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Life and Times During the Great Depression

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Life and Times During the Great Depression

Life and Times During the Great Depression

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

The economy of the United States was destroyed almost overnight.

More than 5,000 banks collapsed, and there were 12 million people out of work in America as factories, banks, and other shops closed.

Many reasons have been supplied by the different economic camps for the cause of the Great Depression, which we reviewed in the first part of this series.

Regardless of the causes, the combination of deflationary pressures and a collapsing economy created one of the most desperate and miserable eras of American history. The resulting aftermath was so bad, that almost every future Central Bank policy would be designed primarily to combat such deflation.

The Deflationary Spiral

After the stock crash, money and consumer confidence was hard to find. Instead of spending money on new things, people hoarded their cash.

Fewer dollars spent meant more drops in demand and prices, which led to defaults, bankruptcies, and layoffs.

As a result of this spiral, the prices for many food items in the U.S. fell by nearly 50% from their pre-WW1 levels.

The price of butter went from pre-crisis levels of $0.21 to $0.13 per pound in 1932. Wool had a drop from $0.24 to $0.10 per pound, and most other goods followed the same price trajectory.

The Effects

Here’s how “real value” is affected in a deflationary environment:

Money
Real value increases: cash is king and gains in real value.

Assets (stocks, real estate)
Real value decreases as prices fall.

Debt
Debtors owe more in real terms

Interest Rates
Real interest rates (nominal rates minus inflation) can rise as inflation is negative, causing unwanted tightening.

From Bad to Worse

The Great Depression lasted from 1929 to 1939, which was unprecedented in length for modern history.
To this day, economists disagree on why the Depression lasted so long. Here’s some of their explanations:

The New Deal was not enough

Looking back on The Great Depression, John Maynard Keynes believed that monetary policy could only go so far.
The Central Bank could not ultimately push banks to lend, and therefore demand had to be created through fiscal policy. Keynes advocated massive deficit spending to offset markets’ failure to recover.

Keynesians such as Paul Krugman believe that Franklin D. Roosevelt’s economic policies through The New Deal were too cautious.

“You can’t push on a string.” – Keynes

The New Deal made things worse

Some economists believe the New Deal had a negative net effect on the recovery.

The National Recovery Administration (NRA) is a primary subject of this criticism. Established in 1933, the goal of the NRA was to lift wages. To do this, it got industry leaders to meet and establish minimum prices and wages for workers.

Cole and Ohanian claim that this essentially created cartels that destroyed economic competition. They calculate that this, along with the aftermath of these policies, accounted for 60% of the weak recovery.

Lastly, one other charge leveled at Roosevelt by his critics is that the sprawling policies from the New Deal ultimately created uncertainty for business leaders, leading to less investment. This lengthened the recovery.

“[The] abandonment of [Roosevelt’s] policies coincided with the strong economic recovery of the 1940s.” – Cole and Ohanian

The Federal Reserve didn’t do enough

Milton Friedman claimed that the Federal Reserve made the wrong policy decision, which extended the length of the Depression.

Between 1929 and 1933, the monetary supply dipped 27%, which decreased aggregate demand and then prices. The Fed’s failure was in not realizing what was happening and not taking corrective action.

“The contraction is…a tragic testimonial to the importance of monetary forces…[D]ifferent and feasible actions by the monetary authorities could have prevented the decline in the stock of money… [This] would have reduced the contraction’s severity and almost as certainly its duration.” – Milton Friedman (and co-author Anna Schwartz)

The Federal Reserve shouldn’t have done anything

Austrian economists believe that the Fed and government both made policy choices that slowed the recovery.
For starters, most agree with Friedman that the Fed’s policy choices at the start of the Depression led to deflation.

They also point to the premature tightening that occurred in 1936 and 1937 as a policy failure. During those two years, the Fed not only hiked interest rates, but it also doubled bank-reserve requirements. These policies coincided with Roosevelt’s tax hikes, and a recession occurred within the Depression from 1937 to 1938.

Critics of these policies say that this delayed the recovery by years.

