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Hi, I'm Chris Clark. I'm an economics professor at Washington State University and I'm here to answer your questions from the internet. This is Great Depression Support. [Music] This Caterpillar 330 asks, "Was the Great Depression really as bad as it's commonly portrayed to be?" Yes, it was awful. The unemployment rate is 25%. In the Great Recession of 2009, we maxed out at 10%. Other places across the planet where we see this, say Greece in 2012 also hit 25%. Not a good time. The
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economy collapsed. Industrial production fell by half. This is a huge amount of idle resources. Folks went hungry. It spurred us to create the first federal welfare systems. This is where we got social security, unemployment insurance federal minimum wage, housing subsidies all throughout the 30s trying to address the suffering that we saw then. Bright Sherbet asks, "Explain it like I'm five. What caused the Great Depression between 1929 and 1933?" In the late 1920s, the
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United States financial markets were experiencing a speculative boom. Now the real economy was growing and there were real profits to be shared on Wall Street but they started investing heavily on margins. Now what this means is that they would take out huge loans and then buy stocks with those loans and then they would set up a different company to buy stocks in that company again on huge loans. So that meant an initial investment of say $100 could turn into
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$1,000 worth of stock. So any rise in the stock would be a huge boom, but any speculative boom is eventually going to end. The economy hit a run-of-the-mill recession in the summer of 1929. The slowdown in economic activity led the market to peak on September 3rd. But because so many of these stocks were not held outright, but by loan, any fall in the price meant a cascading chain of everyone calling in their loans. Which meant by October, we experienced a huge
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crash. Here's a picture of Wall Street on the corner of Wall Street and broad showing the crowds all worried about their falling fortunes. Now, despite what everyone thinks, the stock market is not the economy. Only 1 to 2% of Americans at the time held any stock. This event could have primarily just affected folks in New York and other financial markets. How did it start affecting the rest of the economy? A falling stock market means there's less wealth in the economy. Less wealth means
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less consumption. Businesses can't move goods. they're not able to hire people that they got to let others go. Things start cascading into the real world once we start seeing massive bank failures. You see, if a bank loses a lot of their stock, they're not going to be able to honor folks who put their deposits in. This is how a bank works. You come along, you put your money in the bank they take it, and then they lend it out to other people. But if those loans
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aren't being paid back, then the bank can't pay their depositors back. Which means you as a depositor are only going to get there if you're first. And how do you get there first? You got to be the number one person in that line. If you're too far back, the banks ran out of cash and they're not going to be able to pay you back. The bank doesn't have any loans available because the people who owe them money are now going bankrupt. And so banks are starting to fail. It's not just one or two banks
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here and there. It's 10,000 banks that are collapsing across these years. One of the reasons is because all these banks are forced to be really small. So if you get a modest shock, they don't have the resources to insure themselves or to draw on other regions. Surprisingly, just north of the border Canada only had 10 banks served the entire country and they didn't experience runs. This was unique to the United States and our fractured banking system. Year by year, things kept
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getting worse. By 1932 the unemployment rate had reached 25%. That meant one out of every four people can't find work who want to find work. Men would line the streets advertising themselves for work. Relief efforts set up soup kitchens to serve the unemployed. Economists still today debate on what are the ultimate causes of the Great Depression, but these are the primary events that got us along the way. The names Dr. Jane asks, "When does a great depression start and who
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declares it?" A great depression is going to involve a lot of economic collapse. Not just production, but we'll have high unemployment. All across the board, we're going to see a slowdown in economic activity. And the period between 1929 and 1933 was the worst economic decline in United States history. Now, who declares it? That's the National Bureau of Economic Research. They're actually not part of the government. They're a nonprofit research group based in Massachusetts.
