87. What Was The Great Depression?

The Great Depression was one of the worst economic downturns in human history. But to ensure that we don’t repeat the mistakes of the past, we have to understand how we got ourselves into this mess in the first place. On today’s episode, Connor and Brittany explain the events that led to this historic economic depression and how we can avoid making the same mistakes in the future.

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Links:

• The Great Depression
• America’s Great Depression

Here’s a transcript of our conversation:

Connor: Hey, Brittany.

Brittany: Hi, Connor.

Connor: So, in a previous episode, we talked about a recession, economic recessions, and I thought today we could talk about depressions and more specifically, the most famous depression in human history, economic depression, which people typically just call the Great Depression. It’s funny how these things get named, right?

Brittany: Yep.

Connor: The Great Recession. The Great Depression.

Brittany: It’s like storms. How storms get names.

Connor: Yeah. Alexander the Great, you know, like, why do you get to be great? You know, it was not so great for a lot of people. so first, since we already talked about recessions, Brittany, how do you think recessions are different from depressions?

Brittany: So, to my understanding, it’s like one step below depression. So recessions are a pretty bad decline, or sharp, you know, a sharp decrease in economic activity. But the depression is, is more dramatic, more severe, and it lasts longer. Recession can still last for several months, but I believe depressions are usually like months to even years. And the Great Depression lasted I think, over a decade. So long time.

Connor: What’s interesting to me about this is when people think of the great recession about a decade ago, or the Great Depression, we’re gonna talk about, there’s, kind of a narrative that comes out of this. Like everyone just assumes that life was awful for everyone, right? Like we, read, you know, these stories or, you know, see a little snippet on TV or some comedian references that, and we get cemented in our brain may be from, you know, textbooks in school that life was awful for everyone. There were soup kitchens everywhere, bread lines, and, you know, that’s true to a degree. Like for a lot of people, it was very rough. But what’s also interesting is that a lot of people prospered, right? During the Great Depression, there were a lot of people who actually thrived. I think of, like recently with Covid, we’ve had a lot of economic problems, right? That kind of happens when the government shuts down a ton of businesses and they can’t actually operate. And so there were a lot of people who struggled, right? Especially think of like the restaurant industry, right? And so here’s an economic crisis. There’s a lot of people struggling, but think of a company like Netflix, or I know the guys that run Vid Angel, which is like family-friendly content. And, they totally thrived. Why? Well, in that case, everyone’s trapped at home for a while, and they’re wanting to just like watch content. Or if you were in the toilet paper industry at the beginning, right? Life was good for you.

Brittany: Mask, hand sanitizer, mask makers you

Connor: Know? That’s right. And so when we think about the Great Depression, it’s easy to think that just everything was awful. Nothing was good. Everyone suffered. Look, a lot of people suffered and things were bad for a lot of people, but that doesn’t mean that everything was awful for a lot of people. We need to understand that history often gets like, narrowed like that into like this narrative where people just kind of assume that this little description applied to everyone and everything. And what we see from this most recent economic crisis is that’s not true. So there are kind of winners and losers as there are during normal times as well. and so, you know, the Great Depression, before we talk about kind of the hows and the why’s, let’s talk about, you know, the degree to which it was really bad. This is kind of 1929 to 1933 and production at a lot of the nation’s factories like industries, mines, utility companies, right? Fell by more than half.

Brittany: That’s a big, that’s a big drop.

Connor: That’s a big drop. Think of the airlines right now, right? And, over this past, you know, a year with Covid, the airlines I think dropped, by like 80, 90%, right? And so now you see how that’s affected that whole industry and all the movie.

Brittany: Theaters too.

Connor: Totally.

Brittany: Nobody’s going to movie theaters.

Connor: Absolutely. And so all of a sudden production dropping by half in the Great Depression, you’re like, oh, well it’s only half, at least it’s not 80 or 90%. Like the airlines, people’s incomes dropped by about a quarter, about 28%. So people were not making nearly as much money. now that hasn’t so much happened today with the economic crisis because unlike back then, today the government is giving out money to people. They’re giving them stimulus checks, they’re giving, it was called the PPP, the Paycheck Protection Program. So the government was giving free money to a ton of companies. so they’ve injected I think like 2 trillion in the economy or something like that. And, we’re gonna pay for those consequences. If you remember from your creature, from Jekyll Island book, right? When the creature makes new money, it reduces the power, the purchasing power of our existing money, everything ends up costing more. And that’s the problem. But that didn’t happen in the Great Depression. And so people lost a lot of money. They weren’t making as much money, stock prices. So the stock market did have a big problem. The stock market collapsed just to a 10th, of where it was. In other words, so the stock market for the kids out there, is where you can invest in companies, right? If you wanna buy stock in Google or Apple or Uber or whatever the company is, right? You can buy stock, you can invest in part of the company and you own that stock and you can later sell it to someone else, hopefully when it goes up in value, cuz the company is doing well. So that’s the stock market and, the prices just totally collapse, which means that there wasn’t a lot of confidence among people that, these companies were gonna succeed, right? People were wanting to sell their stocks instead. And so all of a sudden they were going for very little money. The number of unemployed Americans rose from, I think it was a million and a half at the beginning to 12.8 million.

