Causes and Consequences of the Great Depression - Essay Example

?The Great Depression Task: The Great Depression The great depression de s a period within which the global economy was ina deplorable state. The depression commenced in America with the plummeting of values of stock. This resulted in decreased market confidence. The news of the free falling value of stock spread across globally, setting off events that culminated in economic failure worldwide. The Great Depression occurred the decade prior to the World War II. It also occurred one decade after the culmination of the First World War. This write-up will discuss events which contributed to this economic crisis and its consequences. The events that resulted in this calamity include poor economic policies, malpractices and increased tariffs (Ross 1998, p. 183). In the late 1920s, there were no adequate regulations which governed trading in America’s stock exchanges. Consequently, traders exploited these shortcomings to their benefit. Overall, the investors’ funds were vulnerable to unscrupulous traders. Unscrupulous trading in the stock market was one of the triggers of stock market failure. Subsequently, the values of shares began to plunge. The decrease in the value set off events in other industries, which culminated in this economic calamity. However, historians and economists argue that the decrease in the value of stocks in the market was not the cause, but a symptom of an impending economic calamity. Decreased market confidence resulted from the general failure in entities, poor policies such as increased taxation and dismal performance of other industries. According to economists, the collapse of markets denotes the final symptom of an eminent economic calamity. Although the collapse of the stock market may be a symptom rather than a cause, the resultant panic caused rapid deterioration of the economy in both America and the globe (Robbins 1971, p. 90). It is vital to realize that the great depression was a culmination of the coupling of various factors. Such factors included unfavourable tariffs. There was a general rise in the tariffs to finance the governmental operations. However, the higher taxes resulted in the government having more funds. During this period, governments undertook rearmament programmes. Subsequently, vital industries did not receive appropriate funding to stimulate the economy. Despite the imperialist policies adopted by nations, there were positive attributes from nations spending massively on defence programmes. Government globally were able to employ additional workforce. The massive defence expenditure did not improve the economy. Therefore, it denied the economy vital resources that would have improved nations further. The military ambitions were realized at the expense of the global economy (Lied 2002, p. 234). During this era, the international trade was not properly developed. Additionally, the emergence of global alliances hindered trade further. Globalization was inexistent; hence, economic panic due to failure of stock markets in America resulted in an economic calamity. If international trade had been properly developed, it would have mitigated the impact of the Great Depression. It would have provided optimism in the economic sectors globally. However, the existing global alliances, which pitted Germany and the United Kingdom (UK) against each other, only made the situation dire (Smiley 2002, p.153). Countries only traded in their alliances; thus, there was minimal business among nations such as the UK and Germany, which represented the global economic forces. Such enmity hindered trade among nations that would have mitigated the depression. Global politics had massive implications on the depression. Proper politics would have enacted measures that would have encouraged economic improvements. However, the political stands during this era resulted in further degradation of the economy (Klein 1947, p.157). The Great Depression was global; hence, there were numerous factors which triggered its occurrence. While the collapse of the stock market in America is the distinct event associated with the crisis, there are also other factors which contributed to the crisis. Such factors included inexistence of economic structures that would have dealt with such occurrences. Currently, the government can undertake various measures to deal with such a predicament. Such measures include stimulus packages, bailouts and rapid policy change. Government during this era lacked economic experts that would advise administrations accordingly. Therefore, absence of appropriate work force reduced the urgency in the resolution of this predicament. Additionally, most nations did not have apposite structures to counter the problem that followed the occurrence of the depression. There were no proper regulations of stock markets providing loopholes that the trade in Wall Street exploited to enrich themselves to the detriment of the investors (Hamilton 1987, p. 158). For an economy to be sustainable, it requires certain elements. The elements include equality in the distribution of wealth. However, during this period America had a massive economic inequality gap. Massive resources in the country were under the control of a few persons while the majority had minimal wealth. This scenario denotes an imbalanced economy, which is unstable. Consequently, the economy was vulnerable to collapse owing to this unequal distribution of wealth. A few individuals could sabotage the economy considerably. The existing industries paid reduced wages, preferring to invest their earnings in the creation of other industries. However, the economy had enough heavy work factories and what it needed was diversification. Increasing the employees’ wages would have resulted in more dynamic expansion of the economy rather than construction of additional industries (Garraty 1986, p. 231). Over the 20th and 21st centuries, the economy has had a distinct pattern which is cyclical. Therefore, the economy improves reaching a period regarded as a boom. Subsequently, it deteriorates into a recession. The global economy assumes the above cycle as such. The Great