Download Debate: How should we handle - The University of Southern

Part 1: Global Depression
Part 2: Debate: How should we
handle poverty?
Theme: The relationship between the
economy and society
Lesson 7
Part 1: Global Depression
Lesson 7
World Economy in the 1920s
• Beginning to return to normal after World
War I
• Beneath the surface however there were
some serious flaws
– Tangled financial system
– Second order effects of technological
advances
– Weakened agricultural base
Tangled Financial System
• The Treaty of Versailles imposed
heavy reparation payments on
Germany and Austria to France
and Britain
• Germany and Austria relied on
US loans and investment capital
to finance these reparations
• The French and British, in turn,
relied on these reparations to
repay loans to the US taken out
during World War I
• By the summer of 1928, US
lenders and investors started to
withdraw capital from Europe
which placed an intolerable strain
on the system
Britain
and
France
Reparations
required by
Versailles
Germany
Austria
Repayment of
war loans
US
Loans
Second Order Effects of
Technological Advances
• Improvements in industrial processes reduced
demand for some raw resources, causing an
increase in supplies and a drop in demand
– Tires could now be made with reclaimed rubber which
crippled the economies of the Dutch East Indies,
Ceylon, and Malaysia which relied on exports of
rubber
– Increased use of oil reduced demand for coal
– Synthetics reduced demand for cotton
– Artificial nitrogen reduced demand for nitrates from
Chile
Weakened Agricultural Base
• Agricultural production in Europe declined
significantly during World War I, so farmers in
the US, Canada, Argentina, and Australia
increased their production
• After World War I, European farmers restored
their production which created worldwide
surpluses
• The situation was exacerbated by above
average global harvests between 1925 and
1929
• By 1929 the price of a bushel of wheat was its
lowest in 400 years
Crash of 1929
• The US had enjoyed an
economic boom after World
War I
• Many people began buying
stock on margin (paying as
little as 3% of the stock’s
price in cash and borrowing
the remainder)
• By October 1929,
indications of a worldwide
economic slowdown and
overvalued stock prices
prompted investors to pull
out of the market
Black Thursday (October 24)
• Panic selling on the New
York Stock Exchange
caused stock prices to
plummet
• Thousands lost their
lifesavings
• By the end of the day,
eleven financiers had
committed suicide
• When lenders called in
their loans, investors
were forced to sell their
securities at any price
Economic Contraction Spreads
• There was no longer consumer demand for all
the goods businesses produced
• Businesses cut back on production and laid off
workers
• A vicious downward spiral of business failures
and unemployment followed
• By 1932, industrial production was half of its
1929 level
– National income was down approximately 50%
– 44% of US banks had closed
Global Effects
• Much of the world
depended on the
export of US capital
and the strength of
US imports, so the
US economic
contraction had
worldwide impact
– Germany and
Japan were
especially hard hit
Toronto Stock Market after the
day after the New York Stock
Market crashes
Economic Nationalism
• The Great Depression
destroyed international
economic cooperation
and governments began
practicing economic
nationalism
– Trade barriers, import
quotas, import prohibitions
– US passed the SmootHawley Tariff in 1930
raising duties on most
manufactured products to
prohibitive levels
– Governments of other
nations retaliated with their
own tariffs on US products
Congressman Willis Hawley
Economic Nationalism
• The world economy
was too
interdependent for
protectionism to work
– Between 1929 and
1932, world production
went down 38% and
trade dropped over
66%
– By 1933,
unemployment in
industrialized nations
was five times higher
than in 1929
Unemployed men vying for jobs
at the American Legion
Employment Bureau in Los
Angeles during the Great
Depression.
Great Depression Images
• Dorothea Lange,
Resettlement
Administration
photographer, in
California.
Great Depression Images
• Dorothea Lange’s
famous
photograph,
"Migrant Mother"
taken during the
Great Depression,
1936
Great Depression Images
• A shanty built of refuse near the
Sunnyside slack pile, Herrin,
Illinois. Many residences in
southern Illinois coal towns were
built with money borrowed from
building and loan associations.
During the depression building
and loan associations almost all
went into receivership. Their
mortgages were sold for
whatever they would bring, and
the purchasers demolished
houses by the hundreds in order
to salvage the scrap lumber. The
result is a serious overcrowding
and high rents in all the coal
towns. A number of people can
find no houses to rent, and are
living in tents and shanties on the
fringes of the town.
Great Depression Images
• Mississippi Delta plantation store
Great Depression Images
• Part of an impoverished family of
nine on a New Mexico highway.
Depression refugees from Iowa.
Left Iowa in 1932 because of
father's ill health. Father an auto
mechanic laborer, painter by
trade, tubercular. Family has
been on relief in Arizona but
refused entry on relief roles in
Iowa to which state they wish to
return. Nine children including a
sick four-month-old baby. No
money at all. About to sell their
belongings and trailer for money
to buy food. “We don't want to go
where we’ll be a nuisance to
anybody.”
