the other sectors to keep the economy strong (Parker 2007). The inefficient distribution of wealth was also another crucial factor of the depression. During the period of 1920's, the profit earned the companies was very much well and they were earning a handsome amount of money. Despite that the wages of employees as was not being improved as the profit of the companies was growing. When the industrial and agricultural production increased, the total profits earned by the farmers, workers of the factory, and other capable buyers was way too minute for creating a market of commodities that were being produced. Even when the economy was experiencing a rise in 1929 because of 10 years of the economic expansion, nearly 50% of the families were living under the poverty mark and were not able to purchase the goods that were being produced by the industries. As long as the companies continued to expand their factories, the economy remained strong. However, they succeeded to create additional plant space which could be utilized beneficially. The production by the factories was recorded to be more than the consumers could buy (Parker 2007). Another important factor to be viewed as the cause of Great Depression was the poor credit structure. The dropped crop prices was very troubling for the farmers, who were already depressed because of the pressure of debts in the late 1920's.This led to damage the banks and their performance, particularly those being involved with agricultural sector because the farmers were deprive of reimbursing the loans acquired from the banks. This also brought trouble and failures to the small banks as well. Moreover, the banking system at that time was not that much strong and efficient to cope with these economic problems as the depression had too severely truck the whole economy. Many of the top ranked banks of various countries had invested their money in stock market at that time and saved very less in their hands. The collapse of international trade is assumed to be the major factor for leading the whole world into economic depression. Countries preferred to give protection to the domestic production over foreign imports by increasing the tariff to unexpected level. Canada was in some ways safer from the influence of the Great depression than America. Canada, unlike the other countries facing a major economy disaster, had flourished in the 1920’s and was the number one wheat exporter at that time, ranking her on the top of the world’s principal traders. However, this was only because of the problems in other places of the world. The Russian revolution stopped Russia from trading their wheat, and WW1 had devastated other countries throughout Europe. The European countries regained their economic positions, however, by hook or by crook and Russia once again started the production of wheat. Although, the demand of wheat from Canada decreased comparatively, but their production was still as much as it was being produced earlier. Rather than cutting back on the wheat production, stocking it in the wheat stacks was preferred by the Canadian farmers which often resulted in all wheat going to waste. An utter collapse of the economy was observed in Prairie Provinces in 1929. Despite the fact that Canada had not much of its investment associated with stock market like America, but the downfall of states had an immediate impact on Canada (Shannon 1960; Parker 2007). Top Listed Causes of Great Depression What factors were responsible for the Great Depression in the international trade; consider the worst depression in Economics of United Sates? It was not only just a single factor, despite a bunch of domestic and worldwide circumstances that led to the Great Depression. Apparently, there is no agreed upon list of all causes. Here instead is a list of the top reasons that historians and economists have cited as causing the Great Depression. 1. Crash of Stock Market in1929 2. Failures in Banking Sector 3. Reduced purchasing power all over the world 4. Natural calamities and artificial scarcity 5. The economic policy of States towards Europe Aftermaths of Great Depression During the Great Depression, millions of people were unemployed all over the United States. Not able to find and get another job nearby and domestically, many unwaged people hit the road, traveling from place to place, hoping to find some way of earning in order to feed themselves and their children. A very small number of these people had vehicles however most of them took a ride or “road the rails”. A huge portion of the people who “road the rails” were adolescents, not to forget that there were also adults and complete families who traveled in the same manner. They would board cargo trains and wandered in the country, in the anticipation of finding a job in one of the towns along the way and kept travelling for their lives. When there was vacancy for any job, there were often literally more than a thousand people applying for the very job. Those who weren't lucky enough to get the job and failed to get through would perhaps stay in a shantytown (known as "Homerville’s") outside of town. Now more often, the farmers who were left with nothing in hand travelled west to California where they were informed of agricultural jobs. Unfortunately, although