While the Great Depression took a huge toll on the U.S., there were a few good things that came from it. For example, the New Deal programs installed safeguards to make it less likely that the Depression could happen again. Overall, the Great Depression had a tremendous impact on nine principal areas of the U.S. economy, which are outlined below. The economy began shrinking in August 1929. By the end of the year, one-third of all banks had failed. In 1930, the economy shrank by another 8.5%, according to the Bureau of Economic Analysis (BEA). GDP growth declined 6.4% in 1931 and 12.9% in 1932. By 1933, the country had suffered at least four years of economic contraction. It only produced $57.2 billion, half what it produced in 1929. Part of the contraction was due to deflation. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI), which is used as a measure of inflation, fell by 25% between 1929 and 1933. Falling prices sent many firms into bankruptcy. New Deal spending boosted GDP growth by 10.8% in 1934. It grew by another 8.9% in 1935, 12.9% in 1936, and 5.1% in 1937. Unfortunately, the government cut back on New Deal spending and the depression returned, causing the economy to shrink by 3.3% and the unemployment rate to jump to 19% in 1938. Preparations for World War II sent growth up by 8% in 1939 and by 8.8% in 1940. The next year, Japan bombed Pearl Harbor, and the United States entered World War II. Annual GDP growth jumped to 17.7%. The New Deal and spending for World War II shifted the economy from a pure free market to a mixed economy. It depended much more on government spending for its success. The timeline of the Great Depression shows this was a gradual—though necessary—process. As a result, people voted for President Franklin D. Roosevelt (FDR). His Keynesian economics promised that government spending would end the Depression. The New Deal worked. In 1934, the economy grew, and unemployment declined. But FDR became concerned about adding to the U.S. debt. In 1933, the national debt was $22.5 billion, and by 1934, it was $27 billion. He cut back government spending by 1938, and the Depression resumed. No one wants to make that mistake again. Politicians now tend to rely instead on deficit spending, tax cuts, and other forms of expansionary fiscal policy. Because of that, the U.S. national debt has increased to a very high level. The Depression ended as government spending ramped up for World War II at the end of the 1930s and early 1940s. This change in spending led to the belief that military spending is good for the economy. However, since then, the government and economists have found that military spending is not a top way to create jobs. In 1933, Prohibition was repealed. That allowed the government to collect taxes on sales of now-legal alcohol. FDR used the money to help pay for the New Deal. The Depression was so severe and lasted so long that many people thought it was the end of the American Dream (the idea of guaranteed rights to pursue one’s own vision of happiness). Instead, it changed that dream to include a right to material benefits. New Deal programs helped reduce unemployment to 21.7% in 1934, 20.1% in 1935, 16.9% in 1936, and 14.3% in 1937. But less robust government spending in 1938 sent unemployment back up to 19%. It remained above 10% until 1941, as you can see when looking at the unemployment rate by year. People were stunned to find out that banks had used their deposits to invest in the stock market. They rushed to take their money out before it was too late. These “runs” forced even good banks out of business. Fortunately, that rarely happens anymore. Other countries retaliated. That created trading blocs based on national alliances and trade currencies. World trade plummeted by 66% (as measured in dollars) between 1929 and 1934. By 1939, it was still below its level in 1929. Imports from Europe declined greatly between 1929 and 1932, dropping to $390 million from $1.3 billion at the start of the Depression. Exports to Europe also declined to $784 million from $2.3 billion during that same time. Below you can see the CPI per year as an annual percent change:
1929: 0.0%1930: -2.7%1931: -8.9%1932: -10.3%1933: -5.2% 1934: 3.5%1935: 2.6%1936: 1.0%1937: 3.7%1938: -2.0%1939: 1.3%1940: 0.7%1941: 5.1%
FDR modified the gold standard to protect the dollar’s value. That set a precedent for President Richard Nixon to end it completely in 1973. The New Deal Public Works Administration (PWA) built many of today’s landmarks. Iconic buildings include the Chrysler Building, Rockefeller Center, and Dealey Plaza in Dallas. Bridges include San Francisco’s Golden Gate Bridge, New York’s Triborough Bridge, and the Florida Keys’ Overseas Highway. Other Depression-era public works include La Guardia Airport, the Lincoln Tunnel, and Hoover Dam. Also, three entire towns were constructed: Greendale, Wisconsin; Greenhills, Ohio; and Greenbelt, Maryland.
