This video is sponsored in part by Blinkist What’s depressing? I’m Mr. Beat Well, I’ll tell you what’s depressing. We're still
in a pandemic. It has been a global public health crisis, and millions have died from COVID-19 over the past year. But there’s also been a terrible
economic crisis. Most of the world has been in a recession.
(doppelganger pops in) What the heck do you want?
Doppelganger: Aren’t you going to define what a recession is?
Mr. Beat: I hadn't planned on it. I think most of my audience knows what a recession is.
Doppelganger: What’s that? You said “most?” so clearly not everyone knows. Ya gotta define it, man.
Mr. Beat: Ok. Fine (turning to camera) A recession
is a period when the economy stops growing. (turning to doppleganger) You happy?
(Doppelganger begrudgingly exits) Most economists say a recession is
when the gross domestic product, or GDP, shrinks for two quarters.
Oh and GDP is the total value of all final goods and services produced
in a country over a period of time. The economy should generally always be
growing as long as the population is growing, as it is assumed that productivity should be
going up as more people are alive to produce. So when it’s not, uh...yeah, that’s bad. During
recessions, people stop buying stuff, so companies stop producing stuff, so they lose money and
have to fire workers. Well, this leads to higher unemployment, lower income, and even less people
buying stuff. This all leads to a vicious cycle. well if people aren't spending their money then
companies aren't making money and if companies aren't making money then they have to fire workers
and then workers without a job they're not making money so they're not spending money and if they're
not spending money then the companies lose money and if the companies lose money then they have to
fire their workers and if the workers are fired they don't have money so they're not spending
their money and so if people aren't spending their money then companies don't they don't have money
and so you have to fire more workers and then the more workers don't have money and there are
even more people who can't afford to spend their money and even if more people can't spend their
money on bankruptcy less than you know everybody Goes on and it goes on and it goes on and it goes on Anyway, economists say the current COVID-19
recession is the worst global economic crisis since the Great Depression. The Great Depression,
in fact, may indeed be the worst global economic crisis in modern world history. Lasting from
1929 to around 1939 but maybe longer, it had devastating effects. International trade declined
by more than 65%. A third of all banks failed. Economic output went down by 25%. Unemployment
in the United States got as high as 25%, and even as high as 33% in other countries.
Housing prices went down 67%. Tens of millions of people lost all their wealth. Literally all of
it. Imagine being a 60-year old man and building up wealth your entire life, working your butt off,
only to see all of it gone and you have to start all over from scratch. Tens of millions found
themselves in this position. Anyway, long story really short- ever since the Great Depression,
governments around the world have been MUCH more involved with trying to rescue economies and give
direct aid to citizens to cope during recessions. But what caused the Great Depression?
I mean, we know what caused the current COVID-19 recession...it was...uh, ya
know...COVID-19. It's more cut and dry. But economists and historians have debated what
really caused the Great Depression for decades. The debate is usually between the folks who
favor a more limited government when it comes to the economy and the folks who favor a
government more involved with the economy. You know what, that kind of sounds like
pretty much every debate in modern history. Anyway, when I searched “Causes of the Great
Depression” on YouTube, these three videos pop up. Let’s look at the YouTube channel EconClips first.
It gives a perspective from what’s known as the Austrian school of economics, which generally is
critical of government involvement in the economy and favors individualism and free markets. Another
video that popped up when I searched “Causes of the Great Depression” was the Crash Course U.S.
History video about the entire Great Depression. It was surprisingly more nuanced looking at what
caused the Great Depression, but still leans toward the narrative that the government wasn’t
to blame as much as the dang free market was and the irrational behavior of individuals. This
is the more mainstream, “Keynesian” perspective. Keynesian economics, named after a dude named John
Maynard Keynes, who first popularized these ideas, generally is all about doing whatever you can to
increase the aggregate demand, or total demand, and that sometimes markets can mess up aggregate
demand so government and or central banking has to come in and fix it. The third video
that popped up is from an old friend- Robert from Reading Through History. This video
is probably the least biased of the three, but I feel like he focuses too much on
the stock market crashes of October 1929, which were probably more symptoms
than causes of the Great Depression. My point for bringing up the different
perspectives is that our political biases often strongly influence what we believe
actually caused the Great Depression. After scouring as many different sources as
possible over the years, I have compiled one giant list of 18 possible causes of the
Great Depression, and here they are: Lack of economic diversity
Unequal wealth distribution Unstable banking system
Bank panics Too much credit in 1920s
Not enough credit in 1930s Money supply was too high in 1920s
Money supply was too low in the 1930s Federal Reserve raising
interest rates at wrong time The gold standard holding back economy
Decreased international lending Increased tariffs (Smoot-Hawley Tariff) Lack of consumer confidence
Trying to balance the budget Asset bubbles
Drought conditions Overproduction of goods
Government intervention with labor You get all that? Excellent. Great. Groovy.
(doppelganger pops in) Doppelganger: No, most of that
doesn’t make sense to them Mr. Beat: Are you insulting my audience?
