Unit 11: Boom and Bust

1. Unit 11: Boom and Bust

2. Goals of this Unit: To recognize that a prosperous, pro-business, Republican dominated 1920s pursued conservative, pro-business policies at home and economic unilateralism abroad. To be able to explain how the great crash of 1929 led to a severe, prolonged depression that devastated the American economy and spirit, and resisted Hoovers limited efforts to correct it. To understand Roosevelt’s New Deal helped tackle the Great Depression with massive federal programs designed to bring about relief, recovery, and reform.

3. President Warren G. Harding • Likeable, friendly, popular • Average intelligence, easily swayed & tricked • Builds strong administration around him – too strong? • Very pro-business • Supported laissez-faire economics • Fordney-McCumber Tariff passed raising import tax • Enjoyed a thriving post-war economy

4. Presidency Scandals • Harding’s administration takes advantage of him: • Col. Charles Forbes embezzled $200 million while in charge of Veterans Bureau • Convicted – prison sentence: two years • Attorney General Harry Daugherty accused numerous times of selling pardons and illegal liquor permits • Never convicted despite heavy evidence • Teapot Dome Scandal - Sec. of Interior Albert Fall illegally places Teapot Dome (Wyoming) under his jurisdiction after oil is discovered in region • Took bribes for drilling rights • Convicted – prison sentence: one year • Stress of scandal becomes overwhelming on Harding’s health • Collapses and dies in 1923

5. President Calvin Coolidge • Very serious, calm, boring and quiet • “Silent Cal” • More pro-business than Harding • “The man who builds a factory builds a temple and the man who works there, worships there” • Rides America’s thriving economy to reelection in 1924 • American public happy with economy, isolationism • Democratic party lacked direction & unity in such changing times

6. War Debt • Coolidge and Congress demanding loaned money to Europe from WWI be repaid • Germany could not afford to pay Britain and France, who could not afford to pay America • Dawes Plan created in 1924: • 1 - America loans money to Germany • 2 – Germany makes reparation payments to France & Britain • 3 – France & Britain repay war loans to U.S. • 4 – Germany eventually repays America for Dawes loan • No interest charged

7. Dawes Plan What does the Dawes plan accomplish? Financially nothing, more a matter of principle: Coolidge: “They borrowed the money didn’t they?” England & France angered – see U.S. as greedy Dawes Plan shows little progress after 5 years Young Plan (1929) restructures loan to Germany, includes interest Would not matter by end of 1929… why?

8. Election of 1928 • Coolidge decides not to run for reelection • Republicans nominate Sec. of Commerce – Herbert Hoover – why? • Economic prosperity made him popular choice • Hoover’s slogan: “Rugged individualism” • America needs to return to roots of tough, self-sufficient individuals • Dems nominate Alfred Smith • Likeable and sociable NY Governor • Campaigning over radio major factor in election: • Hoover sounded better than Smith’s NY accent • Smith portrayed as a drinking, Irish, Catholic, city-slicker – significance? • Prohibition • Dems supported mostly in South – Smith not popular among Southerners • Hoover wins by a landslide

9. President Herbert Hoover • Benefitting from economic prosperity at first • Pro-business and isolationist: • Support of farmers – lending money, buying surpluses • Hawley-Smoot Tariff proposed – raises import tax to almost 60% • Full-blown isolationism – Europe furious • Dangerous lack of presence in European affairs • Slowed trade – America self-sufficient enough in 1920s, but… • Will worsen economic conditions during the Depression

10. Economic Depression Hits • America’s economic prosperity in 1920s largely built on credit and investment • U.S. Stock Market was growing too large, too fast… problem? • Not built on physical wealth or assets • Built on borrowed money and entangled investments • A trigger could cause a crash, a crash could cause a dangerous chain reaction • Leading to economic depression

11. “Black Tuesday” • October 29, 1929 – the U.S. Stock Market Crashes • Rumors of economic trouble in England scares stockholders • Panic-selling ensues, prices plummet • Stockholders lost $40 billion by January • Crash triggered, chain reaction starts: • Frightened public becomes overly-cautious with their money • Panicking public pulls all their money out of banks fearing banks would go bankrupt • Businesses can’t attract scared customers – close down • As businesses close, unemployment rises • Great Depression begins…

