The Great Depression - what my school teaches

 Yesterday, we played a great depression game.  Each person got assigned to a family, with information on how the great depression negetavely impacted each person's income.  I was put in a family of farmers.  What everyone did was decrease their expedientures, try to increase their income, and increase their savings (declining to use the services of the bank), because they needed to hold on to their wealth.  This was an eye opener, as it showed me why people tend to decrease their spending and save during a recession: to wait it out and balance their budget.

I think my teacher drew a false conclusion.  He then said that the decreased spending that our families did was really hurting the economy.  Then, he had us draw a ripple graph, showing us how not spending hurt other businesses, to further hurt the country's economy.  Really, the only thing I would say is that decreased spending is one of the indications that a recession is in progress, as people will tend to spend less during one.  What is wrong about the "ripple effect"?  On a basic level, it seems plausable, but is there something that is forgotten?

 Also, I want to share what my teacher said were the causes of The Great Depression.  I even have the powerpoint, so if you want to ask a specific question about this lesson, go ahead.  What is wrong about each of these causes?  What really caused the great depression?

-Farmer's Crisis, due to dropping crop prices (Curious about this one.)

-Stock Market Crash (I think there is a reason why this occured)

-Tariffs (My teacher correctly admitted that these were bad and hurt the economy)

-Inequal distribution of wealth. (How?)

-War Debt (Agreed, too, since war hurts the economy)

-1928 Presidential Election(???)

-Overproduction (???)

-Federal Reserve Monetary Policy (also agreed) 

You could further ask your teacher about farmers...Low prices were bad for farmers...But were good for people buying food, right ? So, what's to be done ?

Interesting that your teacher would use a game to demonstrate how people act in their own interests during a recession. Persumebly he wants government intervention that prevent these selfish people from hurting the "economy." But all that means is forcing individuals to act contrary to their own interests in order to shelter others, namely business, from the sharing in the burden of the recession. Wealth redistribution pure and simple.

Of course people like your teacher will say that the government is forcing them to act in their own interest, these ignorant people simply don't know it. But without going into the economics of it that is evidently false. The Great Depression was the time when these principles were adhered to the most and its the time when the depression lasted the longest and was the deepest. Those policies were being followed even before FDR got into office, if those policies had been sound there would have been no great depression. The severity of the crisis demonstrates the quality of the policies.

Well, what do people do with savings?  They would either use the services of a bank or they would invest it.  People just do not simply sit on cash. 

I am impressed that your teacher has some economic knowledge and did note two of the most significant causes of the Depression: 1 Most Significant Cause: Federal Reserve Monetary Policy and 2.  Tariffs.  I am sorry that the teacher did not note the others in order: Pro-Union Regulation, Higher Taxes, Government Spending and Minimum Price Fixing of Labor(Minimum Wage) (40 hour work week) and Goods (Farm price supports) etc.

You correctly point out that the two causes in most Government Educated Minds: Stock Market Crash and Unequal Wealth Distribution are not causes of anything but the results of causes. 

I am equally unimpressed that your teacher considers saving/investing or in Facist/Socialist Circles Hoarding to be a bad thing.  Saving is a rational reaction to an extremely uncertain future.  IBM and Toyota are excellent examples.  They have billions in cash and are just sitting by waiting for a more certain future.  Why put money in to a new technology now or buy a factory or whatever when your investment may be worth 20% less next month?

But the biggest pro-saving/investing message is the one not said.  Consumers can only consume what has been previousy invented and produced.  It can not consume what does not exist.  So the Federal Reserver and the rest of Government are giving consumers incentive to consume when they should be giving the incentive to save.

Spideynw:

Well, what do people do with savings?  They would either use the services of a bank or they would invest it.  People just do not simply sit on cash. 

Actually, many people do simply sit on cash. All money that exists in physical form must be held by someone. But, this is a net good for society. Money not spent frees up valuable resources for other consumers or other producers to use. Your increased demand for money increases the wealth of the rest of society (interest free) by whatever you had to produce to buy that money.

Foreign central banks, for example, have compelled their own subjects to subsidize the standard of living of U.S.Americans in exactly this way.

billott1:

So the Federal Reserver and the rest of Government are giving consumers incentive to consume when they should be giving the incentive to save.

I wonder, if they should give any incentives at all.

I stand corrected.  No government should attempt to modify the behavior of citizens acting in their own interest without force or fraud.

just read what friedman wrote on the subject...he had it completley right. 

Even better - read both Friedman and Rothbard...

purplemage:

-Farmer's Crisis, due to dropping crop prices (Curious about this one.)

Falling crop prices don't really mean much. When they fall, demand increases. Tell your teacher it's called supply and demand, and it's been around for a while. 

purplemage:

-Inequal distribution of wealth. (How?)

 Apparently everyone should look to the poor to bail them out of recessions...?

purplemage:

-1928 Presidential Election(???)

He's referring to the election of Herbert Hoover, which he's also correct on.

purplemage:

-Overproduction (???)

Say's Law suggests that you can never have overproduction.

Tuneman:

just read what friedman wrote on the subject...he had it completley right. 

 

 

Actually, he had it totally wrong. 

Niccolò:

Tuneman:

just read what friedman wrote on the subject...he had it completley right. 

 

Actually, he had it totally wrong. 

Lionel Robbins actually had it right.  Just read The Great Depression, which can be found on mises.org.

I believe it was mise's "Economic Policy" i was reading where he suggested that the reason the farmers prices went down was because of increased production and better technology.  The supply went up, so the price went down.  thats how a free market works, there is a generall tendency for prices to actually drop overtime.  I guess you can mistake that for overproduction.  This is the problem with the whole stable price discipline.  Just trying to bring a stable price actually creates inflation.  If anything was leading to overproduction, it was the line of thought "oh, man those farm prices sure are low, how can the farmers actually live, we must subsadize them." thats asking for overproduction since the reason the price is low is because of increased production.

billott1:

I am impressed that your teacher has some economic knowledge and did note two of the most significant causes of the Depression: 1 Most Significant Cause: Federal Reserve Monetary Policy

 

I will have to ask for confirmation from the OP, but I can't imagine the teacher used an ABCT-style critique of the Fed's monetary policies during the time. Most people who criticize the Fed for the Great Depression say that it failed to inject enough money, not that the initial injections were what caused the problem in the first place. Especially considering the teacher's thoughts on savings, I highly doubt there was anything good or impressive about the critique of Fed policy.

Morty:

I will have to ask for confirmation from the OP, but I can't imagine the teacher used an ABCT-style critique of the Fed's monetary policies during the time. Most people who criticize the Fed for the Great Depression say that it failed to inject enough money, not that the initial injections were what caused the problem in the first place. Especially considering the teacher's thoughts on savings, I highly doubt there was anything good or impressive about the critique of Fed policy.

 

 

OK... I am back!

Yes, you are correct.  My teacher criticized the Fed for that reason.  I remember him saying that the Fed did the wrong thing in the Great Depression by not doing enough.

purple, what about pointing your teacher to this thread? ;) Maybe he'd be interested in discussing this...