“I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.” – Friedrich Hayek

Personal Stories from The Great Depression

“One evening when we went down to check on the bank, there were hundreds of people out front yelling and crying and fighting and beating on the locked doors and windows. They had fires built in the street to keep warm and there were people milling around all over the downtown.” – Vane Scott, Ohio

“A friend I worked with said in the Depression he rode the rails and stopped to eat vegetables out of a garden. The owner said he would shoot him if he didn’t stop. My friend said ‘go ahead,’ as he was that hungry. ” – James Randolph, Ohio

“When neighbors couldn’t get a loan from the bank, they’d come to Dad. He sold farm machinery. He never put his money in a bank. He stored it in a strongbox in the fruit cellar, under the apples. He’d loan the neighbors what they needed and they paid him back when they could. If there was a month—especially the winter months—when they couldn’t pay, they’d slaughter a cow or a pig and give him a portion. In the summer it was vegetables: corn, peas, whatever they had growing.” – Gladys Hoffman, New York

“I thought the Depression was going to go on forever. For six or seven years, it didn’t look as though things were getting better. The people in Washington DC said they were, but ask the man on the road? He was hungry and his clothes were ragged and he didn’t have a job. He didn’t think things were picking up.” – Arvel “Sunshine” Pearson, Arkansas

Conclusion

After the 1937-38 Recession, the United States economy began to recover.

The focus of the American public would eventually shift away from the Great Depression, as events in Europe unfolded after Germany’s invasion of Poland in 1939.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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Politics

Basic Income Experiments Around the World

Amid the pandemic, the idea of Universal Basic Income has been gaining steam with policymakers. Where has it been tried, and has it worked?

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Basic Income Experiments Around the World

What if everyone received monthly payments to make life easier and encourage greater economic activity? That’s the exact premise behind Universal Basic Income (UBI).

The idea of UBI as a means to both combat poverty and improve economic prospects has been around for decades. With the COVID-19 pandemic wreaking havoc on economies worldwide, momentum behind the idea has seen a resurgence among certain groups.

Of course, the money to fund basic income programs has to come from somewhere. UBI relies heavily on government budgets or direct funding to cover the regular payments.

As policymakers examine this trade-off between government spending and the potential benefits, there is a growing pool of data to draw inferences from. In fact, basic income has been piloted and experimented on all around the world—but with a mixed bag of results.

What Makes Basic Income Universal?

UBI operates by giving people the means to meet basic necessities with a regular stipend. In theory, this leaves them free to spend their money and resources on economic goods, or searching for better employment options.

Before examining the programs, it’s important to make a distinction between basic income and universal basic income.

attributes of ubi programs

With these parameters in mind, and thanks to data from the Stanford Basic Income Lab, we’ve mapped 48 basic income programs that demonstrate multiple features of UBI and are regularly cited in basic income policy.

Some mapped programs are past experiments used to evaluate basic income. Others are ongoing or new pilots, including recently launched programs in Germany and Spain.

Recently, Canada joined the list as countries considering UBI as a top policy priority in a post-COVID world. But as past experiments show, ideas around basic income can be implemented in many different ways.

Basic Income Programs Took Many Forms

Basic income pilots have seen many iterations across the globe. Many paid out in U.S. dollars, while others chose to stick with local currencies (marked by an asterisk for estimated USD value).