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And after some time, for research purposes, the committee gets together and they decide what month and year a contraction starts. And then when does the economy start growing again? A Reddit user asks, "Why do Americans call the 1930s depression they had great? Wasn't it bad?" What are they stupid? It was bad. Actually, the term depression goes all the way back to James Monroe. This is the term that they would use for any economic downturn was depression. And they actually called the episode in
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the early 20s a great depression. It started having capital letters as the great depression by about the mid30s. We have Lionel Robbins, an economist who wrote a book called the Great Depression. In the subsequent years, we capitalized it called it the Great Depression. Zombie Tops asks, "What effect did the Smoot Holly act have on the Great Depression?" The Smoot Holly Act was a large increase in tariffs. One of the hypothesized reason for the Great Depression at the time was not enough
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economic activity at home and a greater need for protection from abroad. The idea was if you increase the tariffs here, it'll protect our businesses and they'll be able to succeed more and that'll get us out of the depression. Unfortunately, economists have long known and argued and warned at the time that trade is one of the ultimate secrets for long run economic growth. Trade allows a country to specialize. It allows more economic activity, more diversity, and more options across the
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world. Now, how much effect did this have? It was signed into law by President Hoover in 1930, just as we were getting started on the depression. Now, the effect on the American economy was modest, largely because the US economy was one of the biggest on the globe, and the role of international trade was relatively small. Economists have estimated it declined our economy by maybe a couple of percentage points but the effect on Smoot Holly was bigger across the globe. Other countries seeing
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that we were no longer playing fair raised their own tariffs, their own retaliatory tariffs. And we started to begin what we call this Kinderberg cycle where the tariffs got higher and higher across the world and global trade shrunk and shrunk and shrunk every year throughout 1932 and 33. Carbon Capture Shield asks, "What caused the great dust bowl of the 1930s?" A drought. But we get droughts all the time. The Dust Bowl was one of the worst environmental disasters in United States history. In
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the 1920s, we start seeing mechanization spread across agriculture. We get tractors and other machinery to help us till up the land. In the late 20s, a huge increase in migrants to the Oklahoma panhandle area, Colorado Kansas, and in northern Texas dug up millions of acres of prairie grass. The rain was great those years, and they got bumper harvest crops. 1931, we get a drought. 1932, the drought continues. It goes for year after year. The area experiences drought from time to time
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before, but the native grasses had a deep root system that would keep the dirt in place when it would dry out. But this all got plowed up. So without the rain, the wheat wasn't growing and we were left with huge fields of dirt. So you'd get a real big windstorm coming. It would kick up the dust and spread. By 1935, they called it Black Sunday. The dust was being spread to Chicago to Washington DC. So the government started doing things about it. They told them to
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plow in a way that would reduce erosion. They planted trees to help put a windbreaker all across the Great Plains. They bought hundreds of thousands of acres to turn back into prairie land. Now the effect on the macroeconomy was relatively minor. It affected around a 100 million acres. For reference, the United States had around a billion acres of agricultural land. Also only 20% of the economy's workers were in the agricultural sector by 1930. So it was hugely harmful for that panhandle
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region. But for the nation as a whole it wasn't a cause of the Great Depression. The local pain that we did witness was a large migration outward. This is where we get the famous novel The Grapes of Wrath by John Steinback. It's also where we get the most famous picture for the Great Depression. This was taken by Dorothia Lang. And this is a family of migrants that came from the Dust Bowl Oklahoma region into California. And in California, these migrants were living in very, very, very
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poor conditions. And the United States government hired photographers to go around and take pictures of these stories to help document it. And when Dorothia Lang saw this family, she took them in a bunch of different poses taking a snapshot that tells a story for the ages. Do swing 135 asks, "How was the military affected during the Great Depression?" After World War I, the veterans were promised a bonus that was going to be paid out in the 1940s. But because of the severity of the
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depression, these veterans were unemployed and asked for that support to be paid earlier. And over the course of months, they organized a march all the way onto Washington DC, setting up camps to sit there and ask that their promised support could be paid early. During this depressive era, Congress was slow to act. Hoover didn't want to do it and due to some local strife between some of these camps and the local police, Hoover directed General Douglas MacArthur to forcibly remove these veterans.
