The causes of the Great Depression are hotly disputed by scholars
even to this day. No one knows the ultimate reason why the economy started
plunging downhill in 1929. However, several things are certain:
- There was a variety of things wrong with the economy going into 1929,
and they had been deteriorating throughout the decade.
- The conservative economic policies of the 1920s -- low taxes, little
regulation, lack of anti-trust enforcement -- did nothing to stop the August
recession and the October stock market crash.
- Hoover kept the Federal Reserve from expanding the money supply while
bank panics and billions in lost deposits were contracting it. The Fed's
inaction was the reason why the initial recession turned into a prolonged
- The economy continually sank throughout Hoover's entire term. Under
Roosevelt's New Deal, it rose five out of seven years.
- Attempts to blame Big Government for the Depression do not withstand
serious scrutiny. The Smoot-Hawley Tariff had a minor impact because trade
formed only 6 percent of the U.S. economy, and reducing trade gave Americans
only that much more money to spend domestically. Hoover's other attempts
at government intervention came mostly during his last year in office,
when the Depression was already at its depth.
- The first nations to come out of the Great Depression -- Sweden, Germany,
Great Britain, and then everyone else -- did so after they adopted the
Keynesian solution of heavy deficit government spending.
- Keynesian economic policies have eliminated the depression from the
world's economies in the six decades that have followed.
A renewed scepticism of large-scale government intervention led in the 1980's
once more to far reaching deregulations. Like in the 1920's the slogan became again : 'Government is the problem, markets are smart', resulting in 2008 to a repeat of financial difficulties. This time
the government acted more quickly with large financial government bailouts, reversing the economic philosophy
of the last 30 years and a better appreciation of FDR's New Deal. But the huge accumulated government and privat debts made a repeat of the New Deal more
difficult and the outcome has so far been uncertain.