Government’s Response during the 1930 Great Depression

Government’sResponse during the 1930 Great Depression

Government’sResponse during the 1930 Great Depression

Alarge number of people believe that unregulated market is the majorcause of economic crisis. However, most of notable economic crises,including those that occurred before and after the Great Depression,ended without the government interventions. The Great Depression wasdifferent in that the government intervened through tariffs and thesafety nets that were delivered in a program referred to as the NewDeal (Andreev, 2012). The original intent of the U.S. government wasto get its people, the Americans, back to work since the depressionhad rendered many of them jobless.

Atthe local level, the government interventions (including tariffs andthe safety nets) increased unemployment and prolonged the depression(Andreev, 2012). The rate of unemployment in the U.S. shop up to thedouble digits soon after the government interventions was initiatedand remained high for nearly a whole decade. The safety nets used bythe government suppressed competition and made policies that resultedin wages and prices that were above the normal levels (Farmer, 2012).High wages and the lack of competition distorted the market further,which in turn reduced the productive capacity of the U.S. economy.

Thetariffs and quotas imposed by the U.S. government under theleadership of President Roosevelt affected the country`s businesswith other countries. Tariffs were imposed with the objective ofpromoting domestic firms, which reduced the imports, but there was noequivalent increase in exports. In addition, the government spendingwas increasingly funded with funds borrowed other countries, whichincreased public debt (Caballero, 2013).

Inconclusion, the interventions made by the U.S. government during theGreat Depression were counterproductive. This is because theseinterventions distorted the free market, which in turn affecteddomestic economy and trade between the U.S. and other nations.

References

Andreev,R. (2012). Protectionism in Bulgaria during the Great Depression:Theory and practice. Journalof Economics and Business,14 (2), 67-69.

Caballero,G. (2013). Effects of fiscal and monetary policy in the GreatDepression. Economies,1 (2013), 15-18. Doi: 10.3390/economies1020015

Farmer,E. (2012). The stock market crash of 2008 caused the Great Recession:Theory and evidence. Journal of Economic Dynamics and Control,36 (2012), 693-707. doi:10.1016/j.jedc.2012.02.003