RECOVERING FROM THE GREAT RECESSION 1
The United States economy suffered a tremendous blow between 1929and 1940. The Great Depression began in 1929 and it affectedvirtually all the sectors in the country. During the period, most ofthe citizens did not achieve their desired economic emancipation, andthe key industries had reduced performance, which led to massiveunemployment. By 1933, the country’s Gross Domestic Productfell by two-thirds indicating lack of productive engagement by thepeople. According to Blinder and Zandi (2010), the industrialproduction in all sectors fell by half while the entry of newindustry into the economy fell by 90% (6). The production ofautomobiles that employed a big number of the citizens fell bytwo-thirds while the steel production companies operated at only 12%of their capacity. In addition, 9,000 banks collapsed, leading to theloss of $7 billion in deposits (8). To culminate the hardship, thefinancial meltdown, initiated by the Wall Street, led to the greatcrash in 1929. Billions of investors’ dollars evaporated into thinair. It also led to 80% drop in the stock market.
If I was in charge of the United States, in 1933, I could haveimplemented several measures for both reviving the economy andshielding the citizens from further economic crisis. The country hasthree institutions that could have been key players in thewell-intended efforts. They include the Federal Reserve, the Congressand the presidency. Since I would have the presidency and in chargeof the other two, it would have been easy to manipulate theircapacities to work towards reducing the intensity of the GreatDepression. The Congress makes policies proposed by either itsmembers or by the president (Blinder & Zandi, 2010, p.8). Afterthey become law, the other institutions have no option but toimplement them. The Federal Reserve conceives the most appropriatemonetary policies to suit the country’s economic environment. Asthe president, I would have direct control over it, and I would havethe chance to influence its functions.
First, creating confidence in the American population about theeconomy falling back on track will be a necessity. I will accomplishthe goal through reassuring the citizens that the government has inplace the measures to revive the economy. I would call for a pressconference with the major stakeholders and give a brief to thepublic. The poor performance of the industries and the collapse ofthe stock market resulted in the loss of confidence in thegovernment’s ability to protect the citizens from economic risks.
Secondly, having control of the Federal Reserve, I would have directcommunication with the governor. I would borrow from the practices ofStrong, the former governor of the Federal Reserve, who helped instabilizing the dollar for more than seven years. According toRichardson and Troost (2006), Strong held that the purpose of thesystem was to maintain a reasonably stable volume and credit (7). Healso provided that the monetary policy should ensure that there isadequate money and credit to facilitate business in the country. Thepolicy should also finance the seasonal increase in demand byemploying multiple methods. Therefore, the monetary policy had aresponsibility of protecting the banks. Blinder and Zandi (2010) alsoagree that the shaky banks suffered greatly due to massivewithdrawals by people fearing their closure (11). Discouraging thecitizens from withdrawing their funds would go against their libertyand the move would not bear desirable fruits. I would have a billintroduced in the Congress to restrict the citizens from makingmassive withdrawals. The idea would help the banks to hold for sometime, as a temporary measure.
Secondly, one of the Governor Strong’s most successful practiceswas availing money when required by the banks and for creditpurposes. Before 1993, the Federal Reserve banks had offered a windowfor banks to borrow money and increase its supply into the economy(Blinder & Zandi, 2010, p.12). However, only a few exploited theopportunity. The primary reason they did not engage in massiveborrowing from the Federal Reserve was that the recession wasgradually taking place without pronounced effects until the blackTuesday. According to Hetzel (2012), the loss of confidence by theinvestors trickled down with speed to the citizens who made massivewithdrawals (21). To save the banks, I would direct and influence thetwelve Federal Reserve banks to open another window for the banks andgive them funds to operate. The monetary policy would not stretch theFederal Reserve capacity to maintain a stable financial environmentsince the banks will make up for the previous window that they didnot exploit.
Besides directing the Federal Reserve banks to open a window forbank borrowing, I would immediately move to restructure it. Before1933, the Federal Reserve Act gave the individual Federal Reservebanks the liberty to initiative lending rates and initiate openmarket operations (Blinder & Zandi, 2010, p.12). The lack ofuniformity of their measures had been a source of complaints frombanks and the treasury department. Although the Federal Reserve Boardcould approve or reject such moves, it only played its supervisoryrole without having a significant effect on the policies. Restructuring the reserve would create a common platform for enactingand pricing new debt issues and understand a uniform effect on theopen market operations.