Brittany: Ooh, that’s a lot.

Connor: Just a few years later, there was a ton of unemployed people. That’s absolutely right. And, we’ve had, had struggles like that this year. There’s been a ton of,  people on unemployment as well. recently with Covid. Now at the height of the depression, one of every four workers was out of a job. So, you know, on the flip side, three outta four people still had their jobs, right? Maybe they were making less money. and yes, the Great Depression negatively impacted a lot of people. Probably negatively impacted, you know, most people, to some degree. And yes, there were kind of a few who thrived, but, it did impact a lot of people. But, why did this all happen? so there have been economists from different backgrounds, who sometimes have, you know, different opinions as to why it occurs, but, Brittany, there’s an article from Fee that you and I have looked at that we wanna share. I want you to take us through this list of kind of four items that our friends at Fee have identified because I think they have it right as to why the depression happened, and hopefully from this type of, perspective, we can learn a lot more about the economy and how to prevent these bad things from happening in the future.

Brittany: Yeah, absolutely. And we’ll link to this article, on the show notes page. But so one thing, and this is like you said, readers of a creature from Jekyll Island will remember this. So the government’s easy money or you know, they’re printing money, they’re making, creating money at thin air, that added a lot because you have this artificial economic boom, right? It feels like things are going great, but as we found out things were not going well, it wasn’t real. That’s how everything kind of crashed the bubble burst because it wasn’t being, you know, done in a real way because they’re just printing money. The second thing, and we could have a whole conversation about Herbert Hoover, cause that’s a whole other story, but Herbert Hoover, who just kinda represents the government in this capacity, intervened too much. So instead of just leaving the market alone and letting the market do its thing, we’ve talked about the invisible hand before. We’ve talked about Adam Smith. So they didn’t let that happen. They intervened. And unfortunately, that made things worse. And not only did it make it worse, it made the depression last longer. There’s a lot of economists who believe that we actually would’ve recovered a lot sooner, but they just kept passing all these new pieces of legislation that we’re just making the problem worse. And I know, and this is the next point we have talked about in another episode, the New Deal and how, FDR Franklin Delano Roosevelt kind of expanded what Hoover did, which is already bad, but he made it kind of in every aspect of the entire economy. So you couldn’t really go anywhere that the New Deal didn’t touch, which is a big problem. So that just made the depression bigger and again, made it last even longer. Now, another thing that people don’t talk about a lot when they talk about this is how labor laws or unions kind of made this worse because you couldn’t really, you couldn’t have the freedom to hire people. Now you were only supposed to hire, you know, people who were willing to be in the union. We could again, do a whole other episode on what unions are, but this made employment harder and it just made the whole thing last longer. So by doing these things again, the government was just making it worse on everything. And I think we’re seeing that today with Covid stuff. I don’t know if you agree, but that’s what I think.

Connor: Yeah, you know, it’s, what’s the quote? I’m trying to remember. I don’t remember who said this, but, oh, it’s Robert Lavera. anyways, this quote says, the government is a disease masquerading as its own cure.

Brittany: Ooh, that’s good.

Connor: In other words, the government creates this problem, and then the government comes and says, Hey, we’re gonna solve the problem except for their solutions often maybe fix that little problem but then create new ones, right? So as you just pointed out here, Herbert Hoover, the president

Brittany: Is, it’s kinda hard to say, isn’t it? Alliteration

Connor: Say that 10 times fast. So President Hoover is kind intervening in the market after it kind of naturally had some struggles and this prevented the market from kind of auto-correcting and finding the right balance. And so then, you know, FDR comes in with a solution to that. And then it’s the New deal, which creates all kinds of problems. You know, like setting price limits, the government telling you you can’t charge a certain amount of money or you know, you can only offer people this amount of money to work or you can’t grow that much wheat on your property.

Brittany: That’s the one that gets me, is that they’re having farmers destroy their own crops.

Connor: Totally. Which nuts, because they were saying you’re only allowed to produce, you know, a certain amount because if you produce too much, then other people, you know, the prices will go down and people won’t be able to earn as much money. So the government is trying to centrally plan. We talk about this in the Road to Serim book. They’re trying to centrally plan, but they don’t know, just like Serim and Lala, they don’t know what all these unintended consequences are going to be. And what’s said is they can’t really be held accountable. You, there’s not good ways to hold the government accountable when it is doing something wrong like that. If their actions harm you, it’s very difficult for you. Like if your neighbor like, you know, drives this truck into your house, right? His insurance is gonna cover it or you’re gonna be able to sue him. You can hold people accountable pretty well. But holding the government accountable is very hard. And so here comes the government just centrally planning and, the great depression just dictating to these, yeah, to these farmers, to other people, what they can and can’t do. And they had really no other option other than to just comply. And that’s very unfortunate. So, I love this article because, again, we’ll link to that Tuttletwins.com/podcast. It’s important to understand our history, right? We’ve all, we all know the quote, those who don’t learn from the past are condemned to repeat it, right? if you guys have not heard that quote or maybe the kids, I’m gonna repeat that one more time cuz it’s so, relevant, right? Those who don’t learn from the past are condemned to repeat it. In other words, we go through the same things a lot, right? Like we see politicians come out with the same ideas, or human nature leads to similar things happening over different generations or centuries. And so if we can look into history and see what went wrong so that we can avoid it, right? We’re gonna be much smarter, we’re gonna be better off. If we looked at the Great Depression and said, oh look, when they intervened in the economy, it prevented people from liquidating their bad investments, from getting out from new investors coming in the market kind of autocorrected. People figured it out and life moved on. Instead, the government seems to always wanna do the same thing. Isn’t that the definition of insanity? Right?