Depression was a period in which the recession worsened into a depression. The global economy recedes when it requires a change in policies. In the 2006-2010 recession, banks and insurance institutions had to adopt different policies. The economic path assumes a cycle, which has various periods such a boom and the recession. The above details elaborate the key reasons that culminated in the Great Depression. The causes include poor governance of the stock market, economy and politics. Therefore, the collapse of the economy resulted from a combination of factors. The implications of this calamity were massive, which included the closure of factories owing to slow trade while the value of stocks continued to slump in the exchange markets (Friedman & Anna 1963, p. 129). The Great Depression had countless consequences on the economy of America. This crisis affected the economy massively. The citizenry had minimal funds to spend; consequently, there was reduced consumption. The reduced consumption means that some of the goods produced by the factories would go to waste. Therefore, most industries suffered massive losses owing to reduced consumption. The reduction in consumption would necessitate closure of numerous industries. This was a massive setback since the economy was in a phase where the economic expansion resulted from industrial activities (Thomas & Ferguson 1998, p. 46). Consequently, the closure of industries meant that there would be minimal economic growth. The closure or downsizing of industries culminates in a loss of employment. The loss of employment leads to an income loss. Loss of income resulted in the increase of poverty in a nation where there was massive wealth belonging to a few rich persons. The Great Depression culminated in increased poverty of the nation. Additional loss of employment resulted in an upsurge of the unemployment rate. The unemployment rate is one of the numerous indicators of economic progress. The increase in the unemployment rate denotes the economy is performing dismally. During the Great Depression, the unemployment rate rose to unprecedented levels – an indication of the impacts of this calamity (Frank & Bernanke 2007, p. 98). Unemployment causes both social and economic problems. Some of the social implications of unemployment include a rise in social vices. Those vices include an increase in crime as countless individuals have no source of livelihood. The increase in such social vices shows that the quality of life decreases with the rise in poverty. America had a massive economic inequality gap. The onset of the Great Depression only widened the gap among the poor and the wealthy. This inequality gap made the economy more unstable owing to the unfair distribution of wealth. The Great Depression reduced economic activities significantly. The agricultural sector suffered significantly owing to this economic calamity. The agriculture sector was one of the leading sectors in the economy. Therefore, most farmers suffered a decrease in returns owing to the reduction in consumption (Downing 2008, p. 48). The Great Depression resulted in reduced incomes for the population in general. Therefore, middle class people who had rented homes could not pay the rent. Consequently, the rates of evictions in major cities rose considerably. Furthermore, the incidences of foreclosure also rose. Therefore, there was a gradual increase in homeless people in the general population. The persistence of this economic crisis also resulted in further depreciation of the value of security in the stock market. The major stocks in the market lost significant proportion of their value. The loss of securities’ value meant that the investor had made losses. The investor could only receive a small portion of the money invested in the securities. Overall, the stock market lost about $ 70 billion. This is a massive value since the stock market was still tender. The depreciation in the value of securities would discourage subsequent investment in the market (Christina 1993, p. 30). America represents a country of unlimited opportunities. However, during this period death due to starvation became a reality. Countless people were unemployed, thus depending on food provided by local authorities. The government was also unwilling to assist the unemployed individuals directly. Therefore, starvation and homelessness was extremely rampant as the government adopted tough measures to resolve this crisis. The American economic specialists expected the economy to correct itself since it was cyclical. The economy oscillated between recession and a boom. However, the extent of the recession was massive; subsequently, it culminated in the failure of financial institutions such as banks. The American policymakers should bear part of the responsibility for the reckless manner in which they handled this crisis. They should have provided timely policy interventions, which would have mitigated some of the impacts of this crisis (Cole & Lee 1999, p. 15). The Great Depression posed massive financial challenges to the American government. Consequently, the government encountered countless challenges in its quest to address this situation. This crisis required policies that would prevent the occurrence of such a crisis. This would entail the country diversifying its economy from industrial activities (Christina 1992, p. 770). Additionally, they had to ensure that employees receive better wages to boost consumption. The inequality gap resulted in economic imbalance, which was one of the key triggers of the crisis. The American government had to support banks, which offered credit to the public. Failure to offer banks financial assistance would have culminated in total collapse of the financial sector. However, banks had to undertake stringent managerial policies that would ensure financial stability (Christina1990, p. 615). Bibliography Christina D 1990, ‘The great crash and the onset of the Great Depression,’ Quarterly Journal of Economics, vol.105, pp. 597–624. Christina D 1992, ‘What ended the Great Depression?’ Journal of Economic History, vol. 52, pp. 757–784. 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