Eli5 what protects us from having another great depression? Is it even possible for us to get there or are their measures in place to stop that ?
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There are protections in place now to prevent another Great Depression. Once of the biggest issues of the depression is that when the market crashed the banks lost all their money and couldn’t give people their money. The FDIC sign you see at any bank means that the federal government is assuring you that they will cover up to I believe up to 250K in deposits per account if the bank goes out of business.
Look up the 2008 financial crisis. That could have very well turned into a Great Depression R2, if not for the actions taken by the Federal Reserve and the government at that time
Another Great Depression is not impossible, but we have a lot more knowledge and a lot more tools to work to avoid one now vs then
By “us” I assume you mean the USA. There were some policies put in place after the depression – FDIC insurance prevents people from losing their savings if their banks fail, for example. The 2008 crisis also shows that the US government won’t allow major businesses to fail, which would help.
Also the fed has way more monetary tools at their disposal as the US is no longer on the gold standard.
Nothing protects us really. The experience we’ve gained since then has been largely forgotten, and the laws we had in place to help have been mostly repealed. We’ve set ourselves up for a huge crash, as that is the way of capitalism (boom/bust, over and over).
In very short terms the government does a lot more than most people are aware. There are vast systems now that manage financial and banking institutions specifically to prevent the extreme turbulence of the depression era. Bank runs and failures used to be regular occurrences even for years after the depression, but haven’t happened since the 50’s. Technically banks can still ‘fail’, but you as a client wouldn’t ever notice as the bank would essentially be taken over and remanaged and funded with insurance etc.
One of the things about a lot of government action is when it works properly you don’t even notice, even if it would be a crisis if it wasn’t done. Take flood and storm management, you’ve probably never noticed just how extensive these systems are all around you, but the flooding that could happen if they weren’t there would be catastrophic.
An additional example is farming subsidies. People who don’t quite understand agriculture and economics love to complain about the government paying people not to farm. But stabilizing farm profits and incentivizing crop rotation practices has helped provide historic food stability for nearly a century in the US (and exported that globally)
Additionally this let’s the federal government keep food prices artificially low for consumers without direct dabbling in markets which have historically shown to cause production disruptions. (oddly enough people love having prices fixed in their favor but hate working for negative profits)
The fundamental issue with the great depression was that there was no US Lender of Last Resort. Banks tried getting bailed out by Great Britain (who were in even worse shape), because that infrastructure had never been properly established in the States. That’s been addressed.
To the US’s credit, we have never economically failed the same way twice, mechanically soaking. We might deregulate ourselves into constant business cycles, but at least we learn from past ones. If we could just stop pouring trillions on fighting unwinnable insurgencies, things may yet turn out okay.
There are a lot of protections now compared to then… floating currency and ability to print money vs. gold standard, ability to raise and lower interest rates, protections like FDIC insurance on bank deposits, strategic bailouts and stimulus programs…
The recession of 2008 could’ve been as bad were it not for bailouts in financial sector, programs like cash for clunkers, mortgage down payment grants, etc. and during COVID, the enhanced unemployment and PPP loans, freeze on student loans, etc. all helped prevent a bigger economic catastrophe.
One of the causes of the Great Depression was too much money became isolated in too few hands. Really rich people can spend a lot of money but not the same way thousands and thousands of people do. Then there were no national welfare programs to distribute money from people who had it to people who didn’t. Fed income tax was only about 2 1/2 percent. There were no programs for unemployment, dust bowl disasters, or disability. If you had a houseful of children and your husband died you were expected to marry again, give the kids away or even drop them off near a church. Then the individual expected to take care of themselves, now people expect the government to take care of them in a crisis.
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