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Chad Israelson: Great Depression wasn't as simple as some think

The stock market crash of October 1929 is commonly identified as the cause for the Great Depression. While it was the flashpoint for the economic disaster that followed, calling it the cause is akin to turning an oven to 400 degrees and assuming a batch of cookies will bake.

It takes the necessary ingredients to bake cookies, and in the same way the Great Depression depended on several factors that existed before the stock market crash.

The country had weathered several depressions prior to the 1920s; however, we have had only one Great Depression. Since that time we also have witnessed stock market plunges equally severe. 

What made the Great Depression so difficult are economic factors that built during the 1920s. First, the stock market grew rapidly and paid out handsomely during the 1920s, thus attracting a greater percentage of the population investing in the market than ever had before. Our modern analogy would be the housing market bubble of the last decade. A financial game of musical chairs has left many Americans upside down in their house value.

Secondly, an over reliance on credit caused overextended consumers to limit their purchases.   That created a slowdown in production, which necessitated layoffs and then led to less purchasing power.

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Thirdly, there was a growing inequality in wealth during the 1920s.

I am not suggesting that we are necessarily headed for a second Great Depression; however, the similarities between the conditions that existed then and what we have now should give us pause. In addition, this current recession is as stubborn as most Americans have ever experienced.  

There is considerable debate over how we should address the economic problems that beset us now. We can look to history to see possible methods for dealing with our current issues.

There were two Depression era presidents — Herbert Hoover and Franklin Roosevelt. Hoover’s historic blame for the Depression is overstated. At the time, Hoover was considered one of the most competent men of his era and a person the country would have wanted to steer it through a crisis.  He had massive success in helping avert a humanitarian disaster in Europe after World War I. He also was wildly successful in business prior to entering politics.

Hooker's reputation of sitting idly by while the Great Depression raged is also off the mark. His attempts at solving the Great Depression through government programs came up short. In classic political irony, Hoover was criticized by Roosevelt during the 1932 campaign for too much government involvement. What he failed to grasp is the importance of the psychological component in combating an economic crisis. Inspiring confidence is a critical aspect in giving the country hope. 

Franklin Roosevelt’s New Deal, which attempted to jolt the economy back to life through government spending, did not end the Great Depression. It only mitigated some of the worst aspects. It also gave people hope that things would get better and that someone in the government cared about their well-being. Roosevelt, who worried about increased budget deficits from the New Deal, slashed several programs and an economy that was showing signs of life went into another tailspin in 1937.

It is likely that Roosevelt was neither more intelligent, nor well versed in business than Hoover.  However, he had a leadership quality that Hoover lacked. He also grasped how to best use the media to reach out to Americans.

Programs such as the WPA, CCC and PWA left a legacy in the U.S. as well as Southeastern Minnesota that we benefited from and can still see today. There were dozens of projects in the Rochester area, such as the dam and park at Silver Lake, the City Hall/Library in Stewartville, Whitewater State Park and the former Public Library, (now Mayo Clinic's Mitchell Student Center) on Second Street SW.

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Right now Obama appears to be more Herbert Hoover than Franklin Roosevelt. Before taking office, public expectations were very high for the president based on the rhetoric of his campaign.  Many Americans believe that he has not successfully addressed the current financial crisis. 

Whether you think that the president is advocating too much or not enough government response, there is no doubt that his Jobs Bill is quite small in the context of the New Deal.  

We have good reason to be worried about the mounting federal debt we face; however, we also have an immediate unemployment crisis. Investing in infrastructure is necessary for any country, state, or community and can infuse a sense of civic pride. There are lessons to be learned from the Great Depression period, as well as a lasting testament to the workers who braved the worst financial crisis our nation ever experienced.

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