ProgramLocationRecipientsPayment FrequencyAmount ($US/yr)Dates
Abundant Birth ProjectSan Francisco, U.S.100Monthly$12,000-$18,000TBD
Alaska Permanent Fund DividendAlaska, U.S.667,047Annually$1,000-$2,0001982-Present
B-MINCOMEBarcelona, Spain1,000Monthly$1,392-$23,324*2017-2019
Baby's First YearsNew York, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsNew Orleans, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsOmaha, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsTwin Cities, U.S.1,000Monthly$240-$3,9962017-2022
Basic Income for FarmersGyeonggi Province, South Korea430,000Annually$509*TBD
Basic Income Grant (BIG) PilotOmitara, Namibia930Monthly$163*2008-2009
Basic Income ProjectNot Disclosed3,000Monthly$600-$12,0002019-Present
Eastern Band of Cherokee Indians Casino Revenue FundJackson County and area, NC, U.S.15,414Biannually$7,000-$12,0001996-Present
Eight Pilot ProjectBusibi, Uganda150Monthly$110-$219*2017-2019
Evaluation of the Citizens' Basic Income ProgramMaricá, Brazil42,000Monthly$360*2019-Present
Finland Basic Income ExperimentFinland2,000Monthly$7,793*2017-2018
Gary Income Maintenance ExperimentsGary, U.S.1,782Monthly$3,300-$4,3001971-1974
Give DirectlyWestern Kenya20,847Monthly or Lump Sum$2742017-2030
Give DirectlySaiya County, Kenya10,500Lump Sum$3332014-2017
Give DirectlyRarieda District, Kenya503Monthly or Lump Sum$405-$1,5252011-2013
Human Development FundMongolia2,700,000Monthly$1872010-2012
Ingreso Mí­nimo VitalSpain850,000Monthly$6,535-$14,358*2020-Present
Iran Cash Transfer ProgrammeIran75,000,000Monthly$482010-Present
Madhya Pradesh Unconditional Cash Transfers ProjectMadhya Pradesh, India5,547Monthly$26-$77*2011-2012
Magnolia Mother's TrustJackson, MS, U.S.80Monthly$12,0002019-Present
Manitoba Basic Annual Income ExperimentWinnipeg, Canada1,677Monthly$3,842-$5,864*1975-1978
Manitoba Basic Annual Income ExperimentDauphin, Canada586Monthly$3,842-$5,864*1975-1978
My Basic IncomeGermany120Monthly$17,160*2020-2023
New Jersey Income Maintenance ExperimentJersey City, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentPaterson, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentPassaic, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentTrenton, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentScranton, PA, U.S.1,357BiweeklyVaried1968-1972
Ontario Basic Income PilotHamilton and area, Canada2,748Monthly$13,112-$18,930* (-50% income)2017-2018
Ontario Basic Income PilotThunder Bay and area, Canada1,908Monthly$13,112-$18,930* (-50% income)2017-2018
Ontario Basic Income PilotLindsay, Canada1,844Monthly$13,112-$18,930* (-50% income)2017-2018
Preserving Our DiversitySanta Monica, U.S.250Monthly$7,836-$8,9642017-Present
Quatinga VelhoQuatinga, Mogi das Cruces, Brazil67Monthly$197*2008-2014
Rural Income Maintenance ExperimentDuplin County, NC, U.S.810MonthlyVaried (NIT)1970-1972
Rural Income Maintenance ExperimentIowa, U.S.810MonthlyVaried (NIT)1970-1972
Scheme $6,000Hong Kong, China4,000,000Annually$771*2011-2012
Seattle-Denver Income Maintenance ExperimentSeattle, U.S.2,042Monthly$3,800-$5,6001971-1982
Seattle-Denver Income Maintenance ExperimentDenver, U.S.2,758Monthly$3,800-$5,6001971-1982
Stockton Economic Empowerment DemonstrationStockton, U.S.125Monthly$6,0002019-Present
TBDNewark, U.S.TBDMonthlyTBDTBD
Transition-Age Youth Basic Income Pilot ProgramSanta Clara, CA, U.S.72Monthly$12,0002020-2021
Wealth Partaking SchemeMacau, China700,600Annually$750-$1,1502008-Present
Youth Basic Income ProgramGyeonggi Province, South Korea125,000Quarterly$848*2018-Present
Citizen's Basic Income PilotScotlandTBDMonthlyTBDTBD
People's Prosperity Guaranteed Income Demonstration PilotSt. Paul, U.S.150Monthly$6,0002020-2022

Many of the programs meet the classical requirements of UBI. Of the 48 basic income programs tallied above, 75% paid out monthly, and 60% were paid out to individuals.

However, for various reasons, not all of these programs follow UBI requirements. For example, 38% of the basic income programs were paid out to households instead of individuals, and many programs have paid out in lump sums or over varying time frames.

Interestingly, the need for better understanding of basic income has resulted in many divergences between programs. Some programs were only targeted at specific groups like South Korea’s Basic Income for Farmers program, while others like the Baby’s First Years program in the U.S. have been experimenting with different dollar amounts in order to evaluate efficiency.

Other experiments based payments made off of the total income of recipients. For example, in the U.S., the Rural Income and New Jersey Income Maintenance Experiments paid out using a negative income tax (return) on earnings, while recipients of Canada’s Ontario Basic Income Pilot received fixed amounts minus 50% of their earned income.

Varying Programs with Varied Results

So is basic income the real deal or a pipe dream? The results are still unclear.

Some, like the initial pilots for Uganda’s Eight program, were found to result in significant multipliers on economic activity and well-being. Other programs, however, returned mixed results that made further experimentation difficult. Finland’s highly-touted pilot program decreased stress levels of recipients across the board, but didn’t positively impact work activity.