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MacArthur came in with force and bayonets, set the camps on fire, and force these veterans out. Aragon 233 asks, "Are we following in the footsteps of the Great Depression?" There's always parallels. There's always worry that it could happen again. It could, but we're not seeing anything anywhere close to that magnitude today. During the 2022 2023 inflation period, a lot of people on social media asked if we were living in another silent depression. We weren't. Home ownership rates are way
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higher than they were then. People own cars at way higher rates than they did then. The food stamp program and other assistance didn't exist. In 2008, we did experience another major financial crisis, arguably bigger than the collapse that we saw in 1929. Yet, the Federal Reserve acted in a way to preserve the financial system and prevent that spread from going further into the deeper economy. Today, people are worried about an increase in tariffs. It's true, we are raising
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tariffs to the levels that we last saw in the 1930s. We do trade a whole lot more today, the United States, compared to what the US was trading in the 30s. The economic harm from tariffs will be worse today than what it was. But the difference is the tariffs of the 1930s caused 1 to two percentage points of the Great Depression. Today the tariffs might harm the economy 1 to two percentage points again. Magic Karma asks, "The Great Depression was awful but it wasn't as bad for some of the
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rich. What business or sectors held their own or improved during the Great Depression? How did the rich stay rich during that time?" Well, most the rich held their wealth in the stock market and the stock market collapsed. So, the rich actually didn't do that well. This is a period of a huge decrease in inequality. Now, this is one of the episodes of decreasing in inequality that's not so hot. Destruction is not a good way to make the economy more equal. The difference today is during 2008 and
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during the COVID crisis, the wealthy were saved. Their wealth was preserved. And this has led to a lot of debates about the moral role of the wealthy in society. In previous crises, all the way back to the black plague of the 1300s to the great depression of the 1930s, the rich experienced pain along with everybody else and so worked to get everybody back on board again. Today the sentiment feels different and that can explain movements from Occupy and others. History defined asks Shanty
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Towns, what was life like in the Hoovervilles of the Great Depression? The depression was so severe that the quantity of homeless and unsheltered increased drastically. And in every major city in America, they started to set up makeshift homes either out of corrugated tin or cardboard or loose construction materials or digging holes in the ground for hvels. We've never seen homelessness at that scale before and the United States wasn't even collecting statistics on it. After FDR
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was elected, he hired a sociologist to go out and measure it. He came up with an estimate of 1.5 million homeless out of a total population of 120 plus million. That comes out to about 1.2% of the population. For reference, today the homeless population is around 700,000. This is a quarter of a share of the population compared to what was experienced in 1933. A Reddit user asks "How much did Herbert Hoover's policies contribute to the Great Depression?" President Hoover largely didn't do much
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and it was somewhat against his instinct. On his path to the presidency he served in the postworld war I reconstruction. He was a humanitarian. He was an engineer and he wanted the best for the country. His advisor Andrew Melon, told him that recessions are healthy and necessary in an economy. They cut out the fat. If you're a business that has a bad model, a recession cleans it out so we can use our resources more effectively. After the depression, Hoover in his memoirs
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lambasted that previous view and completely regretted his lack of action. He complained that Melon simply wanted to liquidate labor, liquidate investment, liquidate Wall Street liquidate everything. And clearly, you can't liquidate an entire economy. This sets up a debate. Still today, there is a split between economists on how much should the government get involved in a depression. But Hoover wasn't entirely actionless. He brought in folks from industry and he pled with them to keep
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wages high. There are some economists who think that this effort to keep wages at a high level prevented the economy from self-correcting, that it encouraged monopoly practices and that distorted the market, slowing it down even further. Dina Boy J asks, "Why are Franklin Roosevelt's fireside chats more well-known than other presidential attempts at directly connecting with the public?" Well, they were new. The radio was new technology, and by the end of the 1930s, nearly everybody had a radio
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all across the income distribution. So for the first time, a president was able to communicate with their own voice about what is happening in Washington DC. I mean, before the radio, the only way you'd hear from a representatives in Congress was through the newspaper. This was a very serious time for the country and leadership is needed. FDR was an optimist. He had a way with people and he encouraged and lifted them up. IHeart Alpacas asks, "What role did being on
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the gold standard play during the Great Depression?" Everything. Monetary policy is one of the primary tools we have to help recessions. And Hoover and initially FDR did not want to get off the gold standard. The gold standard at the time said one ounce of gold could be purchased for $20 and that price could not fluctuate. And the way to maintain that is to have a certain quantity of gold on hand. So if the value of the gold changed then the central bank can buy and sell gold to maintain that
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dollar peg. But the problem is this is going to tie your hands to respond to an economic crisis. Nobel Prize economist Milton Friedman and his co-author Anna Schwarz published this book, The Monetary History of the United States and it was monumental. It argued that the Great Depression was largely the fault of the central bank, in part trying to hold on to that gold standard. The total demand in the United States economy was collapsing. Prices were falling. This meant that businesses
