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Government Policies and the Economy: Impact on the Depression

Learn how the government's shift to laissez-faire policies, high tariffs, and lack of protection for banks worsened the Depression in the US. This policy change led to increased power of corporations and hindered international trade, exacerbating the economic downturn.

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Government Policies and the Economy: Impact on the Depression

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  1. Government Policy on the economy Standard 6.3 E.Q. How did the Government provoke problems in the economy?

  2. Government responds to economy • Republican federal government abandoned its previous policy of progressivism and limited the government regulation of Big Business that started under Teddy Roosevelt’s administration.

  3. Return to laissez – Faire Policy • Resulted in corporations becoming increasing powerful. • Hawley – Smoot Tariff Act: Established the highest protective tariff in US history. Increased production and purchase of American goods. • Removed the policy of the Progressive Era. • Worsened the Depression. • Supreme Court overturned limitations on child labor and minimum wage laws for women. • Income taxes for wealthy were slashed.

  4. Government Responds • In an effort to protect American industries from foreign competition, Congress passed a very high tariff in 1930. • Taxes on imports further damaged the economy by depressing international trade. • Foreigners were unable to sell their goods in US markets, and so did not have dollars with which to buy American products.

  5. Government Responds • Foreign nations imposed trade barriers of their own, stifling international trade and further exacerbating the depression condition of the world’s economy. • In previous depressions the reaction of the government had been merely to wait it out and let the marketplace find a new equilibrium.

  6. Wealthy Spending • Wealthy spent high proportion of their incomes on luxury goods and could not make up for the loss of spending power of the great majority of the people. • Tax saving money was invested in the stock market rather than in new factories, since there was limited demand on goods. • Investments in the stock market drove up speculation in business could not sustain profitability in the face of lagging consumer demand.

  7. Stock Market Reacts • Business cut back production; resulted in excessive inventories. • Companies then also invested their money in stock market speculation rather than in production. • Investors nothing the large inventories. Began to reconsidered their investments. • Didn’t Protect Banks

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