U. S. HISTORY

After the stock market crash in1929, economic conditions in the U.S.worsened into a deep depression. In-dustrial production slowed steadily,stock prices continued to fall, and un-employment went from 4 percent in1929 to 25 percent by 1933.

Economists have explained anumber of causes for what becameknown as the Great Depression. Oneis how the banking system operated.

Banking SystemThe banking system consisted of

privately owned banks chartered by

states or the federal government.Most banking regulation was done bythe states, but the federal governmentalso operated the Federal Reserve Sys-tem, commonly called “the Fed.” Allfederally chartered banks had to bemembers of the Fed.

The Fed was governed by 12 Fed-eral Reserve Banks in different re-gions of the country and a FederalReserve Board in Washington. Cre-

ated by Congress in 1913, the Fed’srole was to stabilize the bankingsystem, which had been plagued bynumerous bank panics in the 19thand early 20th century.

Bank panics could occur when de-positors believed a bank was in finan-cial trouble. They might hear that thebank had made bad investments, or arumor might circulate that bank em-ployees had embezzled funds. In apanic, depositors rushed to the bank todemand money from their accounts.Banks had some money on hand, butmost of their money was invested orlent to others. Thus even a sound bankmight have trouble paying its deposi-tors in a panic. A bank might try toborrow from another bank, but otherbanks might turn it down. Once apanic began in one bank, it couldeasily spread to others, as people grewunsure about the banking system. If abank closed, this would be a disaster

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Bill of Rightsin ActionSUMMER 2012 Volume 27 No 4

FACING CRISESThis edition of Bill of Rights in Action examines crises — past and present.The first article explores the banking crisis, not the recent one, but the one inthe 1930s. The second article examines the Munich agreement, made in theface of the threat of Nazi Germany. The last article looks at our currentunemployment crisis and the prospect for future jobs in the U.S.

U.S. History: FDR and the BanksWorld History: Munich and “Appeasement”Current Issue: Unemployment and the Future of Jobs in America

Guest writer Lucy Eisenberg, Esq., contributed the article on Munich. Ourlongtime contributor Carlton Martz wrote the other two articles.

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F D RAND THEBANKSTHE U.S. BANKING SYSTEM HADCOLLAPSED WHEN FRANKLIN D.ROOSEVELT (FDR) WAS INAUGURATEDPRESIDENT IN 1933. FDR ANDCONGRESS MOVED QUICKLY TORESTORE PUBLIC CONFIDENCE IN THEBANKS. THEN THEY ENACTED MAJORBANKING REFORMS.

ANXIOUS DEPOSITORS MILLED outside a bank early in the Great Depression.

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2 U.S. HISTORY

for its depositors since no national sys-tem of deposit insurance existed as itdoes today. Depositors would lose allthe money in their accounts.

One purpose of the Fed was toserve as the “lender of last resort.” Itwas a kind of bankers’ bank, lendingmoney to federally chartered banks inan emergency, such as a bank panic.

Another purpose of the Federal Re-serve System was to make sure that pri-vate banks chartered by the federalgovernment had enough currency (goldcoins and paper money) to meet theneeds of commerce. The Fed did this byregulating interest rates on borrowingto keep the money supply stable.

Fed’s Actions in the CrisisIn 1931 in the midst of the Great

Depression, the Fed acted to in-crease interest rates on savings ac-counts. The Fed wanted toencourage bank depositors to keeptheir money in banks and earn inter-est. Many depositors had been de-manding their money back in gold.

The United States was on the goldstandard. By law, paper money wasbacked by gold. The Treasury Depart-ment could only print money if thebanking system could back it withgold. If depositors took gold out of thebanks and hoarded it, the paper moneysupply would eventually shrink, de-pressing economic activity.

By raising interest rates, the Fedaffected consumer borrowing. Higherrates meant tighter credit and fewerpeople could qualify for loans, whichfurther reduced the amount of moneyin circulation.

Although designed as the “lenderof last resort” for banks, the Fed wasdesigned mainly to keep the big WallStreet banks stable. Almost all thebank panics in the past had occurredin New York City. Thus when banksbegan failing outside New York, theFed failed to loan money to help thetroubled banks. The Fed concluded itcould stop the banking crisis by justmaking loans to the Wall Streetbanks. This policy worked on WallStreet, but banks continued to fail allover the country. Since many of thesebanks were not members of the Fed-eral Reserve System, the Fed leaders

believed they had no responsibility tohelp them.

More than 5,000 banks closedtheir doors between 1930 and 1932.As a result, public confidence in thebanking system vanished.