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couldn't pay back their loans, which meant you saw more and more bank collapses, which in turn would put more businesses out of line and decline more and more wealth. If you allow the currency to change, if you get off the gold standard, in other words, you allow the central bank to print money, that's going to increase the amount of cash in the economy. That's going to make it so the banks can stay open. That's going to allow the economy to start growing again. This is such a big deal that as
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we see when each country got off the gold standard their depression stopped and growth returned. The first to do this was Scandinavia way back in 30 and 31 and then Great Britain did it in 1931. The United States and Germany we did it in 1933 and then finally France waited all the way to 37 before their economy started recovering. Tatum 1961 asks, "In 1933, the US government seized all the gold owned by private citizens. Why didn't that result in a massive protest or a civil war?" I think to
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understand this best, we have to understand how dire the situation was in 1933, how desperate everybody was for drastic political change. Herbert Hoover wanted to keep the gold standard. FDR on the campaign said he wanted to keep the gold standard, but it became very clear that if we're going to have the system reset, we had to change the currency. And FDR was very popular. People saw the need for it. In April of 1933, FDR signs an executive order, changing the value
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of 1 ounce of gold from $20 to $35 and requiring that people couldn't hoard gold anymore. If you held more than $100 worth of gold, you were required to sell it back to the government. For reference, that's the equivalent to around $10,000 worth of gold today. And of course, there were exceptions for jewelry and coin collecting. There were a handful of arrests across the country. Some people didn't want to return their gold, but the law was held up in court
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and the Supreme Court ruled it okay over multiple rulings between 34 and 36. Dark Matter 2025 asks, "When did the FDIC start?" The FDIC is part of FDR's New Deal in the whole alphabet soup. It stands for Federal Deposit Insurance Corporation. And this thing stopped. The bank runs. Here's how it works. You have a deposit with the bank. As long as that bank's in business, you can go and you can ask for your money at any time. The bank doesn't keep all your cash in a
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vault. It makes money by taking in deposits and lending it out to other folks businesses mortgages investing it in somewhere. Now, if those investments go sour, if those businesses don't pay back, if folks stop paying back their mortgages, then the bank won't have the ability to pay you back your deposits. And we had three, four years of bank run after bank run. When the FDIC came along, it said, "Hey, hey hey, banks, you pay a little premium into the system. We'll guarantee a
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deposit of a certain amount." If you've got your deposit in the bank, you know they're running into some trouble. You know that the bank might be having difficulties. You won't need to go run to the bank and get their last remaining cash out of their vault. You can just wait cuz you know that the government is backing up the insurance. From 1933 on this solved the bankr run problem. Boston driving is worse asks, "What would happen if there were a run on banks similar to 1929 today?" This is a
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great question cuz it's so far out of our lifetimes. We haven't experienced bank runs like this because of the creation of federal deposit insurance. What we can see are bank runs of a different type. Not every bank is covered by deposit insurance. In the 2008 crisis, a lot of that banking activity was banktobank, one investment bank to another investment bank. This was part of the shadow banking sector. It doesn't have the same regulation and standards as a regular deposit consumer
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bank does. So we did see a run between investment banks in 2008 that led to the collapse of Bear Sterns, Lehman Brothers, and ultimately AIG, whom the government stepped in to bail out. Don Khan asks, did the New Deal actually help Americans or not? And did it help during the Great Depression? The New Deal was kind of like taking spaghetti and throwing it on the wall and seeing what sticks. Some's going to, but some of the noodles are going to fall down the counter. Some of the policies that
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were effective, such as the CCC or the WPA, hired the unemployed and got them working on public works. These are pictures of my great-grandfather, Levi Bbeby, and he worked in the WPA. He lived in rural Utah during the Great Depression and didn't have work and had 14 children to feed. The WPA gave him employment. But more than just employment to be able to feed his family, it gave dignity and it gave purpose. Some of these public works included famous buildings such as the
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Griffith Observatory in LA. They built schools. They built libraries. They built town halls all across the country. They helped improve parks. Now, some of the criticism of the WPA and the CCC were these were make work programs. They had them do things that weren't needed. For instance, my other grandpa, the WPA built an outhouse in their backyard. One can say we don't need the government to come in and build out houses for people. But on the other hand, we know through
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long re years of economic research that the longer you're unemployed, the more harm you have in your total lifetime earnings. It's harder to go back into the workforce and find a job. Another criticism comes from the very first African-American to get a PhD in economics, Sadi Alexander Moser. She was a huge critic of the New Deal because it was implicitly designed to exclude African-Americans. Now, there was no direct racial language in any of these programs, but primarily most
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African-Americans worked either as domestic household servants or as tenant farmers. And programs such as the introduction of minimum wage explicitly excluded domestic workers. Social Security that was set up in 1935 explicitly excluded domestic workers as well. She felt that African-American tenant farmers were being pushed out by the aid that was given to the large farmers but not to the smaller ones. A Redditor asks, "What did Americans eat during the Great Depression?"
