Tuesday, September 20, 2005

Causes of the Great Depression: For Bob Davis 

AM1500's Bob Davis claimed there were only two prevailizng theories on the cause of the Great Depression on his radio show this morning. However, as Wikipedia's page on this topic shows, that's not really the case. An more importantly, the theory help by FDR that was the basis for his recovery plan (which worked) is not one of the two theories Mr. Davis suggested.

The caller prompting the comments from Bob Davis was trying to point on some parallels between the economy of the 1920's and today, which would clearly point toward the scenario outlined below. We are certainly experiencing a time of increase disparity in the distribution of wealth, and that's only accelerating due to the abolition of the estate tax and other tax cuts for the rich that are taking place at the same time our country's poverty numbers are increasing.

The rising tide for the rich is not rising all boats, so fewer people can fully participate in today's economy (afford housing, get credit, etc.) which creates more of a drain on our government.

Causes of the Great Depression - Wikipedia, the free encyclopedia: "A maldistribution of purchasing power

One theory held by many at the time and since, including Franklin Roosevelt and his brain trust, holds that the fundamental maldistribution of purchasing power, the greatly unequal distribution of wealth throughout the 1920s, caused the Great Depression.

According to this view, wages increased at a rate that was a fraction of the rate at which productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into profits. As industrial and agricultural production increased, the proportion of the profits going to farmers, factory workers, and other potential consumers was far too small to create a market for goods that they were producing."

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