Depressions are not uncommon. Previous to the Great Depression, there were depressions in 1819-20, 1839-43, 1857-60, 1873-78, 1893-97, and 1920-21. America recovered from the depression at the end of World War I in less than two years. Those depressions were caused by government policies that created easy money and credit....
Depressions are not uncommon. Previous to the Great Depression, there were depressions in 1819-20, 1839-43, 1857-60, 1873-78, 1893-97, and 1920-21. America recovered from the depression at the end of World War I in less than two years. Those depressions were caused by government policies that created easy money and credit. Business men took this easy money and credit and spent it on unwise developments and bad investments. When these began to collapse, depression ensued. As soon as depression weeded out the badly managed companies, prosperity returned.
The proper question is why was the Great Depression of long duration and not short like most or all others?
Some economists say the Great Depression was a series of four depressions, back to back, with different causes, but the first one started just like previous ones: government making money and credit too easy so that there was over investment. The subsequent ones were caused by unwise government efforts to correct the first one.
In previous depressions, the Fed had raised interest rates so that poorly managed companies collapsed, leaving only well-run companies to carry on business in the U.S. But during the Great Depression, the Fed lowered interest rates so that poorly managed companies would survive. This only prolonged the agony. The eventual, inevitable correction took place, but only after a long time. The executive branch also intervened in a massive way that it never had before.
Both Herbert Hoover and Franklin D. Roosevelt were presidents during the Great Depression. They increased government spending without increasing taxes, thereby creating huge budget deficits. Many economists say their deficits made the Great Depression longer. Roosevelt called his big-spending, The New Deal.
The New Deal created a great many new government agencies. The government became much bigger. These new agencies regulated many aspects of Americans' lives. These new agencies cost lots of tax dollars to run. Had those tax dollars remained in peoples' pockets, the people would have spent them for things that they needed. By taking those tax dollars from people, they were spent for the support of bureaucrats. A lot of economists say this made the Great Depression longer instead of shorter.