Great Depression and 2008 Recession
The saying that historical events may occur again is not worth ignoring by policy makers in different sectors. It is always important to study the causes of a negative event in the country and strive to address such causes before the event befalls the country again. In the United States, for instance, the great depression of the 1930s and the recession of 2008 bear some similar characteristics that show a state failed to learn a lesson during the first occurrence
1. The events took place as an aftermath of economic mistakes that governments and the people made and failed to rectify before the effects started worsening. Therefore, the paper intends to explore the similarities between the great Depression and the Recession.
First, the fall in the stock market as a result of excess demand preceded both the great depression and the recession. In the 1920s, Americans started buying home appliances that were not available in the past and their demand could exceed the supply. However, the manufacturers over-manufactured the goods forgetting that people could stop buying the appliances that were durable. As a result, the companies had surplus appliances that they could not sell to the market that was getting small. When the companies were making high sales, they attracted people to buy their stocks in the stock market with the hope of getting high returns in the future
2. Investors had borrowed money to put in the stock market with expectations of earning income through dividends
3. However, when the manufacturers began making losses due to a fall in demand, the investors lost their investments because the companies could not pay dividends and finance their operations.Consequently, the stock market began falling; the banks incurred bad debts because people could not repay their loans and the economy went in turmoil in the 1930s. Similarly, during the recession, the demand for houses prompted companies to borrow money and invested in the housing sector. The high returns on investments in the real estate caused the companies to construct a higher number of the houses than the market could purchase. Thus, before 2008, the market could not buy the number of houses that were in the real estate business. As a result, the mortgage companies could not pay the loans they had taken from banks.
The banks stopped lending more money, and the shareholders of the banks could not access their returns because banks were in bad debts. Therefore, in both events, the excess demand and failure of the investors to observe financial discipline preceded the fall of the economy.Additionally, trade barriers and protectionism policies caused the great depression that led to fall in the world economy. For example, the Hawley-Smoot Tariff of 1930 put trade barriers that aimed at preventing manufacturers from other countries from trading their commodities in the United States
4. The restrictions gave the United States manufacturers a monopoly of the domestic market and blocked …
