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Hi, I'm John Green, this is Crash Course U.S. history and Herbert Hoover's here,
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which is never a good sign. Today we're gonna return to two of my favorite topics: economics and inaccurate naming conventions.
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That's right, we're gonna be talking about the Great Depression,
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which was only great if you enjoy, like, being a hobo or selling pencils.
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Now some of you might get a bit frustrated today,
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because there's no real consensus about the Great Depression,
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and simple, declarative statements about it really say much more about you than they do about history.
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Why are you looking at me, Mr Green? I didn't say anything. I thought it.
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Because, Me From the Past, you always want things to fit into this simplistic narrative:
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she loves me, she loves me not, the Great Depression was caused by x or was caused by y.
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It's complicated!
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Many people tell you that the Great Depression started with the stock market crash in October 1929,
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but a) that isn't true and b) it leads people to mistake correlation with cause.
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What we think of as the Great Depression did begin AFTER the stock market crash, but not because of it.
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Like, as we saw last week, the underlying
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economic conditions in the U.S. before the stock market crash
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weren't all moonshine and rainbows. The 1920s featured large-scale domestic consumption of relatively new consumer products,
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which was good for American industry. But much of this consumption was fueled by credit and installment buying
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which, it turned out, was totally unsustainable.
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The thing about credit is that it works fine unless and until economic uncertainty increases
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at which point POW. That's a technical historian term, by the way.
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Meanwhile, the agricultural sector suffered throughout the 1920s and farm prices kept dropping for two reasons.
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First, American farms had expanded enormously during World War I to provide food for all those soldiers,
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and second, the expansion led many farmers to mechanize their operations.
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As you'll know if you've ever bought a tractor, that mechanization was expensive,
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and so many farmers went into debt to finance their expansion.
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And then a combination of overproduction and low prices meant that often their farms were foreclosed upon.
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And other signs of economic weakness appeared throughout the decade.
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Like by 1925, the growth of car manufacturing slowed, along with residential construction.
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And, worst of all was what noted left wing radical Herbert Hoover
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labeled "an orgy of mad speculation" in the stock markets that began in 1927.
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By the way I'm kidding about him being a left wing radical. Just look at him.
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According to historian David Kennedy,
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"By 1929, commercial bankers were in the unusual position of loaning more money for stock market
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and real estate investments than for commercial ventures."[1]
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I wonder if we would ever find ourselves in that position again. Oh, right, we did in 2008.
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Anyway, it's tempting to see the stock market crash as the cause of the depression,
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possibly because it turns American economic history into morality play,
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but the truth is that the stock market crash and the depression were not the same thing.
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A lot of rich people lost money in the market, but what made the Great Depression the Great Depression
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was massive unemployment and accompanying hardship, and this didn't actually begin until, like, 1930 or 1931.
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The end of 1929 was actually okay. Unless you were a farmer, or a stockbroker obviously.
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So what did actually cause the Depression?
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Well that's a big question and it's one that economists have struggled with ever since.
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They want to find out so they can keep it from ever happening again. No pressure, economists.
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Only 3% of Americans actually owned stock, and the markets recovered a lot of their value by 1930,
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although they did then go down again because, you know, there was a depression on.
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And even though big banks and corporations were buying a lot of stock,
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much of it was with borrowed money, known as margin buying,
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and all of that still was not nearly a big enough iceberg to sink the world's economy.
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But if I had to name a single cause of the Great Depression, it might be America's weak banking system.
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Alright. Let's go to the ThoughtBubble.
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Although the Federal Reserve system had been created in 1913,
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the vast majority of America's banks were small, individual institutions
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that had to rely on their own resources. When there was a panic and depositors rushed to take the money out of the bank
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-- like they do in the obscure arthouse movie Mary Poppins -- the bank went under if it didn't have enough money on reserve.
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So in 1930, a wave of bank failures began in Louisville that then spread to Indiana,
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Illinois, Missouri, and eventually Arkansas and North Carolina.
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As depositors lined up to take their money out before the banks went belly up,
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banks called in loans and sold assets. Ultimately this meant that credit froze up,
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which was what really destroyed the economy. A frozen credit system meant that less money was in circulation,
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and that led to deflation. Now you're probably thinking, "Big deal,
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deflation, can't be as bad as inflation right?" No. Deflation is much worse,
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as anyone who has ever slept on an air mattress knows.
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When prices drop, businesses cut costs, mainly by laying off workers.
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These workers then can't buy anything, so inventories continue to build up, and prices drop further.
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Banks weren't lending money, so employers couldn't borrow it to make payroll to pay their workers
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and more and more businesses went bankrupt leaving more and more workers unable to purchase the goods and services
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that would keep the businesses open.
