The Great Depression
The Great Depression began with the stock market crash of 1929, which sent Wall Street into a frenzied panic and wiped out the savings and investments of millions of investors. As people became increasingly anxious about the security of their money, they withdrew their funds in cash, leading to bank failures across the country. While President Herbert Hoover implemented certain economic policies at the time to stimulate the economy, they were significantly constrained, in accordance with his conservative political philosophy. He operated under the belief that the economy could heal itself without excessive intervention by the federal government. The depression persisted, as the economy shrank from failed industries and businesses, and unemployment rates skyrocketed. In 1933, FDR defeated President Hoover in the presidential election. While campaigning, FDR introduced Keynesian economic theory and promised that he would use the federal government to stimulate economic growth to end the Great Depression. In his First Inaugural Address, FDR rallied the nation to support massive government spending.
The New Deal
FDR rolled out programs and projects that made up what he called the New Deal during his first 100 days in office. The aim of the New Deal was to stabilize the economy, and over a span of eight years, FDR’s administration expanded the federal government’s role in the economy. As part of the New Deal:
New federal agencies were created, including the Social Security Board, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation. FDR created the Tennessee Valley Authority, which enabled the federal government to build dams and hydroelectric projects to control flooding and provide electricity to the impoverished Tennessee Valley region. He also established the Works Progress Administration, which operated as a permanent jobs program. Congress passed the Social Security Act, which provided a safety net for the elderly, unemployed, and disabled.
The Great Depression, however, persisted. It attacked with a vengeance in 1937, when the nation’s real gross domestic product fell 10% and unemployment hit 20%. Unemployment did not fall below 15% until World War II.
World War II
World War II was sparked in 1939 by the Nazis’ invasion of Poland. While the United States initially stayed out of the war, FDR made significant efforts during that time to assist other nations like France and Britain that were engaged in the fight. FDR also took large strides to prepare the nation in case it had to enter the war, primarily by pushing for a major military buildup. For context, FDR’s request for the defense budget appropriation increased from approximately $1.3 billion in 1939 to $4 billion in 1940. To pay for it, he kept the top income rate percentages in the high 70s and low 80s during those years (whereas the percentages were kept in the 30s to 50s in other years). On December 8, 1941, a day after Japanese aircraft attacked the U.S. Navy base at Pearl Harbor, Congress declared war on Japan. Germany and the other Axis Powers subsequently declared war on the United States. The war continued for more than three years and ended in May 1945. The cost of U.S. wartime military spending was $296 billion (based on 2010 dollar currency levels). As a result of the war, civilian consumption in the United States expanded by almost 15%, and it heightened the nation’s economy to levels of unprecedented prosperity in subsequent decades. Wartime federal spending helped end the Great Depression.
FDR Timeline
To provide further context for the sections above, we provide a timeline that provides for each year from 1933 to 1945 the gross domestic product growth rate, the unemployment rate, debt (in billions), and any relevant events.