The Banking Crisis of 1933In 1932, President Herbert Hoover,

a Republican, established the Recon-struction Finance Corporation (RFC).This was a government agency set upto make loans to all banks in troublewhether they were members of theFederal Reserve or not.

During the first months of 1933,however, increasing numbers of bankdepositors withdrew and hoardedpaper currency and gold. More banksfailed at a faster rate than the RFCcould save.

In early February, officials fromthe Hoover administration appealedto Henry Ford to lend $7.5 million toa large Detroit bank where he was amajor shareholder. Ford refused.Hoover’s officials, the RFC, and theFed argued over who should step upto save the bank. None of them did,and the bank failed.

The governor of Michigan then or-dered a state “bank holiday,” closingall the banks in his state. This pre-vented depositors from withdrawingtheir money. It was a drastic way toprevent banks from collapsing.

Several states had already closedtheir banks, and the Michigan bankholiday stampeded many other statesto do the same. The states acted in

their own interests, ignoring howtheir bank closures would affect therest of the country. By the time De-mocrat Franklin D. Roosevelt was in-augurated president in March 1933,every state in the nation had declaredsome form of bank holiday.

Between January and March1933, more than 4,000 banksthroughout the nation failed. Manywere small banks, often in farmareas, that were not members of theFederal Reserve. But even the WallStreet banks, kept afloat by loansfrom the Federal Reserve, were indanger due to the banking panic thatgripped the entire nation.

The Federal Bank HolidayPresident Hoover had considered

declaring a bank holiday to put theprocess of reopening the banks in fed-eral hands. He doubted, however, thathe had the legal authority to do this,so he did not act.

Two days after Roosevelt was inau-gurated president on March 4, he is-sued a proclamation that declared afederal bank holiday. The proclamationalso put the federal government incharge of reopening the banks.

The state and federal bank holi-days had harsh consequences formost people. They could not cashchecks or get money from their bankaccounts. Some had trouble buyingfood and other necessities. Others re-sorted to writing IOUs or barteringgoods.

FDR justified his action as neces-sary to stop future massive bankwithdrawals and hoarding of currencyand gold. If this were allowed to con-tinue, the circulation of money wouldstall, further crippling the economy.

Three days after his proclamation,FDR sent to Congress the EmergencyBanking Act. This act had beenmainly drafted by Hoover administra-tion officials, who had prepared ablueprint for closing and reopeningthe banks that the former presidentnever used.

The act laid out a schedule for re-opening the nation’s banks after Treas-ury Department examiners evaluatedtheir soundness. Strong banks wouldopen quickly. Weakened banks would

Roosevelt realizedwhat Hoover andmany others failedto see: The bankingcrisis was mainlyabout people’s lackof con@dence in

the banks.

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receive loans and shipments of FederalReserve Notes (paper currency). Insol-vent banks would be permanentlyclosed. The act also barred the exportof gold to foreign countries.

In one day, the solidly DemocraticCongress passed the Emergency Bank-ing Act, and FDR signed it. This firstNew Deal law legalized Roosevelt’sproclamation and gave him unheard ofauthority over the nation’s privatelyowned banking system.

The First ‘Fireside Chat’Roosevelt realized what Hoover

and many others failed to see: Thebanking crisis was mainly about peo-ple’s lack of confidence in the banks.

To restore their confidence, FDRdecided to speak to the people di-rectly over the radio.

On March 12 at 10 p.m., Roo-sevelt spoke live from the WhiteHouse to an estimated 40 millionAmericans across the country. A radioannouncer introduced him: “Thepresident wants to come into yourhome and sit at your fireside for a lit-tle fireside chat.”

“My friends,” the president began,“I want to talk for a few minutes withthe people of the United States aboutbanking. . . .” He adopted a conversa-tional tone and spoke in plain languageaimed at average Americans. He toldthem that he wanted to explain whathad been done, why it was done, andwhat the next steps would be to endthe banking crisis.

Roosevelt explained the bankingsystem in five sentences. He pointedout that “when you deposit money ina bank, the bank does not put themoney into a safe deposit vault.” In-stead, he said, “. . . the bank putsyour money to work to keep thewheels of industry and of agricultureturning around.”

He described how rushes onbanks to withdraw cash or gold werecaused by the “undermined confi-dence” of the public. He then gavehis reasons for declaring a bank holi-day and how the reopening of thebanks would work.

He promised that banks with“good assets” would reopen immedi-ately, and most of the others as soon

as they had been strengthened. Hesaid, “I can assure you, my friends,that it is safer to keep your money ina reopened bank than it is to keep itunder the mattress.”

He agreed that some bankerswere incompetent or dishonest andhad used depositors’ money for riskyspeculation and unwise loans. But, hecontinued, this was not true aboutthe large majority of banks.

