5 Answers | Add Yours
I suppose the main thing the government could have done to prevent the Great Depression would have been to stop the bubble in stock prices from happening. They could have outlawed (or at least regulated) the margin buying and some of the other abuses that were pushing up stock prices.
They might also have been able to prevent the Depression by doing some of the things they ended up doing after the Depression had started. Insuring bank deposits would have made a huge difference because the banks going broke was one of the major things that spread the Depression.
Of course, it's pretty hard to expect them to have seen all of that stuff ahead of time. Our own situation today shows it's hard to tell when theings are about to go bad.
Yes. The government should have removed all obstacles to trade with foreign nations which would have stimulated the world wide economy after World War I. Instead, the raised protectionist tariffs that effectively stifled trade at a time when Europe, which had been devastated by the war, could have efficiently rebuilt. Secondly, the government could have, as previously stated, curbed abusive investment practices which were defrauding small investors and also causing huge swings of capital to enter and exit the market over a short time, causing market instability, and actually triggering the crash the caused the Depression. Finally, had the victors in World War I not destroyed the German economy through the Versailles Treaty, perhaps all of Europe wouldn't have fallen after the market crash in the US. The Federal government, doing what it shouldn't have, and not doing what it should have, transformed a moderate economic problem into a disaster.
I would say that government monitoring of business practices throughout the 1920s might have helped to limit the impact of the depression. On some levels, it could be argued that strict government intervention might have even prevented the abuses that allowed for the Great Depression. The artificial inflation of stock prices proved to be one of the primary causes of the collapse that triggered the Great Depression. If government had taken a more regulatory role and more vigilant role of business practices, as opposed to colluding with so many economic interests, one could make the argument that the financial system might have had some level of foundation which could prevents such a drastic and profound collapse.
All three 1920s Presidents, Warren G. Harding, Calvin Coolidge and Herbert Hoover were laissez-faire capitalists, meaning they felt that government should tax and regulate the economy as little as possible. As Coolidge once remarked, "Business is King". So they did not regulate trading on the stock market, allowed margin buying (borrowing to buy stocks) and even insider trading. They also allowed a lot of foolish borrowing, and installment payments for consumer goods that people would not necessarily be able to afford (sound familiar?).
Even minimal regulation in these areas by the mid-1920s might have been enough to avert the crash.
The Great Depression refers to the worldwide depression that started in 1929 with crash of real estate and stock market in U.S.A. When this depression occurred not much was known about what causes depression and how to prevent them. However, with the experience of the Great Depression and the expanding understanding of economics, governments were in much better position to prevent recessions or depressions.
With such expanded capabilities governments in many countries including the USA and India have been increasingly introducing regulations to prevent depression or other market problems. But fact is that these measure have not been effective in preventing the current depression. So, I very much doubt that US government had any clue prior to 1929, on ways of preventing depression.
I will not say that if US government had the information about the possibility of the great depression occurring, it would not have taken any preventive steps. But I very much doubt the ability of any government to reliably predict timing of likely depression, and the ability to prevent depression completely.
Pohnpei has suggested in post above that, to prevent the great depression Government could have taken some of the steps before start of depression that it took after the depression started. I believe this would have had quite opposite effect. I firmly believe that one of the major cause of depressions is the economic boom which invariably precedes every depression. The steps taken for boosting the economy after the depression set in, if taken before start of depression would have only led to a bigger boom, and with that, a more violent burst, and much deeper depression.
I believe, any effective way to prevent depression must include measures to prevent unrealistic economic booms also. Unfortunately, I have not come across any government policy statements that indicate that it is considering measures to prevent economic booms also. On the contrary I find that Government as well as business encourage the booms, and engage in "making hay while the sun lasts", rather than bother about restricting booms to realistic levels.
We’ve answered 319,197 questions. We can answer yours, too.Ask a question