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Surprisingly, economic productivity increased throughout the 30s. We started getting better technology. More households owned a refrigerator by the end of the 30s than they did in 1930. This meant you can eat food that spoils more. So if you look at studies of their diet, they ate more fruit and they ate more meat in 1940 compared to what they were doing in 1930. Cauliflower dice asks, "Wait, why did the Federal Reserve do nothing during the Great Depression?
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Where is the money?" This is a really important question. This is everything. The Fed, some argue, basically caused the whole thing. Milton Freriedman said that the decline in the money supply between 1929 and 1933 was a huge increase in it. Ben Bernani recently won the Nobel Prize for his work on the Great Depression where he said when a bank collapsed, it lost information. So say you need a loan to get your business going. You're going to go to the bank and ask for it. That bank will give you
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a loan because they know who you are. They know you're good for it and they know you'll pay it back. But if that bank collapses, now you got to go to a new bank and now you're a stranger. You can bring your paperwork. You could bring a letter of recommendation, but they really don't know who you are. And that asymmetry and information caused even more economic decline. Ben Bernani became the Fed chair during 2006 and led us through the Great Recession. And his
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biggest thing was to prevent more banks from falling. We've known since 1873 in Walter Badget's book that central banks jobs are to be a lender of last resort. If the private economy isn't lending to each other, the central bank needs to lend to these banks because otherwise good banks who otherwise have a great business are going to go over just because they're in the middle of a crisis. So why didn't they act? One reason is this. The Federal Reserve was smaller back then. Most the banks that
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collapsed in the 30s were small rural banks, not necessarily under the Federal system. And one of the changes in the 30s was to expand the role of the Federal Reserve's influence so that they can help save other banks. Another one is they were constantly concerned about staying on the gold standard. People were worried about inflation coming along even as they were watching the opposite, deflation coming along. The United States Federal Reserve was created in 1913 as a response to the
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crisis of 1907. The fact that the next big crisis came along and they didn't prevent it is a huge stain on the history and a huge lesson for us today. Nice guy, bad boy asks, "How much truth is there to the stories of hitherto wealthy people throwing themselves out of windows when the market crashed in 1929?" Not a lot. There were some international reports that this happened. Really gruesome stuff about bodies strewning the ground, but when we dig into the history, we don't really
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see it. JJVMt asks, "Why do massive job creation projects like FDR's Works Progress Administration seem to have largely gone away by the late 20th century?" When you have millions of people who are unemployed, anybody working, doing anything is important. But eventually the economy recovers. We had 25% unemployment in 32. It comes down to about 9% in 37, bumps up in 38 again. By the beginning of World War II we're back down to 9%. And by the end of World War II, we're only at 2%
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unemployment. When the rest of the economy is humming on all cylinders, you don't need public programs to get people to work. There is a large debate about whether the government should always have this public jobs option so that we reduce unemployment to zero all the time. The debate here is about efficiency. Markets when they function have a huge power to put in information from all these buyers and all these sellers and allocate our scarce resources to the most efficient part.
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Governments are going to be more clunky to do that. And so if your public sector is too big, it distorts what the economy can do and we underperform leading to less long run economic growth and prosperity. Breath 1100 asks, "Was World War II really what ended the Great Depression?" The economics of war is war is bad. War is bad for your economy. The reason the US did so well in World War II is basically because the fighting didn't happen here. But you look at
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Europe and they collapsed. They had two giant civil wars during the first half of the 20th century. Not good for their economy. It's a whole lot better to build houses, to build businesses than it is to build weapons and bombs. On the other hand, World War II gave a reason for the government to increase their spending at levels that they hadn't seen ever in the history of the country. And they did this through deficit spending. That means through borrowing. This is a
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relatively new idea. Under Hoover and under FDR, they originally wanted to balance the budget. John Maynard Kanes was an economist back in England and he is the most influential economist in the 1920s. The modern study of macroeconomics basically can get its start looking at this guy when he published his book his general theory in 1936 and from his writings that he had been doing in the years previous. He said during a recession the government needs to step in and be the spender of
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last resort. And in his world it didn't matter what you spent on anything is better than nothing. This position has largely been dominant in the years since. Every time the economy experiences a recession, the government is going to increase its deficit spending. During COVID, we spent $5 trillion to make sure that folks were taken care of, and they were. The amount of economic suffering we had in the 2020 recession was a fraction of what we saw just previously. Studying macroeconomics
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and learning how to prevent catastrophes like recessions and massive depressions is one of the most important things we can do. We want to prevent economic suffering. We want to encourage prosperity for everyone. And that's it. I hope you've learned something. I hope we can prevent these catastrophes from ever happening again. [Music]
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