Doppelganger: No, it's just a confusing list for
anyone who’s not an economist. Mr. Beat: Fair enough, ok buddy. Let’s
break this down. Let's simplify this. While all of those causes are correct to a certain
degree, some are less credible than others. Plus, some of these can be combined and are definitely
related. And I do get that this list might be overwhelming, especially if you’re in 8th grade
American history class watching this right now. And so I’ve come up with a TOP FIVE LIST BABY.
WOO HOO HECK YEAH. LET’S DO THIS. (awkwardly calms down) Here are the top five causes of the Great Depression, counting down
from the least biggest cause to the biggest cause. 5. An unstable banking system
Between 1930 and 1933 alone, around 9,000 banks failed in the United States. It's a Wonderful Life clip Because banks hold just a fraction of the value of
their customers’ deposits in the form of reserves, any sudden, surprise attempt to convert deposits
into cash can leave banks short of reserves. Now, usually banks can just borrow extra reserves from
other banks or from the Federal Reserve Bank, the central bank of the United States. However,
many banks couldn’t or wouldn’t borrow from the Federal Reserve because they either lacked
good enough collateral or didn’t belong to the Federal Reserve System. Bank deposits would
be greater than the value of their assets, and this led to banks failing. Oh, and in the
early 1930s, there was no such thing as deposit insurance. If a bank failed, you lost
all your money you had in the bank. This led to some bank panics, in which depositors
pulled all their funds for fear that they might lose all of them if the bank failed. Which
in turn only made the problem freaking worse. More and more banks failed because of it. 4. Asset bubbles
First of all, an asset is any owned resource that has value with the
expectation that it will have a future benefit. An asset bubble is when asset prices rise
to unrealistic levels in a short amount of time...meaning the assets aren’t worth that much,
yo. They be inflated...ya know, like a bubble. This happened quite a bit during the 1920s. The stock market is a perfect example
of this. Many forget that there was also quite a real estate bubble during that time, and
much of that was due to easy access to credit, meaning it was easy for folks to borrow lots of
money. But we’ll get to that more here in a bit. 3. Increasing tariffs and other
taxes when people were struggling Look, I get why President Herbert Hoover raised
tariffs and taxes in those early years of the Great Depression. He raised taxes to try to
balance the budget during a time when the economy was contracting. This was when we were still on
the gold standard, ok? He signed the Hawley-Smoot Tariff Act to boost falling agriculture prices,
which had been crippling farmers for years. (Ferris Bueller clip)
Yeah, the Hawley-Smoot Tariff Act is one of the worst laws in American history- it led to trading
partners retaliating by raising their tariff rates and ultimately froze international trade,
causing companies’ sales to drop everywhere. Basically, raising taxes of
any kind during a recession is one of the worst things you can possibly do, and fortunately since then governments have
learned not to repeat the same mistakes. 2. Too much money supply in the
1920s, too little in the 1930s Both the Austrian school folks and Keynesian folks
agree that the Federal Reserve deserves at least some of the blame for the Great Depression. Well
I think it deserves a lot of the blame. First of all, during the 1920s, it implemented an easy
credit policy. It expanded the money supply. It gave too much money to banks, which in
turn gave too much money to companies and consumers. This policy led to an unsustainable
credit-driven boom and therefore an asset bubble, remember that? We mentioned that earlier. And then, in the early years of the Great
Depression, particularly 1930 to 1932, the Federal Reserve did not help the banks suffering
from bank runs. It contracted the money supply exactly when it shouldn’t have. Sure, it was
trying to preserve the value of the dollar, with the dollar still being tied to the value of gold,
but we now know that did much more harm than good. And this last one is related
to number two of course... 1. Too much credit in the 1920s
and too little credit in the 1930s It’s well known that the expansion of credit-
you know, buy now pay later- got a little out of control during the 1920s. For the first time,
millions of Americans were buying stuff with money they didn’t have, but simply borrowed.
They were buying new appliances, radios, cars, and other stuff using installment plans, paying a
small percentage down and the rest over a period of months or years. By the end of the 1920s, 80%
of radios and 60% of cars were paid for on credit. Americans even bought stock using borrowed money,
for crying out loud. This practice was called buying on margin. All this buying on easy credit
also led to the aforementioned asset bubbles. But then, once the Great Depression started, there
was an overreaction. The Federal Reserve raised interest rates when they probably should
have lowered them. There was a credit crunch, meaning it was hard to borrow to
invest in new ventures that would lead to economic growth. So there was less
investment, which led to lower consumption, which led to lower production, and thus
lower wages, and thus decreased demand, and even lower prices, and aaaaahhhhh! Economists,
by the way, call this a deflationary spiral. These credit crunches led to lots of
bankruptcies during the Great Depression. So ever since, economists have constantly been
trying to find that balance, and as we saw with the Great Recession of 2008, that balance was
off quite a bit again in the years before it as it felt like the 1920s. It’s not an easy
thing to figure out, even for the experts.. So in conclusion, while there is no
consensus among historians and economists regarding the exact causes of the Great
Depression, perhaps my top five list will be a compromise to bring those monetarists in the Austrian school
and Keynsians together because dangit, both sides are right to a certain degree. So
congratulations to everyone. So I’m legit excited to be sponsored once again
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Thanks to Blinkist for sponsoring this video. I want to give a shout out to my Patreon supporter
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