“And so,” he said, “it became thegovernment’s job to straighten outthis situation and do it quickly.” Hecautioned that a few banks may neverreopen, and some individuals maylose their money.

Roosevelt concluded by appealingto the American people to have confi-dence again in the banking system:

We have provided the machineryto restore our financial system, it isup to you to support and make itwork. It is your problem no lessthan it is mine. Together wecannot fail.

In response to Roosevelt’s firstFireside Chat, tens of thousands ofletters arrived at the White House.Most expressed appreciation forRoosevelt’s frank and confidence-building speech.

When the first banks reopened,long lines of people formed outsidethem. These people were not with-drawing their money; they were de-positing their hoarded cash and gold.The Treasury Department hadplanned a massive printing of FederalReserve Notes to meet the banks’need for cash, but the printing wasnot needed since so many voluntary

deposits flowed back into the banks.On March 14, the Wall Street

Journal headline proclaimed, “Confi-dence Back as Banks Reopen.” Bythe end of the year, most banks wereoperating again and proved to besolvent or nearly so. Only 5 percentof the banks were closed perma-nently due to insolvency.

Separating Commercial andInvestment Banks

Public hostility toward all bankerswas high in 1933. Many calledbankers “banksters,” after Al Caponeand other well-known gangsters ofthe time.

Congress held hearings on “badbanking” practices. The hearingsturned up evidence that some bankshad used depositors’ money to specu-late in stocks and other risky deals toincrease bank profits.

Senator Carter Glass (D-Va.) be-came the chief critic of these practices.Glass believed that banks should notbe collecting deposits from people andspeculating in the stock market withtheir money. He sponsored a bill,backed by FDR, that required banks tochoose their form of banking. Bankscould be commercial (checking, sav-ings, and loans) or investment (stocks,bonds, and financing).

Glass argued that bankers shouldnot put their customers’ money in dan-ger through risky investment schemes.In fact, Glass blamed the Great Depres-sion on the intermingling of commer-cial and investment banking.

While bankers had applaudedFDR’s federal bank holiday, they

FDR AND PRESIDENT HOOVER rode together to Roosevelt’s first inauguration on March 4, 1933.

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strongly opposed his support of thebill to separate commercial and in-vestment banking. They complainedthat this would hinder raising capitalneeded to get the economy movingagain.

Wall Street banker Jack Morgan,son of the founder of J.P. Morgan & Co.,bitterly opposed FDR. Morgan calledhim the “crazy man in charge.” Butpublic opinion opposed the bankers.

The Glass bill prohibited commer-cial banks from buying and sellingstocks and bonds or engaging in mostother investment activities. Only in-vestment banks could fully do thesethings. Investment banks, however,could not receive deposits for check-ing and savings accounts.

Insuring Bank DepositsBetween 1930 and 1933, deposi-

tors lost more than $6 billion whenalmost 10,000 banks failed. In 1933,Rep. Henry Steagall (D-Ala.) champ-ioned a federal insurance program toprotect the money people depositedin their banks. Deposit insurance,Steagall argued, would also stop thepanic withdrawals of currency andgold that had plagued the bankingsystem for over a century.

At first, FDR strongly opposed fed-eral deposit insurance. He feared thatthe premiums banks would have topay into an insurance fund would crip-ple them. He also worried that if thebanks’ insurance fund had been usedup, the government would be stuckwith compensating insured depositors.

Another argument against federaldeposit insurance was that it wouldencourage bankers to act more reck-lessly. This would happen, the argu-ment went, because the governmentguaranteed a bank’s depositors theirmoney even if the banker made riskyloans that caused the bank to fail.

Economists call this situation anexample of a “moral hazard.” This oc-curs when people or organizations areprotected from the bad consequencesof their risky or unwise actions. In ef-fect, they are saved or bailed out.Thus, they may be encouraged to takea chance on repeating the same actionsin the future.

Despite Roosevelt’s opposition,

popular support for federal depositinsurance was overwhelming. Rep.Steagall introduced a bill that createdthe Federal Deposit Insurance Corpo-ration (FDIC).

The Steagall bill insured depositsup to $2,500. Any solvent bank (includ-ing state chartered banks) could jointhe FDIC. Member banks paid a smallpercent of their insurable deposits intoa common fund from which payoutswould be made to reimburse depositorsfor their losses in failed banks.

The bill by Sen. Glass separatingcommercial and investment banksand the one by Rep. Steagall insuringbank deposits were combined into theBanking Act of 1933. This is fre-quently called the Glass-Steagall Act,which FDR signed on June 16.

