Introduction
The Great Depression initiated in 1929 with the “Black Tuesday” in October initiated a decade of under full employment production that only saw full recovery with the emergence of the Second World War. Particularly in the US, since many European countries saw an earlier recovery, whilst the US only saw the beginning of this process with the election of Roosevelt in 1933 and a change in policy that included the implementation of the New Deal
Unemployment and GDP were way of trend and the policies to correct were late and probably not the appropriate ones, as monetary tightness by the FED has been widely accepted to have been an incorrect policy that further pushed backwards an already struggling economy. This essay analyses what motivated the end of the Great Depression, and asks whether fiscal and monetary policies were effective. But in the end it seems that the black decade for US economy was only fully recovered with the burst of the World War II (WWII), and the impact this had on public spending, production, employment and exports, despite the high levels of economic growth even before the war.
Even before the crisis the FED used a tight monetary policy option that carried through all the length of the Depression. There was a monetary response to the economic problems but this policy came late and it was mostly about going off the Gold Standard in 1933 and the devaluation of the dollar. This could have encouraged a beggar-thy-neighbour behaviour and could have started a race to the bottom, in chasing higher competitiveness for a currency that would motivate successive devaluations improving a country position by leaving the other worse off. On the other hand Roosevelt’s fiscal policy was not exactly Keynesian in the sense that he ...