The biggest difficulty has been in keeping programs going and securing funding. Ontario’s three-year projects were prematurely cancelled in 2018 before they could be completed and assessed, and the next stages of Finland’s program are in limbo.

Likewise in the U.S., start-up incubator Y Combinator has been planning a $60M basic income study program, but can’t proceed until funding is secured.

A Post-COVID Future for UBI?

In light of COVID-19, basic income has once again taken center stage.

Many countries have already implemented payment schemes or boosted unemployment benefits in reaction to the pandemic. Others like Spain have used that momentum to launch fully-fledged basic income pilots.

It’s still too early to tell if UBI will live up to expectations or if the idea will fizzle out, but as new experiments and policy programs take shape, a growing amount of data will become available for policymakers to evaluate.

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Markets

The $88 Trillion World Economy in One Chart

The world’s total GDP crested $88 trillion in 2019—but how are the current COVID-19 economic contractions affecting its future outlook?

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The $88 Trillion World Economy in One Chart

The global economy can seem like an abstract concept, yet it influences our everyday lives in both obvious and subtle ways. Nowhere is this clearer than in the current economic state amid the throes of the pandemic.

This voronoi-style visualization from HowMuch relies on gross domestic product (GDP) data from the World Bank to paint a picture of the global economy—which crested $87.8 trillion in 2019.

Editor’s note: Annual data on economic output is a lagging indicator, and is released the following year by organizations such as the World Bank. The figures in this diagram provide a snapshot of the global economy in 2019, but do not necessarily represent the impact of recent developments such as COVID-19.

Top 10 Countries by GDP (2019)

In the one-year period since the last release of official data in 2018, the global economy grew approximately $2 trillion in size—or about 2.3%.

The United States continues to have the top GDP, accounting for nearly one-quarter of the world economy. China also continued to grow its share of global GDP, going from 15.9% to 16.3%.

RankCountryGDP% of Global GDP
#1🇺🇸 U.S.$21.4T24.4%
#2🇨🇳 China$14.3T16.3%
#3🇯🇵 Japan$5.1T5.8%
#4🇩🇪 Germany$3.9T4.4%
#5🇮🇳 India$2.9T3.3%
#6🇬🇧 UK$2.8T3.2%
#7🇫🇷 France$2.7T3.1%
#8🇮🇹 Italy$2.0T2.3%
#9🇧🇷 Brazil$1.8T2.1%
#10🇨🇦 Canada$1.7T2.0%
Top 10 Countries$58.7 trillion66.9%

In recent years, the Indian economy has continued to have an upward trajectory—now pulling ahead of both the UK and France—to become one of the world’s top five economies.

In aggregate, these top 10 countries combine for over two-thirds of total global GDP.

2020 Economic Contractions

So far this year, multiple countries have experienced temporary economic contractions, including many of the top 10 countries listed above.

The following interactive chart from Our World in Data helps to give us some perspective on this turbulence, comparing Q2 economic figures against those from the same quarter last year.

One of the hardest hit economies has been Peru. The Latin American country, which is about the 50th largest in terms of GDP globally, saw its economy contract by 30.2% in Q2 despite efforts to curb the virus early.

Spain and the UK are also feeling the impact, posting quarterly GDP numbers that are 22.1% and 21.7% smaller respectively.

Meanwhile, Taiwan and South Korea are two countries that may have done the best at weathering the COVID-19 storm. Both saw minuscule contractions in a quarter where the global economy seemed to grind to a halt.

Projections Going Forward

According to the World Bank, the global economy could ultimately shrink 5.2% in 2020—the deepest cut since WWII.

See below for World Bank projections on GDP in 2020 for when the dust settles, as well as the subsequent potential for recovery in 2021.

Country/ Region / Economy Type2020 Growth Projection2021E Rebound Forecast
United States-6.1%4.0%
Euro Area-9.1%4.5%
Advanced economies-7.0%3.9%
Emerging economies-2.5%4.6%
East Asia and Pacific-0.5%6.6%
Europe and Central Asia-4.7%3.6%
Latin America and the Caribbean-7.2%2.8%
Middle East and North Africa-4.2%2.3%
South Asia-2.7%2.8%
Sub-Saharan Africa-2.8%3.1%
Global Growth-5.2%4.2%

Source: World Bank Global Economic Prospects, released June 2020

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