To keep our economic situation today in perspective, here is a guide. At the depths of the Great Depression: Of all households, roughly:
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For 25%: all wage-earners were long-term unemployed and their households were destitute;
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For 25%: wage-earners were part-time employed, under-employed, or sporadically employed, and their households were in poverty but not destitute;
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For 25%: wage-earners were employed and their household conditions were about the same as before the depression;
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For 25%: wage-earners were employed and their households were doing better than before the depression.
The devastation of the depression was broad but limited, because deflation--lower prices--made it possible for households with employed members to do okay and, in some cases, to do better. For instance, some households improved their living conditions because they were able to move into better housing (because so many households lost their homes and home prices were so low through foreclosures).
Extreme economic distress was spread unevenly throughout the nation. Southern small farms were devastated and took a lot of federal aid. Blacks were the hardest hit racial group. Some big cities were also devastated. Over half of all emergency relief went to New York City,the nation's largest city.
The New Deal never ended the Great Depression, though it prevented the collapse from spreading like a contagion beyond its 1933 limits. That needs to be understood. Government welfare saved lives by preventing starvation, e.g., but government welfare did not bring prosperity. The economy began to rebound when war broke out in Europe, creating a market for American military manufacturers--ships, airplanes, tanks, guns, ammunition, clothes, food. Britain, the Soviet Union, France, and China began to buy American weapons and munitions through Lend-Lease. When the US entered the war in 1942, the American economy was unthrottled and prosperity returned (though consumption was restrained by defense policy limits on consumer goods). It was not that war itself brought prosperity; it was the unleashing of the economy. The war required that as much food and goods be produced as Americans could produce by working 24/7. It was agricultural and industrial productivity that made the nation prosperous. That is the lesson for today and a lesson that Obama and his economic advisors need to learn.
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