Great Depression Was the Single Most Significant

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 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. http://online.wsj.com/article/SB10001424052702303745304576355170933584418.html?mod=googlenews_wsj.]

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 savings, but a lack of employment opportunities for those who traditionally would benefit from government spending. The American Troubled Asset Relief Program, or TARP, proved to be an insignificant program for the purposes of job creation, its main focus was simply maintaining projects which had already been approved and were under way. (Barofsky 2011)[footnoteRef:2] Even President Obama's High-Speed Rail program, touted for its energy efficiency, which could potentially bring freight and passengers through many avenues into Canada, has been stalled for years. [2: Barofsky, Neil M. NY Times. March 29, 2011. http://www.nytimes.com/2011/03/30/opinion/30barofsky.html.]

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. http://www.reuters.com/article/2010/01/31/us-usa-economy-bailout-idUSTRE60U09L20100131.]