Notes on 1920s–1930s US Economy: Roaring Twenties, Depression, New Deal, and Social Security

Roaring Twenties and Pre-War Context

• Goldman’s expansion described as spanning the 1920s–1950s; the period is labeled the Roaring Twenties.
• The term explained as a pun on growth: the board asks, “What is roaring? The economy.” The answer: the economy is roaring; money is being made hand over fist.
• Need to connect to what happened earlier (before the period covered by the book): look back roughly ten years prior to this era; the book doesn’t cover everything, so students must make connections on their own.
• Pre-WWI world is characterized as multipolar: many powerful countries, not one dominant power.
  • On the board are countries (explicitly including Russia and Austria-Hungary among others); there isn’t a single superpower in navy or economy yet.
  • The idea of “poles of power” means several nations share significant influence.
• George Washington’s admonition about foreign entanglements: avoid European wars and entanglements; yet the United States supplied both sides in World War I.
• Economic trajectory 1914–1919 vs. competitors:
  • US economy: moving upward.
  • Economic competitors: moving in the opposite direction.
• 1913 Sixteenth Amendment (income tax) and its impact on financing for the US during and after the war.
• Military conscription and human capital: in 1913–1919, the draft drew 20–30 year olds into war, depleting human resources in other countries and setting the stage for US gains post-war.
• Geographic and infrastructural advantage: the US is on a separate continent, so much of European devastation doesn’t directly destroy domestic infrastructure.
• Recessionary cycles and resilience:
  • Recessions occur relatively infrequently in the description (about every 3–4 years).
  • Recession defined as the economy slowing down for two consecutive quarters; the speaker notes “we’re starting to go into a recession now” in the current moment, and explains oil and natural gas production helps mitigate impact in some states.
• The 1920s economy: postwar devastation in other countries creates demand for US goods.
• 1928 presidential election: Herbert Hoover becomes president; described as potentially one of the best presidents because the economy is roaring.
• The stock market crash and the onset of the Great Depression (timeline and mood):
  • October 29, 1929: stock market crash.
  • The crash leads to a prolonged economic downturn lasting nearly ten years.
  • Blame for the Depression historically falls on Hoover, influencing the 1932 election outcome for the Democrats.
• The first “shoe” of the crash: early signs include private investors selling stock and rumors spreading; the public loses confidence and begins selling.
• The second “shoe” of the crash: lack of regulatory mechanisms for the stock market—no automatic circuit breakers or safeguards to prevent a total collapse; the trading floor could continue to operate without built-in dampeners.
• The political dynamic: when the economy tanks, the public blames the sitting president, but presidents do not have a magical switch to instantly fix the economy.

