Lesson Objectives: The Nation's Sick Economy

1. Standard Addressed: 11.6 Students analyze the different explanations for the Great Depression and how the New Deal fundamentally changed the role of the federal government. • Lesson Objectives: The Nation's Sick Economy • 1. Summarize the critical problems threatening the American economy in the late 1920s. • 2. Describe the causes of the stock market crash and Great Depression. • 3. Explain how the Great Depression affected the economy in the United States and throughout the world.

2. A BULLDOG ALWAYS Commitment Attitude CARES Respect Encouragement Safety

3. Section 1 The Nation’s Sick Economy As the prosperity of the 1920s ends, severe economic problems grip the nation. NEXT

4.  THE GREAT DEPRESSION BEGINSSECTION 1: Photos by photographer Dorothea Lange

5. SECTION 1 Hoover Takes the Nation Dreams of Riches in the Stock Market • Dow Jones Industrial Average tracks state of stock market • 1920s, stock prices rise steadily; people rush to buy stocks, bonds • Many engage in speculation, buy on chance of a quick profit • Buying on margin—pay small percent of price, borrow rest NEXT

6. SECTION 1 The Nation’s Sick Economy Economic Troubles on the Horizon • Industries in Trouble • Key industries like railroads, textiles, steel barely make profit • Mining, lumbering expanded during war; no longer in high demand • Coal especially hard-hit due to availability of new energy sources • Boom industries—automobiles, construction, consumer goods— now weak • Housing starts decline Continued . . . NEXT

7. THE NATION’S SICK ECONOMY As the 1920s advanced, serious problems threatened the economy while Important industries struggled, including: • Agriculture • Railroads • Textiles • Steel • Mining • Lumber • Automobiles • Housing • Consumer goods

8. Chapter 14: Section 1MAIN IDEA QUESTIONS • A – What industrial weakness signaled a declining economy in the 1920’s? • The older industries such as textiles, steel, and railroads, which were basic to the fundamental well-being of the economy, were barely profitable.

9. Guided Reading:#1. Describe the serious problems in the Industry area of the economy that helped cause the Great Depression. Key industries barely made a profit; Some lost business to foreign competition and new technologies; Some suffered from declining demand after WWI Coal declined due to new sources of energy New housing starts declined – affecting related businesses.

10. SECTION 1 continuedEconomic Troubles on the Horizon Farmers Need a Lift • International demand for U.S. grain declines after war - prices drop by 40% or more • Farmers boost production to sell more; prices drop further • Farm income declines; farmers default on loans; rural banks fail • Price-supports—government buys surplus crops, guarantees prices - Coolidge vetoes price-support bill Continued . . . NEXT

11.  FARMERS STRUGGLE • To curb the financial loss of farmers, • Congress tried to pass the McNary-Haugen bill, • which would mandate price support on key crops • But it was vetoed by President Coolidge

12. Young Hoover supporter in 1928

13. Guided Reading: #2 Describe the serious problems in the Agriculture area of the economy that helped cause the Great Depression. After WWI demand for products fell as did prices; Farmers could not pay debts and lost farms – causing rural banks to fail; Congress passed supports for farm products – but President Coolidge vetoed them. 

14. SECTION 1 continuedEconomic Troubles on the Horizon • Consumers Have Less Money to Spend • People buy less due to rising prices, stagnant wages, credit debts Continued . . . NEXT

15. CONSUMER SPENDING DOWN • By the late 1920s, American consumers were buying less • Rising prices, stagnant wages and overbuying on credit were to blame • Most people did not have the money to buy the flood of goods factories produced

16. Chapter 14: Section 1MAIN IDEA QUESTIONS • B – What did the experience of farmers and consumers at this time suggest about the health of the economy? • Beneath the surface prosperity of the 1920’s, the economy was in trouble.

17. SECTION 1 continuedEconomic Troubles on the Horizon • Living on Credit • Many people buy goods on credit (buy now, pay later) • Businesses give easy credit; consumers pile up large debts • Consumers have trouble paying off debt, cut back on spending NEXT

18. Guided Reading:#3 Describe the serious problems in the Consumer spending area of the economy that helped cause the Great Depression. Making credit available, businesses encouraged Americans to pile up a large consumer debt; Faced with rising prices, stagnant wages, and high levels of debt, consumers decreased their buying.

19. GNP DROPS, UNEMPLOYMENT SOARS • Between 1928-1932, the U.S. Gross National Product (GNP) – the total output of a nation’s goods & services – fell nearly 50% from $104 billion to $59 billion • 90,000 businesses went bankrupt • Unemployment leaped from 3% in 1929 to 25% in 1933

20. SECTION 1 continuedEconomic Troubles on the Horizon • Uneven Distribution of Income • In 1920s, rich get richer, poor get poorer • 70% of families earn less than minimum for decent standard of living • Most cannot afford flood of products factories produce NEXT

21. GAP BETWEEN RICH & POOR The gap between rich and poor widened The wealthiest 1% saw their income rise 75% The rest of the population saw an increase of only 9% More than 70% of American families earned less than $2500 per year Photo by Dorothea Lange

22. Guided Reading:#4 Describe the serious problems in the Distribution of wealth area of the economy that helped cause the Great Depression. Nearly half of Americans earned less than the minimum amount needed for a decent standard of living. This unequal distribution meant most consumers had too little money to buy American goods.