Brittany: it’s doing the same thing over and over again.

Connor: and expecting a different outcome, right? When you’re doing the same thing. So here comes the government again, they’re manipulating the economy, right? They’re centrally planning again and they expect, you know, something else is gonna happen. Oh, this time it’ll work that this time will, you know, fix the market or will, you know, prevent capitalism from destroying the world or whatever their ideas are. And, it doesn’t happen. The same thing happens again. So it’s important that we understand the history of the Great Depression, not the textbook version that is taught in social studies class. Not the version that most of the media will kind of, they’re little talking points and all. Cause they’re not economists and they don’t understand that stuff.

Brittany: wait, wait, the CNN News guy isn’t an economist

Connor: he plays one on tv, but that doesn’t mean, you know, and so you know, these, these guys don’t understand. So we need to learn true history. We need to learn this stuff, this article that we’ll link to is a good starting point for the Great Depression because then we can understand, ah, because they did that wrong, we should then be concerned and, and oppose when the government today is also intervening in the economy when it’s also, oh no, people are losing their jobs. So let’s give everyone free money. We, that should be raising alarm bells, right? And we should learn from the past so that we don’t repeat it today.

Brittany: There’s a great quote and I think it is those who do not learn from history are doomed to repeat it. And the first time I ever saw this quote, and this is funny because Washington DC does not learn this lesson ever, but the first time I ever read this it was outside the Federal Reserve of all places. Connor. It says that it is a statue with that engraved on it. And it always makes me laugh cuz I’m like if only we would take this into consideration. So I think that’s something, every time we talk about something historical, that is what I want our listeners to take away, that we have to learn what happened. Because if we don’t, we are doomed to do it again.

Connor: Yeah, I think it’s important that we, really dig in and understand these things. Some of it can get complex and so, you know, you gotta take your time and shoe through it and, find resources like fee I think does a great job at trying to, explain a little bit more simply as we said, we will link to that particular article, attu Tuttletwins.com/podcast. Look, the government throughout history is always trying to intervene in the economy. They, want to be the savior of everything. And so when there are economic problems, as there often are, because it’s just people buying and selling and making choices, it doesn’t mean it’s perfect. Humans aren’t perfect, therefore the economy isn’t gonna be perfect. There will be problems, there will be shortages of product, you know, for a certain amount of time. Or maybe things will cost too much for a while or whatever And so when people complain about something, they turn to the government, oh, save me a new program, a new law. And the government wants to appear popular and responsive to their constituents. And so they move forward and make all these changes. But like we read in the road of Serfdom, there’s always gonna be not only those intended consequences, which sometimes are bad but also unintended consequences. These guys are not God. They’re, they’re not omni mission. They don’t understand all of the ramifications, the consequences of their decisions. They, they don’t know what they don’t know, which is a lot.

Brittany: I like that. They don’t know what they don’t know. I like that.

Connor: Yeah. And, so that’s why we need to oppose this kinda stuff. But we need to know our history. We need to know that the Great Depression was not just, oh, the market couldn’t correct itself, so the government had to step in. Like that’s the narrative you hear from the pro-government people. Oh, it was market excesses. And so the government had to step in and, regulate it to make sure people

Brittany: Were too prosperous. I’ve heard that too. People were having too much fun in the market in the 1920s.

Connor: Unbridled capitalism.

Brittany: Yes.

Connor: Right? Like capitalism needs to be regulated so that we don’t I’m sorry, have you looked outside? We have way regulated capitalism and we still have all kinds of problems created by the government who then comes to us and says, we’re the solution to fix the problem if we created it. it’s a nerve-ending cycle, guys. We’d really like the cycle to stop. So if you wanna help us, let’s start by learning about how government intervention in the Great Depression was the reason why it was so bad and so long and had that not happened, things would’ve, it wouldn’t have been a great depression. It would’ve been a, blip on the radar of depression and we would’ve been

Brittany: A moderate depression.

Connor: Yeah, a minor, minor depression. Head to total Tuttletwins.com/podcast. Check out the show notes page and we’ll see it in the next episode. Until next time, Brittany, we’ll talk to you later.

Brittany: Talk to you later.