Great Depression and New Deal

• Unemployment in the 1930s: about 25% unemployment rate.
• FDR’s response: The New Deal expands the role of government to stimulate the economy and restore confidence.
• Key New Deal program: Tennessee Valley Authority (TVA) – a massive infrastructure project aimed at rural development, job creation, and regional electrification.
  • Dams constructed in the TVA bring hydroelectric power to rural areas, generating electricity and spurring other infrastructure development (roads to the dam sites, etc.).
• Social welfare focus: two vulnerable groups emphasized—children and the elderly.
  • The aim is to support those who cannot easily obtain jobs in a slowed economy and to improve welfare conditions (orphanages and related care).
• Social Security Act (1935): a cornerstone of the New Deal welfare state.
  • Concept: a government-backed pension system, described as a “forced savings” program.
  • Mechanism: payroll tax of 6.5 ext{ 0} out of the employee’s paycheck, with an equal 6.5% contributed by the employer, totaling $13 ext{ extendash}\%$ going into the Social Security fund.
  • Benefits: when an individual reaches retirement age (originally 65), they receive a Social Security payment; the benefit amount depends on years and earnings history.
  • Early structure (1935): represented the workers contributing in 1935 and those who would eventually receive checks; initially, few checks existed because most people weren’t enrolled yet.
• Longevity and retirement planning: improvements in health and longevity mean retirees may rely on longer-term income; this creates pressure on retirement planning and Social Security.
• Personal commentary from the speaker on retirement planning:
  • Emphasizes multiple income streams and planning for retirement as a practical reality (e.g., a personal mention of a four-strand retirement approach).
  • Mentions a separate state-based teachers’ retirement system (TRS) as part of a broader portfolio of retirement income.
• Demographics of Social Security funding and sustainability concerns:
  • By the 1950s (roughly ten years after the 1940s era reference), the number of beneficiaries grows relative to contributors, creating funding pressures.
  • Illustrates the “boxes” metaphor: one box for those contributing to the system, another for those drawing benefits; over time, the box of beneficiaries grows larger than the box of contributors.
  • This potential imbalance could threaten Social Security’s solvency if current policies persist.
• Policy responses and debates:
  • One approach to sustain Social Security is to raise the tax rate (e.g., increasing the payroll deduction beyond $6.5 ext{ extendash}6.5 ext{ extendash}13 ext{ extendash}$ total) or to adjust the eligibility age and benefit structure.
  • Critics (employers and taxpayers) resist higher payroll taxes, while supporters argue it’s necessary for solvency and social protection.
• Eligibility age and reform timelines:
  • The traditional retirement age has shifted from 65 to 67; future changes could push to 75 or beyond depending on longevity trends and funding stability.
  • If people live longer, the system needs to be funded for a longer period; changes can include delaying benefits, increasing contributions, or modifying benefits.
• Practical implications for individuals:
  • Many people will rely on multiple streams of income; planning for retirement is essential to maintain living standards.
  • Employer-based and government pensions, plus private savings, investments, and other sources, all contribute to a diversified retirement portfolio.
• The role of technology and longevity:
  • Advances (e.g., in health and medical technology) can extend lifespans, making longevity a central consideration for retirement planning and public policy.

Key Concepts and Terms

• Roaring Twenties: a period of rapid economic growth and widespread prosperity in the 1920s, contrasted with the later downturn.
• Multipolar world: a international system with several powerful states rather than one dominant power.
• Foreign entanglements: cautions from George Washington about becoming involved in European wars or entanglements.
• Stock market crash: the October 1929 downturn that precipitated the Great Depression.
• Great Depression: a decade-long economic downturn with high unemployment and widespread hardship.
• New Deal: FDR’s program of public works, social welfare, and reforms designed to revive the economy.
• Tennessee Valley Authority (TVA): a major New Deal project creating dams, electricity, and jobs in rural areas.
• Social Security Act (1935): the cornerstone of the American welfare state, creating a national retirement program funded by payroll taxes.
• Forced savings: the idea that workers’ payroll contributions are taxed and saved to fund future retirement benefits.
• Full retirement age vs. later retirement age: policy discussions about when people should begin drawing Social Security.
• TRS (Teacher Retirement System): a state-based pension program for educators.
• Demographic balance in Social Security: the growing gap between contributors and beneficiaries due to aging and longevity.

Formulas and Numerical References

• Recession definition: two consecutive quarters of negative growth. ext{Recession} ext{ occurs if } ext{GDP growth}Q1 < 0 ext{ and } ext{GDP growth}Q2 < 0
• Unemployment rate (1930s Great Depression): $ext{Unemployment rate} \,\approx\, 25\%$
• Social Security payroll tax contributions (1935–present concept): Employee contribution: $6.5\%$; Employer match: $6.5\%$; Total to Social Security fund: $13\%$
• Retirement age shifts: Historically $65 \rightarrow 67$ (with ongoing debates about extending further to $75$ or longer)
• Longevity and planning (conceptual): Long life expectancy increases the number of years retirees draw benefits, impacting funding needs.

Connections to Broader Principles and Real-World Relevance

• Historic pattern: major wars and economic shocks reshape national policy, triggering welfare-state expansions like the New Deal and Social Security.
• Government’s role in crisis: the Great Depression catalyzed a dramatic expansion of federal government functions in public works, social welfare, and regulation.
• Economic resilience and risk management: events illustrate the importance of diversification (in retirement income) and of structural reforms to stabilize markets and social safety nets.
• Ethical and practical implications: balancing social protection with tax burden and business costs; intergenerational equity in funding social programs; accountability for long-term sustainability of retirement systems.
• Real-world takeaways for students: the value of retirement planning, diversification of income sources, and awareness of how public policy can affect personal finances (e.g., changes to Social Security eligibility and funding).