there was some seasonal work, the circumstances for these families were fleeting and hostile. Since many of these farmers came from Oklahoma and Arkansas, they were called with the derogatory names of "Okies" and "Arkies." (Steinbeck 1967). The closing Phase of Great Depression President Roosevelt was a hero before many among the masses at that time. It was believed by them that he held serious concerns for the common man and that he was doing everything he could to bring the Great depression to an end. Looking back, on the other hand, it is vague as to how much Roosevelt's New Deal programs helped to end the Great Depression. By all accounts, the New Deal programs eased the hardships of the Great Depression; however, the U.S. economy was still exceedingly bad by the end of the 1930s and the magnitude of hope for its betterment was almost zero. The bombing of Pearl Harbor and the involvement of United States into the World War II was the biggest turn-around for the U.S economy. Masses and the industries caught more importance for the States as U.S entered the World War II regarding the efforts and participation in war. Military equipments, vehicles, weapons, arms and ammunition were immediately required for the war. Men were being prepared to fight as soldiers and the factories were given under the supervision of women to keep them running. It was the rapid increase in economic activity by dint of the World War II that led to an end to the Great Depression in United States (Parker 2007; Shannon 1960). Further Influences of Depression The economic crisis in the 1990s was very severe as it is believed to be twice as alarming as the Great Depression which affected the United States and Europe. The living standards of people in the Eastern Bloc were seen to decrease in the early 1990s. Some populations are still not good today than they were in 1989, for instance, Ukraine, Moldova, Serbia, Central Asia and Caucasus. A catastrophic decline in Gross Domestic Product (GDP), almost near to half, during the 1990-1996 periods was resulted by the collapse of Soviet planned economy and the transition to market economy. This consequently put a rise to poverty over tenfold (Batra 1987) Lessons for today The most noteworthy subject of little-known economic depression of United States is that it was going to be the last economic crumple in which the staples of government planning, contemptible money, huge deficit; and bailing out different messed up, large monetary societies with friends on each of the side of aisle, were not utilized for stabilizing the economy. A policy of laissez faire was applied and it succeeded inexplicably in the 1920s, while the reverse failed in the 1930s. Still a huge number of Americans hold the deep desire and urges the Government for what Hoover called “positive action” in order to turn around the economic issues. Those were the policies he would use a decade later after the break down of 1929. That’s when he bragged that he was the first president to use the new methods for the recovery. He bragged in his autobiography of having “the greatest program of offense and defense” against depression ever attempted. “For the first time in history,” Hoover wrote, “the Federal Government has taken an extensive and positive part in justifying the effects of the depression and expediting recovery.” Unfortunately for Hoover, the formula could not work. And it did not work any better, when expanded by Roosevelt. We cling to the recovery formula of The Great Depression up till now, and so do the harsh lessons of it. It must be figured out as to why it could not be useful at that time and has worked by no means. Or else, it would be similar to inviting a terrible time in the history of American Economy again (Hoover 1931). Conclusion The history depicts that the economic crises have messed up over all progress of the globe. Another economic depression is forecasted for the future and many of the economists believe that it would occur by the end or mid of 2012. All we are required to do is not to repeat the mistakes that we did in the past and stay conscious for any sort of mishap. This past year, there was hope that the current downturn might be focused on America, and so international demand could remain high and perhaps support the American economy. Anyhow, it has been realized during the past few months that it was a bogus expectation, since the facts and figures are speaking of downfall in Europe, Asia, and many other regions of the globe, if not larger, than in United States. References Herbert Hoover. Address to Indianapolis 1931. The American Presidency Project. Top of Form Steinbeck, J. (1967). The grapes of wrath. Harmondsworth [u.a.: Penguin Books [u.a.. Top of Form Krugman, P. R. (2009). The return of depression economics and the crisis of 2008. New York: W.W. Norton. Top of Form Batra, R. N. (1987). The great depression of 1990. New York: Simon & Schuster. Top of Form In Shannon, D. A. (1960). The great depression. Englewood Cliffs, N.J: Prentice-Hall. Top of Form Parker, R. E. (2007). The economics of the great depression: A twenty-first century look back at the economics of the interwar era. Cheltenham, UK: Edward Elgar. Bottom of Form Bottom of Form Bottom of Form Bottom of Form Bottom of Form Read More