How did the stock market crash in 1929 and what would have been the best way to solve the problem?
I find this fascinating, maybe just because I thought of it, but the results seem to be quit accurate.
The market crash came about because of the lack of consumer spending, plain and simple. It produced a bubble in our economy. Now you may say whatever, it was the time of the roaring twenties. Consumers spent like crazy. But it also was the time of buy now – pay later. a large number of people all buying goods on credit without paying. The businesses producing large amount of goods without being compensated properly. Households did not spend enough on consumer goods and services and businesses did not spend enough investing in new capital.
Now the real kicker that has influenced the way numerous people’s vote is how to fix this problem.
This is such a great question to ask some one because it focuses on the main differences between the platforms of say the Democrat and Republican party. I have said it many times, the strife between these two parties is not a fight between liberal and conservative. Those words practically mean nothing, but could mean everything. It actually is a disagreement between capitalism and socialism. (If you listen to the democrat debates, they want an economy based on government spending while the Republicans primarily focus on an economy based on consumer spending.)
Now Classical economists, such as Adam Smith, David Ricardo, and John Stuart Mill (Three of the first classical economists) would state that the economy always will fix itself. Supply and Demand charts always prove this statement. If the government would let the economy fluctuate appropriately then it will be able to function smoothly and maintain it’s equilibrium. What many people are not aware of is what really threw our economy in a manic depression with a rate of 25% unemployment was the Smoot – Hawley Tariff act. Economists warned the Democratic congress of the time not to pass an increased tariff, because every time a tariff has been enforced it decreases the gross domestic product (GDP). Never the less it was passed in 1930, and 1931 through 1933 was by far the worse time of the economic depression, thanks to the tariff.
John Maynard Keynes came up with a theory that the market economy could be cured quickly by government intervention. As you should now this was the choice taken by President Roosevelt. He chose to increase taxes on the American people, which in return gave the government the ability to increase government spending in order to lift our economy out of the depression quickly. Now John Keynes predicted that although this action would benefit our economy in the short term it would prompt two long-term problems. One of these is a slow rate of increase in real GDP – a slow pace of improvement in the standard of living. The other long-term problem is persistent inflation – a persistently rising cost of living. Keynes suspected that his cure for depression, increased government spending, might bring both inflation and a lower growth rate of real GDP. With a lower growth rate of real GDP, the pace of job creation would also slow.
Once the late 1960’s and throughout the 1970’s, Keynes’ predictions became reality. Inflation increased during the 1960’s and exploded in the 1970’s. Real GDP growth slowed, and the unemployment rate increased. Keynes is recorded saying “In the long run we’re all dead.” In the 1970’s, Keynes was dead, but others were alive and well but had to suffer the long-term consequences of Keynes’ advice. Our economy continued to suffer until the Reagan tax cuts were initiated, allowing our economy to be based on consumer spending again which lowered unemployment and increased the GDP.
If one answers by saying “it was an unfortunate incident, luckily Roosevelt saved our country, I love tax increases! Then odds are they vote for the guy with a “D” besides their name.
If one answers by saying “the government should have let our capitalist economy function freely, without the government intervention of the Smoot-Hawley Tariff act. Our economy would have corrected itself by establishing it’s equilibrium without the damaging long term effects such as high unemployment in the future.” The probability of them voting Republican is awfully high.
“The more you know – the less likely you will vote for a socialist!”