12. The Great Depression • Underlying causes of the Great Depression: • Trend of mass-consumerism based on credit, not real money • Over-speculation in stocks • Over-production in factories and farms • Became international depression – struggling European postwar economies suffered • Caused affected countries to dive deeper into isolationism • Coincidentally, droughts dried up regions of U.S. – further hurting farmers

13. Hoover’s Initial Response • Hoover blamed for depression – unfair? • Many Americans looking to Hoover for help • “Rugged individualism” being stressed • Hoover slow to take action • Saw this as part of a natural “business cycle” • Economy has ups and downs – this was a natural downturn • Unsure if government intervention would even be helpful • Hoover’s solution was to “wait it out” – unpopular decision

14. Hoover’s Slow Reaction • Soup kitchens and shelters on the rise • Newly forming shanty-towns soon to be called “Hoovervilles” • “Bonus Expeditionary Force” (BEF) formed by veterans to demand bonuses for participation in WWI • Camped out in DC, forcefully evicted by Gen. MacArthur and U.S. army in “Battle of Anacostia Flats” • Ugly incident hurts Hoover’s image further

15. Hoover Takes Action • Urges Congress to jumpstart economy with over $2 billion in government spending • Reconstruction Finance Corporation (RFC) passed • Lends money to finance massive government projects • Hoover Dam – massive project employs 20 thousand • Would eventually fund many of FDR’s “New Deal” projects • Hoover goes on good-will tour of Latin America to repair their tarnished relations with America • New policies call for less “dollar diplomacy” and troops pulled out of Haiti and Nicaragua • Laid foundation for FDR’s “Good Neighbor Policy” • Hoover’s legacy: despite slow response and tarnished image, Hoover did help America battle the Great Depression… • But effects of his efforts not felt until after his presidency

16. Trouble Brewing Overseas • 1931 – Japan invades Manchuria region of China • Violates all idealistic agreements forbidding imperialism made after WWI • League of Nations respond with hollow threat of universal trade boycott against Japan – not effective, why? • Depression forces need for some nations to trade with Japan • Failure of League of Nations to enforce it’s rules was a dangerous precedent – why? • Displays the League’s policy of “appeasement” • Aggressive nations could take over weaker nations without penalty or interference • First steps toward WWII taken

17. Election of 1932 • Hoover runs for reelection • Argued he had helped the economic situation and “the worst has passed” • Dems nominate Franklin Delano Roosevelt or “FDR” • NY Governor with “people’s touch” • Always smiling, good speaker with a sense of caring for the common person • Eleanor Roosevelt very proactive in politics as well • “Confidence” his catchphrase and “Happy Days Are Here Again” his campaign song • Hoover had no chance, FDR wins by a landslide • Hoover humiliated – even loses in home state of CA

18. Election of 1932 • Voting trends change: • Black voters overwhelmingly switch from supporting Rep party to Dem party – why? • “Great Migration” of the 1920s – massive movement by blacks from rural South the urban North • New, competitive industrial labor and racism led to inequality for black workers • “Last hired, first fired” • Reps had become big business-minded • Sided with business owners • Dems more progressive

19. President Franklin Delano Roosevelt • Takes office at worst point of Great Depression • Unemployment (25%) and bankruptcies at all-time high • “Only thing we have to fear is fear itself” – meaning? • Americans should stop being fearful of: • Spending until economy improves • Putting their money in banks • Stressing “confidence” – fear and panic is only making things worse • FDR’s platform: The Three R’s • Relief: Was for immediate action – food, shelter • Recover: Was for a year or two – climb out of Depression • Reform: Was for after Depression – ensured to never allow this to happen again

20. “The New Deal” • The “New Deal” FDR’s plan for pulling America out of the Great Depression • FDR had support of overwhelmingly Dem-controlled Congress • First “100 Days” – passes numerous bills into law • Gained public support: • “Fireside Chats” – series of radio segments talking to Americans about problems faced and progress made