Great Depression Images
• Dwellers in Circleville’s “Hooverville,” central Ohio
Great Depression Images
• Oklahoma
“Dust
Bowl”
refugees
arrive in
California
Great Depression Images
• Virtually abandoned town in Caddo, Oklahoma
Great Depression Images
•
Mexican woman and
children looking over
side of truck which is
taking them to their
homes in the Rio
Grande Valley from
Mississippi where they
have been picking
cotton. Filling station,
Neches, Texas.
Great Depression Images
• During the Great
Depression, the
destitute stood in
breadlines like this
one in San Francisco,
set up by a wealthy
woman known as the
“White Angel.”
Great Depression Images
• Cotton hoers are
taken from the Delta
cotton towns to the
cotton fields. Most of
them are displaced
sharecroppers swept
off the plantations by
tractor farming,
depression, crop
reduction program,
etc. Greenville,
Mississippi.
Impact on Economic Theory
• Classical economic thought held that capitalism
was self-correcting and worked best when left to
its own devices (Remember Lessons 4 and 6
and Adam Smith)
• John Maynard Keynes argued in The General
Theory of Employment, Interest, and Money
(1936) that the fundamental cause of the
Depression was not excessive supply but
inadequate demand
John Maynard Keynes (1883-1946)
• Urged governments to play an
active role and stimulate the
economy by increasing the
money supply, thereby
lowering interest rates and
encouraging investments
• Advised governments to
undertake public works
projects to provide jobs and
redistribute incomes through
tax policy even if that caused
governments to run deficits
and maintain unbalanced
budgets
New Deal
• Even before Keynes wrote his book, President Franklin
Delano Roosevelt began following such an aggressive
policy
• The fundamental premise of Roosevelt’s New Deal was
that the federal government was justified in intervening
to protect the social and economic welfare of the people
– Represented a major shift in US government policy and started a
trend toward social reform legislation that continued long after
the Depression
• Eventually, increased military spending during World War
II would be the most significant factor in ending the
Depression
New Deal Initiatives
• Works Progress Administration (WPA)
– Coordinated all public works endeavors. Spent over $10.5 billion
of Federal money and employed 3.8 million men from 1935 to
1941. Built 77,000 bridges, 24,000 miles of sewers, 664,000
miles of road, 285 airports, 122,000 public buildings and 11,000
schools.
• Tennessee Valley Authority (TVA)
– Designed to redevelop the Tennessee Valley which
encompassed 7 states and 40,000 square miles.
• Civilian Conservation Corps (CCC)
– Employed jobless single men between the ages of 18 and 25.
They worked for 6 months in mountains and forests where they
were taught forestry, flood control and fire prevention. Nearly 3
million men took part from 1933 to 1941.
New Deal in Mississippi
• WPA mural in Ocean
Springs, MS by
Walter Inglis
Anderson
New Deal in Mississippi
• The CCC began
digging the lake
at Paul B.
Johnson State
Park (German
POWs completed
it)
New Deal in Mississippi
• TVA provides power to the
East Mississippi Electric
Power Association and 27
other local utilities and
electric power associations
– Serves more than 305,000
homes and nearly 70,000
business and industrial
customers in 36 counties in
Mississippi.
• About 10 % of TVA power
sales are in Mississippi.
Part 2: Debate: How should we
handle poverty?
Lesson 7
Poverty
• “My major problem with
the world is a problem of
scarcity in the midst of
plenty ... of people
starving while there are
unused resources ...
people having skills
which are not being
used.”
– Milton Friedman
Poverty
• “The United States is spending about $450
billion for the military to defend it against
global threats but only about $13 billion to
fight the underlying conditions of poverty,
disease and despair that provide the
breeding grounds for these threats.”
– Jeffrey D. Sachs and Pedro A. Sanchez
Poverty
• “The United Nations Development
Program estimates that the basic health
and nutrition needs of the world's poorest
people could be met for an additional $13
billion a year. Animal lovers in the United
States and Europe spend more than that
on pet food each year.”
– Bread for the World Institute
Poverty
• “The end of poverty
will require a global
network of
cooperation among
people who have
never met and who
do not necessarily
trust one another.”
– Jeffrey Sachs
Poverty
• Sachs’ Nine Step Plan
– Commit to the task
– Adopt a plan of action
– Raise the voice of the poor
– Redeem the U.S. role in the
world
– Rescue the IMF and World
Bank
– Strengthen the U.N.
– Harness global science
– Promote sustainable
development
– Make a personal commitment
Poverty
• “Most of the poverty
and misery in the
world is due to bad
government, lack of
democracy, weak
states, internal strife,
and so on.”
– George Soros
Poverty
• “For even when we were with you, we
gave you this rule: ‘If a man will not work,
he shall not eat.’"
– Paul (2 Thessalonians 3:10)
Poverty
• “Truly, I say to you, as you did it to one of
the least of these my brethren, you did it to
me.”
– Jesus (Matthew 25:45)
Poverty
• “Think globally, act locally.”
– Anonymous
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