Describe the Great Depression.
The great depression refers to a time in the history of the industrialized world between 1929 and 1939 when it experienced the worst downturn in the economy. The great depression inc consequent with World war II signified the end of the second American republic and the institution of the third (Lind, 10). The great depression commenced was ushered in by the depression of bond values beginning with the bonds ion the real estate markets and followed by foreign bonds and by 1929 it had spread to land bonds by 1931(Friedman and Schwartz, 100). The shrinking of values bonds threatened the entire banking structure starting with the large city banks. Money stock, prices, and output in America fell together in the first five years of the crisis period. From mid-1931 to kid 1832 alone, value bonds from railroads declined by approximately 36% while public utility binds declined by 27%, foreign binds by 45%, industrial bonds by 22% and the US government security bonds also declined by 10% (Friedman and Schwartz, 100).
Monetary forces caused the great depression since if the crisis had been caused by nonmonetary forces such as productivity or independent expenditure, the exchange rates systems elected by different countries would be immaterial. The associations between prices and output behaviors, monetary policies and exchange rate regimes among nations indicate that monetary factors underlined the great depression across the globe (Freidman and Schwartz, 240). Before 1929, the banking and finance systems doing well. Everyone from richest to the low-level workers was investing in stock bonds in Wall Street such that the industry was growing rapidly and by 1929 it reached its peak. Issues such as unemployment and low wages were already characterizing the economy. Banks were having a hard time liquidating assets for cash loans, and they would only cater to all deposit by multiple contractions of assets. Any bank visits justified banks the quality of assets they held regardless of the amount. Banks thus had to dispose the assets in the markets at one time causing a decline in their market value causing disruptions in the capital lending process and ultimately the suspension of banks as opposed to default loans and dong issues (Friedman and Schwartz, 100). Buyers stopped spending, and unsold stocks increased in the market reducing production significantly. Pressure developed among investors and they disposed of too much stock such that the stock market crashed by the end of 1929. The shares sold at worthless values and some at lose and people who had made purchases on credit fell into debt. A period of deflations and financial banking crises were evident beyond the US in Germany, Hungary, and Austria among others. The banking system weakened in the great depression and further in World War II (Friedman and Schwartz, 240). Nonetheless, the Great Depression and the world war II led to the sharp rise in productivity in the 1920s to the 1950s (Gordon.
Describe the current conditions of inequality in the United States.
Inequality is primarily characterizing the current conditions in the United States, and they are decreasing growth in real disposable income under the productivity growth rate. Inequality in the US typifies itself in demographics, education, and incomes among other areas. Gordon identifies that inequality in the US has been on the increase since the 1970s. The inequality has risen gradually directing a greater portion of the US productivity to higher income distribution. The inequality evident in the US is as a result of a wide range of factors. Firstly, the economy of the US has always been characterized by regulatory barriers to entry alongside the competition. The factors limit innovation since they facilitate extreme monopolies and monopolistic privileges in patent and copyright laws. Also, monopolies protect emerging service providers by licensing restrictions thus restricting professional choices and promote land scarcity by imposing regulations. The consequences are inequality in income levels, income distribution and land distribution and availability with lower levels of production (Gordon).
Increases in the stock market are also contributing to the increasing inequalities since the returns of capital accumulate disproportionally for the higher income earners and income brackets in the society (Gordon). As a result inequality not only increase, but the gap between top income groups and middle and lower income groups increases making it harder to close the gap. The effect is evident in the high-income gaps between income groups in the US. As long as the stock market keeps growing whc9h is the case in the current economic condition for the US, then eth margins of inequality will continue to expand. The real disposable income for the lower 99% of the income groups is thus pushed down to a level slightly above zero.
The inequality has adverse effects on the economic system especially when it is coupled with other headwinds such as education, demography. Even with the implementation of the forecast and probable fiscal adjustments, the real disposable income average will only grow at a slower rate than growth in the past. Countering overly strict and regressive regulations, policies and laws would help reduce the challenge of inequality prevailing in the US and consequently boost productivity levels. Taxing the higher income classes is another way to minimize the increasing inequality rates. The higher income groups take more form the income share as compared to what the same group took in the past 40 years and thus taxing them more will regulate inequality and reduce the income gaps significantly. Also, increasing the minimum wage level and expanding the credit for income–earned tax can channel more income to the people in the lower income levels and raise them further reducing the income gap. All in all, technology is promoting productivity in the US leading to improvement in the lives of the middle class. Automation is advancing, and manufacturing is growing to slash the cost for appliances. The increasing productivity is however also expected to increase inequality by shifting the occupational setup and increasing the cost of labor-intensive services (Lind, 2012).
Friedman, M & Schwartz, A (2012) The great contraction. Princeton University Press. Retrieved on 22 March 2019.
Gordon, R (2016). The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War. Princeton University Press. Retrieved on 22 March 2019
Lind, M (2012). Land of Promise: An Economic History of the US. Harper Collins Publishers. Retrieved on 22 March 2019