Banking Reforms ContinuedThe Banking Act of 1933 gave the

Fed more tools to control the moneysupply and set interest rates on bor-rowing by banks, which affect con-sumer loan rates. These measureswere designed to keep the moneysupply and prices stable.

Bankers continued to argue thatseparating their commercial and in-vestment functions limited their abilityto finance economic growth. Somescholars produced studies showing thatbanking abuses in the 1930s wereoverblown by Congress. Over the years,the Glass-Steagall Act was modified to

allow certain kinds of investmentbanking by commercial banks.

In 1999, a Republican Congressand Democratic president, Bill Clinton,repealed two key sections of theGlass-Steagall Act. This repeal elimi-nated most of the remaining barriersthat stopped commercial banks fromengaging in investment activities.

After the financial crash in 2008,however, some economists and politi-cians claimed the repeal of theGlass-Steagall provisions had led to areturn to high-risk speculation bylarge commercial banks. As a result,the banks faced failure and had to bebailed out by the U.S. government.

Others rejected this view. They ar-gued that the mortgage investmentproducts that brought on the financialcrisis were never regulated by theGlass-Steagall Act or were allowed be-fore the 1999 repeal took place.

Instead of restoring the Glass-Steagall regulations, Congressenacted a new rule that limited com-mercial banks’ trading in stocks andother investments for their own short-term profit.

The Federal Deposit InsuranceCorporation has been the least con-troversial of FDR’s big banking re-forms. His fears about federaldeposit insurance were never ful-filled. Today, the FDIC insures de-posits up to $250,000 (one accountper bank). During the Great Reces-sion from 2008 to 2011, the FDICmanaged the closing of about 400banks and made sure that depositorsdid not lose a penny from theirinsured accounts.

For Discussion and Writing1. What did FDR believe was the

main cause of the banking crisisin 1933? How did he try to solvethis problem? Do you think hesucceeded? Explain.

2. Why did Congress and FDR separatecommercial and investment banks?

3. What is a “moral hazard”? What isthe possible moral hazard of fed-eral deposit insurance? Even witha moral hazard, do you agree theFederal Deposit Insurance Corpo-ration is still a good idea? Why orwhy not?

MANY TIMES DURING HIS presidency, FDRaddressed the nation on radio in whatcame to be known as “fireside chats.”

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For Further ReadingAlter, Jonathan. The Defining Mo-ment: FDR’s Hundred Days and theTriumph of Hope. New York: Simon &Schuster, 2006.

Kiewe, Amos. FDR’s First FiresideChat: Public Confidence and the Bank-ing Crisis. College Station, Texas:Texas A & M University Press, 2007.

Moral HazardsThe existence of a possible

moral hazard does not meanan action should never be un-dertaken. It does mean thatone should balance the goodof the action against the possi-ble dangers or unintendedconsequences.

Meet in small groups toevaluate the following govern-ment actions. First, identifyone or more possible moralhazards in the action. Second,decide if you agree with thegovernment action despite themoral hazard(s) involved. Fi-nally, explain your decisions tothe rest of the class.

Government Actions1. To prevent the collapse of the

U.S. banking system, the gov-ernment makes loans to bigbanks that invested heavily inpackages of carelessly ap-proved home mortgages.

2. Congress passes a law thatreduces the principal onmortgages of homeownerswhen the current marketvalue of the home is muchless than they owe (so-called“underwater mortgages”).

3. The government makesloans to poorly managedauto companies to keep theindustry alive in the U.S.and to save jobs.

4. Congress extends unem-ployment insurance pay-ments to those who havebeen out of work for morethan six months.

ACTIVITY

Standards Addressed

FDR and the BanksNational U. S. History High School Standard 24: Understands how the New Deal addressed the GreatDepression, transformed American federalism, and initiated the welfare state. (1) Understands thefirst and second New Deals . . . . (5) Understands the significance and ideology of FDR andthe New Deal (e.g., . . . how the New Deal changed the relationship between state and fed-eral government)

National Economics High School Standard 8: Understands basic concepts of United States fiscal policyand monetary policy. (5) Knows that monetary policy refers to actions by the Federal Reserve Sys-tem that lead to changes in the amount of money in circulation and the availability of credit inthe financial system. (8) Understands that when banks make loans, the money supply increases,and when loans are paid back, the country’s money supply shrinks

California History Social Science Standard 11.6: Students analyze the different explanations for theGreat Depression and how the New Deal fundamentally changed the role of the federal government.

(2) Understand the explanations of the principal causes of the Great Depression and the stepstaken by the Federal Reserve, Congress, and Presidents Herbert Hoover and Franklin DelanoRoosevelt to combat the economic crisis. (4) Analyze the effects of and the controversies aris-ing from New Deal economic policies and the expanded role of the federal government in so-ciety and the economy since the 1930s . . . .

