We’ve seen some scary numbers lately, especially on unemployment. Even with the recent rebound for retail sales, the picture remains the worst since modern federal records began in 1948.

Or since the Great Depression.

Last month Federal Reserve Gov. Lael Brainard explained our situation this way: “Last year, national unemployment had fallen to its lowest point in over five decades. Today, unemployment has surged to levels not seen since the Great Depression.”

All this makes it important to examine an event whose origins and cures remain debated. What’s not debated: It was the worst economic collapse of modern times, with world-shaking consequences.

The Depression is often seen beginning with the stock market crash of October 1929. The biggest reasons: overvalued stocks, speculator fraud and over-reliance on purchasing shares on margin (buying on credit, which depends on prices going up).

Yet trouble was gathering before the crash.

The banking system was rickety. Some 8,000 banks were members of the Federal Reserve System, but twice that many were not. Even some of their reserves were fictitious.

Some scholars claim the economy was recovering from the stock collapse when bank panics took it down. Between 1929 and 1933, 7,000 banks failed.


Much of the agricultural sector was troubled, too. Many farmers suffered from falling prices and gathering debt in the 1920s. A Great Plains drought, culminating in the Dust Bowl of the 1930s, made conditions infinitely worse.

Faced with these problems in 1930, the Federal Reserve made a disastrous blunder, tightening the money supply and failing to act as lender of last resort to key banks.

Economists Milton Friedman and Anna Schwartz made this case so convincingly that future Fed Chairman Ben Bernanke in 2002 apologized for the central bank’s failure. The occasion was Friedman’s 90th birthday and Bernanke said, “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

The Fed — and much of the developed world — was constrained by the gold standard, which connected money to the precious metal.

Yet another lever down the mountainside was the Smoot-Hawley Tariff of 1930. Intended to protect American jobs, the act backfired spectacularly.

All told, a severe contraction was driven to become the Great Depression. From 1929 to 1933, gross national product fell by one third, the stock market lost 80% of its value and unemployment hit 25%. Severe deflation set in.


President Herbert Hoover was publicly optimistic about a quick recovery. He even used the word “depression” to avoid “panic” or “crisis.” His top economic adviser was even pleased with events.

In his memoirs, Hoover quoted Treasury Secretary Andrew Mellon, chief architect of the laissez-faire 1920s policies, as saying, “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system.”

Hoover didn’t agree. A Theodore Roosevelt Progressive, Hoover made his reputation coordinating aid to millions during and after World War I. At the punitive Versailles talks that forced Germany to accept sole blame for the conflict, John Maynard Keynes said Hoover was the only participant who “emerged from the ordeal of Paris with an enhanced reputation.”

“The Great Engineer” who went from poverty to riches as a mining engineer, he seemed perfectly suited to an age that celebrated engineering feats. He won the presidency in 1928 riding a wave of goodwill.

The Depression destroyed his reputation, with homeless camps named “Hoovervilles” — including in Seattle.

But contrary to the hagiography of Franklin Delano Roosevelt, who followed Hoover and generally gets credit for rescuing the nation from the Depression, Hoover expanded the federal government — more extensively than any peacetime president up to that time — to address the crisis. Federal spending on public works rose, as did lending to farmers and businesses. Hoover’s Reconstruction Finance Corp. continued successfully in the New Deal.


It was not enough to bring a turnaround or save him in the 1932 election. Hoover opposed direct aid to families and individuals, fearing it would sap American self-reliance. He worried about a balanced budget.

His successor, FDR, was also a budget balancer at heart. However, with “a second-class intellect but a first-class temperament,” as Oliver Wendell Holmes put it, Roosevelt was willing to experiment. Surrounded by his “brains trust” of experts, he embarked on the New Deal.

This vast series of programs included a “bank holiday” that closed insolvent institutions, passed federal deposit insurance, separated investment banks from commercial ones (Glass-Steagall) and took America off the gold standard.

They created massive infrastructure investments such as the Tennessee Valley Authority and Grand Coulee Dam, and the Securities and Exchange Commission (SEC) to clean up Wall Street.

To lead the SEC, Roosevelt chose speculator Joe Kennedy (“set a thief to catch a thief”). When the father of the future president was done, he quipped that even he couldn’t make money on Wall Street anymore.

Other New Deal measures, such as the central planning National Recovery Administration, failed.


But, critically, through such agencies as the Civilian Conservation Corps, the New Deal provided public works jobs. Unemployment fell through the rest of the decade (except for the 1937 recession, when FDR tried to reduce stimulus).

Yet even with all this, the hard times continued until the ramp-up to World War II filled the huge hole in demand.

Conservative writer Amity Shlaes contends that Hoover and Roosevelt’s lack of faith in the marketplace made the Depression worse. Mainstream historians disagree. And the legacy policies of the era have kept our situation from being much worse (for example, bank and Wall Street regulations, robust Fed response and federal stimulus, and a safety net that didn’t exist in 1930).

This time, the contraction is not from multiple causes but from shutting much of the economy for the pandemic (which didn’t happen during the 1918 flu). A 10-year depression might be unlikely.

Yet Harvard economist Kenneth Rogoff told Bloomberg, “there are many ways this feels more like the Great Depression” than the Great Recession in severity and murky outlook. Fed Chairman Jay Powell said recovery remains a long road.

Uncertainty twins the two eras. Even now, no one really can pin down why the Depression lasted so long. And now we face unknown obstacles that might make this comeback difficult.

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