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In February 1933, President Herbert Hoover reviewed the past four years of his administration. He had met a stock market crash and a recession that worsened into the Depression with actions out of the playbook of Republican "orthodoxy": balanced budgets, tax reduction, protectionism, and community relief based on volunteerism. Yet as the Depression deepened, Hoover pivoted toward policies that pushed the limits of his own philosophy: debt financing of fiscal deficits, government investment in private enterprises, social relief, debt moratoriums, and public works spending to promote employment. None of these actions had halted the worsening economic news. In November 1932, New York governor Franklin D. Roosevelt defeated Hoover in the presidential election. Now, in the interregnum before the transfer of office on March 4, 1933, economic conditions turned suddenly worse. Consumers and business leaders deferred spending until the new administration outlined its policies. Hoover sought Roosevelt's support for policies and actions to address the crisis. What should Hoover do or say to elicit that support? The answers lay in careful diagnosis of the problems and prioritization of remedies. Opinion was divided on the question of whether demand shocks or supply shocks had caused the Great Depression—each would dictate different policy actions. What was the appropriate diagnosis? What should be the remedies? The A case presents the dominant narrative; a suggested B case provides correspondence between Hoover and Roosevelt. This case set has been taught successfully in both in-person and online classes at Darden.
This case serves as the basis for student discussion of the history of the US Great Depression from 1929 to 1933. The narrative enables students to: (1) Assess the historic shift in government policy regarding economic crises, from orthodoxy to activism and intervention; (2) Review the self-reinforcing dynamic of the debt-deflation cycle, in which information asymmetries, connectivity among financial institutions and markets, and feedback loops fed the crisis; (3) Consider the role of "shocks" that triggered and amplified the decline, and discuss the "demand shocks" view of underconsumption and the "supply shocks" view of interruption of key inputs to production, such as credit and labor; (4) Explore errors of policy that contributed to the depth and duration of the Depression; (5) Weigh policy choices among strategies of reform, relief, rescue, and recovery, assess trade-offs among these strategies, and recommend a prioritization among them.