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So if we have to lay the blame for the Great Depression on someone, we can blame the banks,
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which isn't completely wrong, and it gives us a chance to shake our fists at Andrew Jackson
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whose distrust of central banking got us into this mess in the first place.
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That's probably too simple, but the Federal Reserve does deserve a good chunk of the blame for not rescuing the banks
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and not infusing money into the economy to combat this deflationary cycle.
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Thanks, Thoughtbubble. So, economics fans out there might be saying,
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"Why didn't the Hoover administration engage in some good old fashioned Keynesian pump priming?"
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The thinking there is that if governments do large-scale economic stimulus and a bunch of infrastructure projects,
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it can kind of create a bottom that stops the deflationary cycle.
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And that does often work, but unfortunately the Hoover Administration did not have a TARDIS.
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John Maynard Keynes' great work The General Theory of Employment, Interest and Money (he wasn't very good at titles)
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wasn't published until 1936, when the Depression was well under way.
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Venturing into the green nightmare of not-America for a moment, Herbert Hoover offered a global explanation
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in his memoirs for the global phenomenon that was the Great Depression.
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He claimed that its primary cause was World War One. And to be fair, the war did set the stage for a global economic disaster
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because of the web of debts and reparations that it created.
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Like, under the Versailles Treaty, Germany had to pay $33 billion in reparations mostly to France and Britain,
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which it couldn't pay without borrowing money from ... American banks.
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In addition the U.S. itself was owed $10 billion by Britain and France,
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some of which those countries paid back with German reparations.
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But then once American credit dried up, as it did in the wake of the stock market crash and the American bank failures,
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the economies of Germany, France, and Britain also fell off a cliff.
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And then with the largest non-U.S. industrial economies in total turmoil, fewer people abroad
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could buy American products, or French wine, or Brazilian coffee,
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and world trade came to a halt. And then when what the world really needed was more trade,
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America responded by raising tariffs to their highest levels ever with the Hawley Smoot tariff,
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a law that was as bad as it sounds.
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The idea of the high tariff was to protect American industry,
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but since Europe responded with their own high tariffs,
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that just meant that there were fewer buyers for American goods, less trade, fewer sales, and ultimately fewer jobs.
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So what did Hoover do? Not enough. It's important to remember that the American government is not just the President.
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Hoover couldn't always get Congress to do what he wanted, but his political ineptitude was not particularly surprising
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because the first elected office
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that he ever held in his life was President of the United States.
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Like, let's take the foreign debt issue. Hoover proposed a moratorium on intergovernmental debt payments
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and he actually got Congress to go along with it, but it wasn't enough,
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mainly because the central bankers in Europe and America refused to let go of the gold standard,
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which would have allowed the governments to devalue their currency and pump needed money into their economies.
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And when Britain, rather heroically I might add, did abandon the gold standard in 1931 and stopped payments in gold,
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the U.S. did not follow suit,
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which meant that world financial markets froze up even further.
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Like this is a little bit complicated, but if you and I have always used Cheetos as currency to exchange goods and services
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and one day I announce that we can't do that anymore
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because it doesn't give us the flexibility that we need to pull ourselves out of this deflationary spiral.
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If I don't also agree to abandon Cheetos,
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then it's going to be a total disaster, which it was.
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And then, even worse, the Fed raised its discount rate, making credit even harder to come by.
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By the end of 1931, 2,294 American banks had failed, double the number that had gone under in 1930.
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Now, it's easy to criticize poor Herbert Hoover for not doing enough to stop the Great Depression,
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and he probably didn't do enough,
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but part of that is down to our knowledge of what happened afterward: the New Deal.
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That FDR at least tried to do something about the Depression makes us forget that when Hoover
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was president, orthodox political and economic theory counseled in favor of doing nothing.
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And at least Hoover didn't follow the advice of his treasury secretary who,
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according to Hoover anyway, argued that that the solution was to "liquidate labor, liquidate stocks,
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liquidate the farmers, liquidate real estate," which sounds like the worst milkshake ever.
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Instead, Hoover believed that the best course of action was to "use the powers of government
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to cushion the situation"[2] and in a White House meeting he persuaded a large number
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of industrialists to agree to maintain wage rates.
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He also got the Federal Farm Board to support agricultural production,
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and got Congressional approval for $140 million in new public works.
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Overall, he nearly doubled the federal public works expenditures between 1929 and 1931. It just wasn't nearly enough.
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Because what Hoover didn't allow was for the federal government to take over the situation completely.
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He relied primarily on private businesses and state and local governments to stimulate the economy,
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and that was insufficient.
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It's not surprising when you consider that in 1929, Federal expenditures accounted for 3% of our gross domestic product.
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Today it's more like 20%.
