c) lots of social problems and the millions of interpersonal tragedies that stem from all the unnecessary unemployment.
He therefore concluded that it's much better to have the government come in and 'interfere' in the economy in a variety of ways, so as to obtain the benefits of capitalism without having to deal with the horrific costs and problems that the Great Depression was bringing to us in giant waves.
So, ever since the 1930s there has been a debate between those who want government to stay out of the picture and let the system function on its own, and those who say that's way too dangerous, way too inefficient, and, above all, way too costly to the great bulk of the population. Plus, if the human suffering is sufficiently widespread and severe, there is always the danger that people will demand the overthrow of capitalism and its replacement by some form of socialism, i.e. government ownership of banks and major industries. (And in fact, this came very close to happening in the early 1930s.)
So what was America like when Keynesian economics prevailed?
We're talking about the period after the Great Depression that lasted until about 1980 when Reagan took the White House, at which time the top income tax rate was greatly reduced and the gap between the rich and everyone else began to widen dramatically.
In the early 1930s, because of the huge amount of unemployment, the government came in and established a minimum wage, which allowed the economy to be built up from below -- this had the effect of pushing most everyone else's wages upward too, especially those whose wages were not all that much higher than the minimum.
Also, the federal government undertook a direct spending program for hiring many millions of the unemployed who could not find jobs in the private sector because those jobs were simply not there. These newly created jobs were those that had to do with improving our transportation system, our schooling system, and all other things that would help our economy start to grow again. As a result of getting these jobs, thanks to government 'interference,' there were millions of additional people earning money and, most importantly, spending that money, thereby creating new consumer demand as well as the new jobs that resulted from that additional spending.
Most Americans could not afford to buy homes because of the Great Depression -- the banks were reluctant to loan money to virtually everyone who needed a loan for that purpose. So the gov't stepped in again, and created the Federal Housing Authority (FHA), (which later became Fannie Mae and Freddy Mac), so as to guarantee loans from banks to those borrowers who then became homeowners.
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