Much has been made of the Great Depression as a failure of the free market. Many have made analogies to today's economic environment. What no one does however is to look at the affect of government on the economy at that time. Let's review some of the economic facts at the time of the stock market crash of 1929:
The Economy
____________1929____1930_____1931____1932
GDP ...................103.6............91.2..............76.5..............58.7
In billions, Bureau of Economic Analysis
Unemployment Rate....................3.2%............8.7%..........15.9%............23.6%
Bureau of the Census
Fiscal Policy
Top Tax Rate.......................24%.............25%.............25%.............63%
Internal Revenue Service
Federal Spending ..................3.1................3.3...............3.5..............4.6
Billions, Office of Management and Budget
Monetary Policy
Discount Rate ....................5.2%.............3.0%...........2.1%............2.8%
Federal Reserve Bank of NY
Money Supply ...................46.6.............45,7.............42.6.............36.6
M2 in billions,Federal Reserve Bank of NY
What can be learned from these numbers?
Historically, economies go through up and down trends. However, when you raise taxes on the rich (1932), increase federal spending (1932), increase interest rates (1932), and allow the money supply to drop dramatically, you turn a recession into a depression that lasts a decade.
