Eli5: What caused the Great Depression and how did the U.S.A. get out if it? How did the country have money to pay for new jobs?
In: Economics
An economy functions when people spend money on goods and services, which is then used to pay more people to make goods and provide services, which they spend on more goods and services. This cycle repeats until someone decides not to spend it. There is an economic measurement called “gross domestic product” which is suppose to measure the total amount of spending in a country to quantify this, but I feel that it doesn’t do a good job of this because it include financial market transactions. Financial market transactions largely don’t involved the real economy of paying wages & making goods, and their value is almost purely speculative. The financial markets remove large amount of money from the real economy and “create” new wealth basically out of nothing.
The Great Depression was triggered largely by a financial market crash. All the money that people had removed from the real economy and put into the market just disappeared and suddenly people couldn’t pay wages or buy stuff. This ground the economy to a halt and millions of people lost their jobs. This was made worse by a government response under Hoover that didn’t provide any actual support to people either by hiring them for public works projects and paying them wages or by just giving them financial supports directly. This meant that the economy remained stalled until FDR got in and implemented the New Deal, which was both a massive public works program and provided numerous financial supports, though the economy didn’t fully recover until the World War 2. While there were some tax reform in the New Deal, the government largely ran on debt during this period, with the national debt roughly doubling over this period.
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