21. The New Deal: Managing Money • Emergency Banking Relief Act – sets up bank holidays • Federal Deposit Insurance Corp (FDIC) – insured up to $5,000 of people’s money in the bank • FDR orders Federal Reserve to create inflation so debts can be repaid faster • Lenders happy to be paid back, upset it’s at a lesser value

22. The New Deal: Job Creation • FDR uses federal money on programs and projects to help jumpstart economy • Based off Hoover’s RFC • Civilian Conservation Corps (CCC) • Hired young men to improve national forests • Very popular and effective • Workers Progress Administration (WPA) • $11 billion spent for public facilities and infrastructure • Hired federally-paid, unskilled workers to build smaller projects • Criticized by some as “boondoggling”

23. The New Deal: Industry • Agricultural Adjustment Act (AAA) tried to help farmers by paying them not to farm – why? • Less spending  oversupply of product  prices fall  product sells for very little or not at all  farmers go bankrupt • Farmers by law destroy excess crops, slaughter excess livestock • Effect: Farmers incomes did rise, but so did farmer unemployment • National Recovery Administration (NRA) • Aimed to help industry, labor, unemployment • Relied on “fair competition” • Spreads work out among more people due to increased hours, decreased wages • Government forcing businesses to abide was unconstitutional – dismantled • Public Works Administration (PWA) • Similar to WPA, but gave private firms contracts to hire skilled workers • Worked on larger-scale projects – building public works and infrastructure • Bridges, dams, hospitals, schools, etc • One of the most successful programs created in New Deal

24. New Deal: Reform • FDR vowed to reform to prevent future crashes • Stock market reform: • Federal Securities Act – companies must report honest financial numbers for investors • Securities Exchange Commissions (SEC) – set up to investigate and watch over stock market activities • Housing reform: • Federal Housing Authority (FHA) – low interest on homes • Created shelter, economic bump, and employment • Social Security Act – sets up payment plan for senior citizens, handicapped, etc • Funded by taxes on business and personal income • Receives criticism from Republicans – “socialism” • Unions gain strength, numbers, and influence during Depression: • Norris-La Guardia Act – outlaws anti-union contracts (AKA “yellow dog” contracts) • Wagner Act – legalizes union organization and collective bargaining • Fair Standards Act – minimum wage, maximum working hours, set working age at 16

25. The Dust Bowl (1933) • Causes: • System of dry-farming used in plains for decades creates loose topsoil • Long drought in lower plains region • Heavy wind storms of 1933 • Oklahoma, Texas, Kansas farmland destroyed • Many farmers migrate west to California looking for work • “Grapes of Wrath” by John Steinbeck • Government relief programs help relocate farmers, improve soil, plant trees as windbreaks (CCC)

26. Election of 1936 • Reps nominate Alfred Landon • Gov of Kansas, criticized FDR’s massive spending • Hurt by record of past support of FDR’s spending, weak campaign, weak radio voice • Immensely popular FDR wins by an overwhelming landslide

27. The “Court-Packing” Scheme (1937) • FDR still had Democrat dominated Congress, but a conservative Supreme Court • FDR proposed to increase Supreme Court to 15 justices and that justices over 70 be removed • FDR can appoint liberal justices • Congress shocked and upset with FDR’s scheme for increased power • Proposal fails, FDR accused of trying to become a dictator • Effect was less cooperation from Congress

28. New Deal Effective? • By 1937 – Progress stalls, effects inconclusive • Unemployment dropped from 25% to 15% in first term • “Roosevelt Recession” in 1937 caused by policies like the Social Security tax on incomes • Less income, less spending, less economic activity • FDR’s overspending and “socialist” policies gaining criticism • Debt had doubled from $20 to $40 billion • Government becoming too much of a “handout state” • Americans not working towards recovery, but being given it instead

29. Legacy of FDR’s “New Deal” • Both heavily supported and criticized • FDR took over in a chaotic time and made big changes while keeping peace and order • Other nations (Germany, Italy) did not succeed in keeping peace and order during this economic turmoil • The New Deal helped, but did not pull U.S. out of Depression • What did…? • World War II