23. SECTION 1 Hoover Takes the Nation • The Election of 1928 • Democrat Alfred E. Smith—four times governor of New York • Republican Herbert Hoover gets overwhelming victory NEXT

24.  HOOVER WINS 1928 ELECTION • Republican HerbertHoover ran against and defeated Democrat Alfred E. Smith in the 1928 election • Hoover emphasized years of prosperity under Republican administrations • Hoover won an overwhelming victory

26.  THE STOCK MARKET • By 1929, many Americans were invested in the Stock Market • The Stock Market had become the most visible symbol of a prosperous American economy • The Dow Jones Industrial Average measures the stock markets health • The Dow is a measure based on the price of 30 large firms

27. STOCK PRICES RISE THROUGH THE 1920s • Through most of the 1920s, stock prices rose steadily • The Dow reached a high in 1929 of 381 points (300 points higher than 1924) • By 1929, 4 million Americans owned stocks New York Stock Exchange

28. SECTION 1 The Stock Market Crashes • Black Tuesday • September 1929 stock prices peak, then fall; investors begin selling • October 29 or Black Tuesday, market, nation’s confidence plummet • Shareholders sell frantically; millions of shares have no buyers • People who bought on credit left with huge debts • Others lose most of their savings NEXT

29.  THE Stock market CRASH • In September the Stock Market had some unusual up & down movements • On October 24, the market took a plunge . . .the worst was yet to come • On Tuesday, October 29, the stock market crashed known as Black Tuesday • 6.4 million shares were sold that day – prices plummeted • People who had bought on margin (credit) were stuck with huge debts

30. By mid-November, investors had lost about $30 billion

31. SEEDS OF TROUBLE Too many Americans were engaged in speculation – buying stocks & bonds hoping for a quick profit Americans were buying “on margin” – paying a small percentage of a stock’s price as a down payment and borrowing the rest Americans were buying getting easy “credit” – Consumers agree to pay later for purchases. Installment plan.  The Stock Market’s bubble was about to break

32. Guided Reading:#5 Describe the serious problems in the stock market area of the economy that helped cause the Great Depression. Many investors engaged in speculation and buying on margin, fueling the market upward and generating great wealth, but only on paper; When the market crashed, many investors lost their life savings.

33. SECTION 1 Financial Collapse • Bank and Business Failures • • Great Depression—economy plummets, unemployment skyrockets • - lasts from 1929–1940 • After crash, people panic, withdraw money from banks • Banks that invested in stocks fail; people lose their money • 1929–1932, gross national product cut nearly in half • - 90,000 businesses go bankrupt • 1933, 25% of workers jobless; those with jobs get cuts in hours, pay Continued . . . NEXT

34.  THE GREAT DEPRESSION • The Stock Market crash signaled the beginning of the Great Depression • The Great Depression is generally defined as the period from 1929 – 1940 in which the economy plummeted and unemployment skyrocketed • The crash alone did not cause the Great Depression, but it hastened its arrival Alabama family, 1938 Photo by Walter Evans

35. World Depression • The U.S. was not the only country gripped by the Great Depression • Much of Europe suffered throughout the 1920s

36. SECTION 1 continuedFinancial Collapse Worldwide Shock Waves • Great Depression limits U.S. ability to import European goods • Hawley-Smoot Tariff Act sets highest protective tariff ever in U.S. • Other countries cannot earn American currency to buy U.S. goods • International trade drops; unemployment soars around world NEXT

37. HAWLEY-SMOOT TARIFF In 1930, Congress passed the toughest tariff in U.S. history called the Hawley- Smoot Tariff It was meant to reduced the flow of goods in the U.S. and prevented other countries from earning US currency. Other countries enacted their own tariffs and soon world trade fell 40% 

38. FINANCIAL COLLAPSE • After the crash, many Americans panicked and withdrew their money from banks • Banks had invested in the Stock Market and lost money • In 1929- 600 banks fail • By 1933 – 11,000 of the 25,000 banks nationwide had collapsed Bank run 1929, Los Angeles

39. SECTION 1 continuedFinancial Collapse Causes of the Great Depression • Factors leading to Great Depression: - tariffs, war debts, farm problems, easy credit, income disparity • Federal government keeps interest rates low, encourages borrowing NEXT

40.  CAUSES OF THE GREAT DEPRESSION • Farm sector crisis • Too much easy credit • Tariffs policies • U.S. demand low, despite factories producing more • Unequal distribution of income

41. Chapter 14: Section 1MAIN IDEA QUESTIONS C – How did speculation and margin buying cause stock prices to rise? They caused over investment as people ignored the risk and bought more than they could pay.

42. Chapter 14: Section 1MAIN IDEA QUESTIONS • D – What happened to the ordinary workers during the Great Depression? • Many were out of a job. • Others experienced pay cuts and reduced hours.

43. Chapter 14: Section 1MAIN IDEA QUESTIONS • E – How did the Great Depression affect the world economy? • World trade dropped, causing unemployment to rise globally.

44. Chapter Review SECTION 1 How did what happened to farmers during the 1920’s foreshadow events of the Great Depression? Farm prices fell and farmers compensated by boosting production. Farmers were not able to purchase their share of America’s output

45. Chapter Review SECTION 1 What were some of the effects of the stock market crash in October 1929? The Stock Market crashedon Tuesday October 29, 1929 and caused panic and fear across the country Marked the beginning of the Great Depression. 

46. Chapter 14: Review • How did what happened to farmers during the 1920’s foreshadow events of the Great Depression? • Farm prices fell and farmers compensated by boosting production. • Farmers were not able to purchase their share of America’s output

47. Chapter 14: Review • What were some of the effects of the stock market crash in October 1929? • The crash of 1929 caused panic and fear across the country and • marked the beginning of the Great Depression.