## How an economic crisis from nearly a century ago continues to influence our world

The Great Depression represents one of the most severe economic collapses of the 20th century. It began in 1929 and marked entire generations. But what is fascinating is that its lessons still resonate today, shaping how governments and regulators respond to financial turmoil.

## An Unprecedented Fall: The Real Human Cost

When we talk about the Great Depression, it's not just about numbers. Unemployment reached devastating highs —in some areas it reached up to 25%—. Let's imagine this: one in four people without work, without income, without hope. Lines to obtain food stretched across entire cities. Families that had a solid wealth in 1928 found themselves begging for charity a year later.

Businesses disappeared by the thousands. Not only small neighborhood shops, but also established manufacturing companies, agricultural producers with generations of history, and financial institutions that seemed unbreakable. When demand evaporated, the entire economic structure collapsed downward like dominoes.

## Tracking the cracks: What went wrong?

Nothing happens in a vacuum. The Great Depression was the result of multiple simultaneous failures that reinforced each other.

### The crash of October 1929

On Wall Street, rampant speculation had created bubbles of valuations impossible to sustain. Investors —many financed with debt— had bet that prices would rise indefinitely. When confidence shattered in October 1929, remembered as "Black Tuesday," the market experienced a cascading fall. Millions lost their savings before they could react.

( The banking panic amplified the crisis

As savers got scared, they ran to the banks to withdraw their money. But here’s the problem: banks operated without effective deposit insurance or strict regulations. A failing bank meant entire communities lost their life savings. This wave of bank failures spread like wildfire, completely drying up credit lines and freezing any possibility of investment or consumption.

) Global trade collapsed

The crisis did not stay in the United States. European nations, already battered by the costs of World War I, saw their export markets contract brutally. Governments responded with protectionism — the Smoot-Hawley Tariff Act of 1930 was an emblematic example — hoping to protect their local industries. The result was the opposite: trade reprisals that sank global trade to unprecedented levels.

### An almost perfect vicious circle

With unemployment skyrocketing and uncertainty omnipresent, individuals and businesses cut expenses and investments. Less spending meant less demand, which led to more layoffs. The economy entered a destructive loop where each contraction fed the next, with no visible mechanism to break the cycle.

## The Global Transformation: When Everything Breaks

The Great Depression was not an American event. Its effects were felt from North America to Europe and beyond. Industrialized economies experienced monumental contractions that redefined their societies.

The cities were filled with the homeless. Community dining rooms became institutions. Widespread poverty generated extreme political discontent. In some places, this led to the rise of authoritarian movements, while in others it catalyzed reforms in democratic systems.

## From the Abyss Forward: The Solutions That Worked

The recovery from the Great Depression was not instantaneous. It required radical political innovation and, eventually, the extraordinary circumstances of a global conflict.

In the United States, President Franklin D. Roosevelt launched the New Deal — an ambitious set of programs designed to provide immediate jobs, restore confidence in the financial system, and reactivate demand. From public infrastructure projects to the creation of regulatory agencies to oversee markets and banks, the New Deal represented a fundamental shift in the philosophy of state intervention.

Other developed countries followed similar trajectories, introducing unemployment insurance, public pension systems, and social safety nets that did not exist before.

Then came World War II. Although war is never desirable, massive public spending on military production and infrastructure injected huge resources into weakened economies. Industrial production skyrocketed, unemployment fell dramatically, and economies finally resumed growth.

## The Lasting Legacy: Why the Great Depression Still Matters

The crucial thing is this: the Great Depression forever changed how governments think about economic stability.

Regulators implemented deep reforms. Deposit insurance was established to protect savers. Stock market transactions were subjected to strict oversight. Governments took on a more active role in macroeconomic management.

This shift in mindset—from a laissez-faire approach to a more interventionist one—was not accidental. It was a direct response to the massive suffering caused by the Great Depression.

Today, as we face financial turbulence, the decisions made by policymakers are directly or indirectly influenced by the lessons of nearly a century ago. The stabilization mechanisms we take for granted —from banking regulation to rapid crisis response— exist because the Great Depression showed what happens when they are lacking.

## Final Reflection

The Great Depression teaches us that economies, no matter how sophisticated, can collapse when multiple factors align incorrectly. But it also teaches us that intelligent political intervention and well-designed safety nets can make the difference between chaos and recovery.

It is a lesson that remains relevant in a financial world as interconnected as ours.