Great Depression Was the Single Most Significant Essay

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Great Depression was the single most significant economic catastrophe of the 20th century, brought on by a lack of the ability to control monetary pricing as well as a period of sustained high unemployment. Unlike modern economies, pre-Great Depression governments did not have many tools to sway the economy one way or the other, there was a long standing belief in "laissez faire" capitalism, with the premise that all markets are to be left alone, with the belief that the market can always correct itself if given enough time. Sensing that the world economy could take years to recover on its own, economists such as John Maynard Keynes of Britain advocated the creation of government backing for bank deposits, which gave citizens the peace of mind of knowing their money would be backed by the government in case of another banking disaster like we saw in the 1930s. (CBC News 2008)

Another, even more revolutionary policy proposed by Keynes is that of government spending. Keynes believed that it is possible for governments to spend money during economic downturns in order to stabilize job markets and to maintain constant growth. When business needs to cut jobs, citizens have nowhere to turn, but with the ideas of John Maynard Keynes, governments can choose to keep their people employed rather than let them wither and see the economy shrink further.[footnoteRef:1] (Menon 2011) The downside to this policy is that governments spend into debt in order to do this, and therefore it is important
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to reduce government spending during times of private sector growth, in order to prevent too much spending without enough saving, which is a cause of any government's nightmare, inflation. The stability envisioned after the Great Depression, and cemented in the aftermath of World War II, was shaken by the 1970s and 1980s when economic policy makers turned their backs on the established Keynesian system and wished for lower taxes and a higher potential growth market model than had been seen since before the Great Depression. [1: Menon, Nirmala. Wall Street Journal. May 31, 2011.]

Economists do not believe the 2008 America bank bailouts and subsequent recession will be enough to warrant a threat of the return of the Great Depression, largely because of the ability of the U.S. Government to ensure the stability of banking and other lending institutions. Because these institutions were rescued so quickly, a large catalyst of the onset of the Great Depression, that is the wiping out of citizens financial savings, was halted. Now that we are in the year 2011 and can see the world economy beginning to stabilize, we can see how important it was to act fast to prevent a sudden crash in 2008 which would have plunged the Western world into a depressing state. It is unfortunate, however, that a direct injection of government spending into the economy is not as effective as it was in the 1930s at maintaining low unemployment. This is a result of the majority of labor costs and manufacturing sector has been relocated abroad, meaning that Canadian and American capitalists are seeing continued growth in their businesses and personal…

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Concerning whether a downturn in U.S. economic growth affects Canadian economic growth, there is indeed a direct correlation. Due to the closeness of the two economies, and the mammoth size of the U.S. Economy in general, there is no way that any disruption in one country would not be felt in the other. Over the past twenty years, globalization, NAFTA, and an increase in technological capability has only brought both countries financial mechanisms closer. In fact, Canadians are at great risk when the behavior of Wall Street becomes reckless. It is risky behavior, such as that exhibited during the subprime lending crisis, that most affects international financial institutions.[footnoteRef:3] (Somerville 2010) The health of the U.S. economy is vital to the success of Canada's economy, and therefore caution must be placed whenever either country predicts a downturn in the imminent future. [3: Somerville, Glenn. Reuters. January 31, 2010.]

However Canada does have its own ability to handle government spending however it likes. For instance, providing a single payer health care system greatly simplifies the health care process and costs, and ensures that even during an economic downturn, citizens are able to seek the medical treatment they are entitled to. This is a service provided by the government even during hard times, a social responsibility which is lacking in the American public conscience. This is in stark contrast to the United States, which opts to spend heavily on military and defense, while relying entirely on the private sector to provide health insurance for Americans. Among other differences between the nations, the way labor is exported from America to China and other low income nations is not nearly as extreme in Canada. Additionally, Canada's property market was not as heavily affected as in the States, due to better market regulation and less of a reliance on sub-prime loans. [footnoteRef:4] [4: CBC News. Replay of Great Depression Unlikely. September 25, 2008.]

In conclusion, we see that the Great Depression has taught all world governments how to evade calamity, but the extent to which government involvement in the market should be permitted is still in heavy contention. The pro-business low tax business class sees Keynes as a man who simply redistributes wealth via tax collection and government spending, meanwhile the middle class typically benefits from the benefits government offers in its ability to stabilize the market and prevent prolonged periods of slow growth and unemployment, periods which are inherent in the instability of the free market.

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