Additionally, restructuring the Federal Reserve administration wouldcentralize the decision-making process. The leaders of the federalbanking during the Black Tuesday, and the following couple of years,were ineffective in their decision making. It would also lift thedecision-making responsibility from the district governors. Each ofthe districts had the mandate to set policies for the operations inits jurisdiction (Blinder & Zandi, 2010, p.17). It was,therefore, a challenge for the board to coordinate the efforts of theFederal Reserve in Washington. Establishing a central decision-makingand communication point would help in countering the effects ofclosed banks uniformly across all the states. The monetary policywould also be swift and effective.
Apart from pushing the Federal Reserve to implement the correctiveactions, I would also influence the Congress to pass bills forraising the prices of commodities in the country. For example, themarket price for crops such as wheat, corn, dairy products andtobacco were low. Farmers could barely recover the money spent inproducing the products. First, I would push for a bill that wouldrequire the farmers to leave their agricultural lands fallow at giventimes however, they would receive compensation for the period theydoes not till the land. According to Richardson and Troost (2006),the policy would reduce the surplus of agricultural products in themarket and increase the farmers’ earnings (21). The compensationfor leaving the agricultural land fallow would reduce the need forfarmers to engage continuously in crop production and sell them atlow prices.
Secondly, by 1933, only a few people earned a salary that couldsustain their lives meaningfully. I would engage the Congress inpassing a policy for allowing the employees to agitate for a bettersalary. A continued trend of low salaries, coupled with the highrates of the unemployment would, prolong the recovery period. Theremaining industries could revise their salaries upwards and increasethe amount of money in supply.
The Congress would also be instrumental in helping the states inreducing the unemployment. The only way would be through engaging theCongress to pass a bill for rolling out a major infrastructure planin the whole country. Infrastructural projects in different fieldswould employ a big number of productive people (Clarke, 1996, p.13).Both the skilled and semi-skilled would engage in somethingproductive. Also, it would act as a federal government effort torevive the steel industries. The workers laid off due to poor demandfor the materials would reoccupy their positions. Rolling outinfrastructural projects would as well reassure the citizens andinvestors of the government’s commitment to revive the economy.Investors would find favorable environments to set up theirindustries as a result of the developed infrastructural network.
As the president, I would lay more emphasis on the individual stateswith the highest level of unemployment. Although the averageunemployment level was 24%, some states, such as New York andPhiladelphia, had employment rates going up to 90% (Jenkins et al.,2012, p. 24). The big high unemployment rate was a source offrustration and anger towards the federal government. The youngpeople who could not engage in productive labor posed a socialproblem. They could increase the levels of crime and insecurity inthe states. I would form a work administration committee to initiatethe best methods of creating employment in the specific states. Thecommittee would create a friendly platform to allow a healthy workingenvironment between the state and the private sector. Bearing in mindthat the sector was weak and recovering from the recession, therewould be no need for the state to introduce competition in all thesectors (Jenkins et al., 2012, p. 27). The state would createemployment in the building of public facilities, including, schools,roads and bridges among others.
In conclusion, as the president of the United States in 1933, Iwould have to break the trend of the recessing economy, and insteadtrigger a significant growth. The three institutions, including, thepresidency, the Federal Reserve and the Congress would be primary ininitiating policies for reviving the economy. Having control of thepresidency would allow me to influence the Federal Reserve andrestructure it. The Federal Reserve would be more effective with acentralized decision-making body than having the district governorsinitiating individual policies. Also, I would engage the Congress inpassing a policy to save the banks from massive withdrawals and helpthe shaky banks to hold their ground. In addition, the Congress wouldalso influence the industrial growth and creation of employment byinitiating a fast infrastructural growth program. I would alsoconvene a committee to address employment in the specific states toreduce unemployment among the young people. The committee would workto reduce the competition between the state and the private sector.These actions would revive the economy and enable the country torecover from the recession.
References
Blinder, A. S., &Zandi, M. M. (2010). How the great recession was brought to anend. Moody`s Economy. com. Retrieved fromhttps://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf
Clarke, J. N.(1996). Roosevelt`s warrior: Harold L. Ickes and the New Deal.Baltimore: Johns Hopkins University Press.
Hetzel, R. L.(2012). The great recession: Market failure or policy failure?.United Kingdom U.K.: Cambridge University Press.
Jenkins, S. P.,Brandolini, A., Micklewright, J., & Nolan, B. (Eds.). (2012). Thegreat recession and the distribution of household income. UnitedKingdom U.K.: OUP Oxford.
Richardson, G., &Troost, W. (2006). Monetary intervention mitigated banking panicsduring the Great Depression: Quasi-experimental evidence from theFederal Reserve district border in Mississippi, 1929 to 1933 (No.w12591). National Bureau of Economic Research.