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So, it was just really hard to imagine the Federal government doing anything on such a large scale to address a national problem
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because it had never really done that much before.
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Hoover also hiked taxes as part of a plan to stabilize the banks by balancing the federal budget,
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providing confidence for foreign creditors, and stopping them from buying American gold.
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This would support bonds and also keep the federal government out of competition with private borrowers.
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The Revenue Act of 1932 passed Congress, but it didn't do much to stop the Depression.
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In fact, arguably it made it worse.
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Though ultimately, this dire situation forced Hoover into a truly radical move.
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In January 1932 he and Congress created the Reconstruction Finance Corporation,
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which was basically a federal bailout program that borrowed money
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to provide emergency loans to banks, building-and-loan societies, railroads, and agricultural corporations.
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The problem was that by 1932, bailing out the banks wasn't enough and the Great Depression started to take shape.
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By early 1932 well over 10 million people were out of work, 20% of the labor force.
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And in big cities the numbers were even worse, especially for people of color.
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Like, in Chicago, 4% of the population was African American, but they made up more than 16% of the unemployed.
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Although Hoover famously claimed that no one starved, which was a little bit let-them-eat-cake-y,
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people did search trash cans for food, and many Americans were forced to ask for relief.
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Hoover's response was to try to encourage private charity
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through the unfortunately acronymed, President's Organization on Unemployment Relief. Or "POUR."
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New York City's government relief programs rose from $9 million in 1930 to $58 million in 1932,
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and private charitable giving did increase from $4.5 million to $21 million,
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and that sounds great
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until you realize that the total of $79 million that New York City spent on relief in 1932 was less than ONE
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MONTH's lost wages for the 800,000 people who were unemployed.[3]
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Oh, it's time for the Mystery Document? I hope it's a break from the unrelenting misery. Probably not.
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The rules here are simple. I guess the author of the Mystery Document and then usually fail and get shocked with the shock pen,
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which is a real shock pen no matter what you people say.
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Alright, what do we got here?
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"We sit looking at the floor. No one dares think of the coming winter.
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There are only a few more days of summer. Everyone is anxious to get work to lay up something for that long siege of bitter cold.
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But there is no work. Sitting in the room we all know it.
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This is why we don't talk; much. We look at the floor dreading to see that knowledge in each other's eyes.
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There is a kind of humiliation in it. We look away from each other.
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We look at the floor. It's too terrible to see this animal terror in each other's eyes."
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I mean, Stan, unemployment was 25% and this could be literally any of those people.
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I'm gonna guess that it's a woman, because men were usually on the road trying to find work
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while women would go to these offices to look. I - I mean it could be many - I have no idea.
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Ummm Janet Smith. Meridel Le Sueur? She's a good writer. Maybe we should hire her.
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AH!
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So, often at Crash Course we try to show how conventional wisdom about history isn't always correct.
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But in the case of the hardships experienced during the Great Depression, it really is.
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The pictures of Dorothea Lange and Walker Evans, and Steinbeck's description in Grapes of Wrath
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of Okies leaving the dust bowl in the usually vain hope of a better life in California,
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they tell the story better than I can.
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Thousands of Americans took to the road in search of work and thousands more stood in breadlines.
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There were shantytowns for the homeless called Hoovervilles,
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and there were protests, like the Bonus March on Washington by veterans seeking an early payment of a bonus due to them in 1945.
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A lot of the debate around the Great Depression revolves around the causes,
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while still more concerns the degree to which the federal government's eventual response,
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the New Deal, actually helped to end the Depression.
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Those questions are controversial because they're still relevant. We're still talking about how to regulate banking.
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We're still talking about what the government's role in economic policy should be
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and whether a strong federal government is ultimately good for an economy or bad for it.
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And how you feel about the government's
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role in the Great Depression is going to depend on how you feel about government in general.
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That said, we shouldn't let our ideological feelings about markets and governments and economics
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obscure the suffering that millions of Americans experienced during the Great Depression.
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For generations of Americans, it was one of the defining experiences of their lives.
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Thanks for watching. I'll see you next week.
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Crash Course is produced and directed by Stan Muller, written by Raoul Meyer,
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and made with the help of all of these nice people. And it is possible because of your support through Subbable.
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These videos are only possible because of
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There's a link in the video info if you'd like to join those subscribers.
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Cool perks and stuff, but mostly educational video available for free to everyone forever.
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Thank you for watching and supporting Crash Course and as we say in my hometown,
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don't forget to be awesome...I'm gonna hit the globe! Nailed it.
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________________ [1] David Kennedy, Freedom From Fear: The
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American People in Depression and War 1929-1945. Oxford U. Press. P. 35
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[2] P. 52 [3] Kennedy, D. Freedom From Fear p. 88