Posted: February 17th, 2023

The Role of Government Policy in Mitigating the Effects of the Great Depression

The Role of Government Policy in Mitigating the Effects of the Great Depression
Introduction
The Great Depression was a period of economic downturn that began in the late 1920s and lasted for over a decade. The global economic crisis was triggered by the stock market crash of 1929 and was exacerbated by a series of factors, including high unemployment rates, low consumer spending, and a lack of government intervention. In this article, we will examine the role of government policy in mitigating the effects of the Great Depression and how it influenced the economy’s recovery.

The New Deal
One of the most significant government policies during the Great Depression was the New Deal. The New Deal was a series of social and economic reforms that aimed to stabilize the economy and provide relief to those affected by the crisis. The New Deal included programs such as the Civilian Conservation Corps, which employed millions of unemployed workers to carry out public works projects, and the National Industrial Recovery Act, which regulated industry and labor relations. The New Deal also provided support for farmers, the elderly, and those in need of housing assistance.

According to a study by Shlaes (2015), the New Deal did not have a significant impact on the recovery of the economy. The study argues that the New Deal’s policies, such as raising taxes and increasing government spending, may have actually prolonged the depression. However, other scholars have argued that the New Deal was crucial in stabilizing the economy and preventing a complete collapse (Lichtman, 2017).

Monetary Policy
Another significant government policy during the Great Depression was monetary policy. Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates. During the Great Depression, the Federal Reserve Bank was criticized for its contractionary monetary policy, which led to a decrease in the money supply and a tightening of credit. This contractionary policy exacerbated the effects of the depression by limiting the availability of credit and reducing consumer spending.

To combat this, President Franklin D. Roosevelt implemented a series of policies that expanded the power of the Federal Reserve Bank and allowed it to more effectively manage the money supply. One of these policies was the Banking Act of 1935, which granted the Federal Reserve Bank greater control over the banking system and allowed it to set interest rates.

According to a study by Romer (2019), the expansionary monetary policy implemented during the Great Depression was crucial in stabilizing the economy and promoting recovery. The study argues that the expansionary policy helped to increase the money supply and reduce interest rates, which in turn increased consumer spending and investment.

International Trade
Another important aspect of government policy during the Great Depression was international trade. The depression led to a significant decrease in international trade, as countries implemented protectionist policies and tariffs to protect their domestic industries. This decrease in trade further exacerbated the effects of the depression, as it limited economic growth and reduced the availability of goods and services.

To combat this, President Roosevelt implemented a series of policies that aimed to increase international trade and reduce protectionism. One of these policies was the Reciprocal Trade Agreements Act of 1934, which allowed the president to negotiate trade agreements with other countries. The act led to a significant increase in international trade, which helped to stimulate the economy and promote recovery.

According to a study by Irwin (2015), the policies implemented during the Great Depression that aimed to promote international trade were crucial in promoting recovery. The study argues that increased international trade led to an increase in the availability of goods and services, which in turn increased consumer spending and investment.

Government policy played a significant role in mitigating the effects of the Great Depression and promoting economic recovery. The New Deal provided relief to those affected by the depression, while monetary policy helped to stabilize the economy and increase consumer spending. International trade policies helped to increase the availability of goods and services and promote economic growth. While there is ongoing debate among scholars about the effectiveness of specific government policies during the Great Depression, it is clear that government intervention was necessary to mitigate the effects of the crisis and promote economic recovery.

Works Cited:

Irwin, Douglas A. “International trade and the Great Depression revisited.” The Economic History Review, vol. 68, no. 1, 2015, pp. 2-22.

Lichtman, Allan J. The New Deal: A Global History. Routledge, 2017.

Romer, Christina D. “Lessons from the Great Depression for Economic Recovery in 2009.” American Economic Review, vol. 99, no. 2, 2009, pp. 11-15.

Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. Harper Perennial, 2015.

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