How Did The Great Depression Affect The Economy

In 1935, John Maynard Keynes wrote, “I believe myself to be writing a book on economic theory which will largely revolutionize,not, I suppose, at once but in the course of the next ten years- the way the world thinks about its economic problems.”(Minsky,2-3). Many people were strongly influence with Keynes general theory. The depression helped Keynes to have a clear understanding on how the economy operates and its reasonings behind this era. The great depression was the longest and most severe economic depression ever experienced by the industrialized Western world. The timing of the depression varied across the countries, but it mostly occurred in the 30’s. After World War I, the United States had become the major creditor and financier of

The central argument of of the general theory is that the level of employment is determined not by the price of labor as in neoclassical economics, but by the spending of money, Keynes argues that it is wrong to assume that competitive markets in the long run will bring full employment is the natural self-righting equilibrium state of a monetary economy.
Following the Keynesian paradigm, past Democratic Party-dominated Congress increased spending through the extension of unemployment benefits, the health care takeover, bailouts of financial institutions, bailouts of homeowners, increases in other entitlement spending and the funding of hundreds of billions of dollars for special interest projects. Since domestic consumer spending accounts for 2/3 of the U.S. economy, all this government spending should have spurred demand, which in turn should have created more jobs to meet the production requirements to meet this new demand. This demand-side economics has not created jobs. Keynesian theory looks good on paper and it would be the magic spell for flagging economies everywhere if it didn’t have this one glaring logical fallacy. It overlooks the fact that the government can’t inject money into the economy without first taking it out. The theory only looks at half of the