The Great Depression vs. the Great Recession
The Great Recession has been termed as America’s worst economic crisis, which took place between the years 2008-2010. It was more severe than the Great Depression, but both of them had their similarities and differences in their occurrence. We can compare the two economic classes by use of causation as the federal government was highly responsible for both crises. In the Great Depression, interest rates were at an all-time low following a move by the federal government. They abruptly shot up in 1029 to stop the boom that had been going on, and it helped cut investment. President Hoover had agreed to a law the Smooth-Hawley tariff, which was high and, as a result, interrupted American exports in the 1930s. In 1932, the president signed a law increasing the tax rate, discouraging entrepreneurs (Rothbard, 2004). People were not willing to risk investing their money in an economy that took too much from the common entrepreneur. Signs of the Great Recession were first seen in the 1990’s when the government pushed for Americans to home ownership (Gorman, 2010). The law applied also to the people who were not financially viable to own a house through mortgage loans. However, the housing market suffered substantial losses leading to the collapse of some American Banks that offered the mortgages. The government had to try its best to bail out the already collapsing banks, causing instability, which led to the recession.
The two recessions can also be compared in terms of the massive federal spending. President Roosevelt was in power when the Great Depression occurred while President Obama was ruling during the Great Depression. Both presidents had the same reaction after learning of the ongoing recessions. They were aiming at making a balance in the federal budget, but the final results were unrecoverable spending. Presidents who were in power before had used the approach of cutting on government spending when the country was about to witness and economic crisis. Hoovers government mostly ran on deficits as it spent most of its money on public utilities, and welfare programs. It resulted to a huge deficit in the economy and an unemployment rate of 25%. President Hoover had left a considerable deficit in the American economy when he left the presidential position, which was transferred to Roosevelt’s government. At first, the latter came up with strategies to cut on government spending and invest more in projects that benefit Americans. He did not succeed in cutting the spending, and the following financial period he spent even more than projected. He had planned to spend more as an investment to get out of the economic deadlock in the country. He tried to bail out corporations and banks that were at the verge of collapsing as well as discouraging farmers from production. He spent more on public works and subsidies offered unfairly to some corporations (Rosenberg 2012).
President Obama followed Roosevelt’s footsteps of spending heavily on some corporations of interest. A law that allowed tax dollars to be sent to different cities and groups was signed. President Obama also signed a heavy jobs bill that saw massive amounts of money sent to districts that were congressional. The president was also for the universal health coverage, which would lead to more federal debts. The rate of increase in debt during Roosevelt’s and Obama’s administration is similar. The debt doubled in a span of less than two terms during Roosevelt’s administration.
Another factor that can be used to compare the two economic crises in America is the spending fails. Both Obama and Roosevelt increased federal spending, yet the country still suffered a massive unemployment level. In 1930, the unemployment level decreased significantly, nevertheless, it did not affect on recovery of the economy. Unemployment was still prevailing during the end of Roosevelt’s regime, and he was getting a lot of criticism for his large federal spending. The American unemployment rate was at 8% when President Obama took over, and it rose to 10% in a year (Rosenberg, 2012). However, he put in place strategies that turned the economy around and the unemployment level decreased. Obama’s large spending surprisingly did not create an increase in unemployment rates. He explained that his spending was for a reason: to maintain thousands of jobs that would have been lost had the federal government reduced its spending. Obama and Roosevelt, with the proper strategies, would have managed their spending wisely and avoided both the Great depression and the Great Recession. Both presidents invested on public works, citing that it was creating employment for Americans. However, the heavy spending on public works caused unemployment in almost the same rate it employed citizens. Almost all of the funds that were used in federal spending were got from taxation, which was a burden on the American citizens (Wiegand, 2009).
During both depression and recession, taxes rates on workers were increased. During the depression, former President Roosevelt increased excise and income taxes. This discouraged investments in the country as entrepreneurs would pay almost half of their income to the government as taxes. Investors preferred to spend on tax free bonds, and not create jobs hence an increase in unemployment levels. Taxes have also been increased during the Obama’s administration mainly for future projects. Obama has been for the idea of taxing the richer members of the society more as well as the luxurious goods. He abolished some of the tax cuts that had been implemented earlier during Bush’s government. That meant an increase in the income tax, and capital gains tax followed by heavy government spending (Febrero, 2009).
The two phenomenon did not have a clear explanation from the involved governments, and they always got a scapegoat to explain the happenings. The Wall Street entrepreneurs were blamed for the great depression, citing that they were not willing to invest in the American economy. During the Great Recession, President Obama’s regime also blamed Wall Street traders and corporate leaders (Fields, 2010). He also blamed health insurance companies and the fact that banks were receiving part of the profit made from oil companies in the United States. If only proper projections and strategic plans were put in place, America would have avoided the phenomenon. Both the Great Depression and the Great Recession affected the American citizens financially, with some of them loosing their jobs. Class warfare can be used to ensure fair distribution of wealth among the different social classes (Hetzel 2012). The wealthy members of the society are against the class warfare, and when wealth redistribution occurs, they get the bigger share. This causes a decrease in the net income of the low and middle class citizens, who constitute the big part of the economy.