California History Social Science Standard 12e.3: Students analyze the influence of the federal gov-ernment on the American economy. (4) Understand the aims and tools of monetary policy andtheir influence on economic activity (e.g., the Federal Reserve).

MunichNational World History High School Standard 39: Understands the causes and global consequences ofWorld War I. (8) Understands the human cost and social impact of World War I . . . .

National World History High School Standard 40: Understands the search for peace and stabilitythroughout the world in the 1920s and 1930s. (1) Understands treaties and other efforts toachieve peace and recovery from World War I . . . .

National World History High School Standard 41: Understands the causes and global consequences ofWorld War II. (1) Understands motives and consequences of the Soviet nonaggression pactswith Germany and Japan (e.g., the Munich Agreement in 1938 . . . .) (6) Understands the ar-gument that the severity of the Treaty of Versailles caused unavoidable revolt against the na-tions that imposed it.

California History Social Science Standard 10.6: Students analyze the effects of the First World War. (1)Analyze the aims and negotiating roles of world leaders, the terms and influence of the Treaty ofVersailles . . . . (2) Describe the effects of the war and resulting peace treaties on populationmovement, the international economy, and shifts in the geographic and political borders of Eu-rope and the Middle East. (3) Understand the widespread disillusionment with prewar institu-tions, authorities, and values that resulted in a void that was later filled by totalitarians.

California History Social Science Standard 10.8: Students analyze the causes and consequences ofWorld War II. (2) Understand the role of appeasement, nonintervention (isolationism), and thedomestic distractions in Europe and the United States prior to the outbreak of World War II.

JobsNational High School Economics Standard 5: Understands unemployment, income, and income distri-bution in a market economy. (1) Understands that personal income is influenced by changes inthe structure of the economy, the level of gross domestic product, technology, governmentpolicies, production costs and demand for specific goods and services, and discrimination.(6) Understands that the standard measure of the unemployment rate is flawed (e.g., it doesnot include discouraged workers, it does not weigh part-time and full-time employment dif-ferently, it does not account for differences in the intensity with which people look for jobs).(7) Understands that many factors contribute to differing unemployment rates or various re-gions and groups . . . . (9) Understands frictional, seasonal, structural, and cyclical unem-ployment and that different policies may be required to reduce each.

California History Social Science Standard 12.4e: Students analyze the elements of the U.S. labormarket in a global setting. (1) Understand the operations of the labor market . . . . (2) Describethe current economy and labor market, including the types of goods and services produced,the types of skills workers need, the effects of rapid technological change, and the impact ofinternational competition. (3) Discuss wage differences among jobs and professions, usingthe laws of demand and supply and the concept of productivity. (4) Explain the effects of in-ternational mobility of capital and labor on the U.S. economy.

Standards reprinted with permission: National Standards © 2000 McREL, Mid-continent Research for Edu-cation and Learning, 2550 S. Parker Road, Ste. 500, Aurora, CO 80014, (303)337.0990.

California Standards copyrighted by the California Dept. of Education, P.O. Box 271, Sacramento, CA95812.

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Great Britain, France, and theUnited States (“the Allies”) foughttogether in the First World Waragainst Germany, Austria, and theirallies. It was a horrible war, bringingdeath and destruction throughoutEurope. When the fighting ended in1918, more than 10 million militarypersonnel had died. The number ofcivilian deaths attributed to the warhas been estimated at 13 million, in-cluding deaths caused by starvationand disease. In France alone, about1.4 million people died in the war,including half of all French maleswho were between the ages of 20and 32 in 1914. Britain also sufferedterrible losses.

With the final victory in late1918, the victorious Allies blamedGermany and its allies for the war.In 1919, Britain and France — withItaly and the United States — assem-bled in Paris and forced a peacetreaty on Germany. The resultingTreaty of Versailles imposed a terri-ble price on the defeated nations.Territory that had been part of Ger-many and Austria before the warwas taken away to form new coun-tries, including Poland and Czecho-slovakia. The treaty also imposed anumber of strict conditions designedto punish Germany and destroy itscapacity to make war. These condi-tions included: • Limiting the size of Germany’s

army.• Banning a German air force.• Establishing a “demilitarized zone”

along the Rhine River in westernGermany where no German soldieror weapon was allowed.

• Requiring Germany tomake reparations tothe Allies — paymentsfor all the damage re-sulting from the war.The treaty conditions

caused great hardships in Germanyafter the war and humiliated theGerman people.

The United States decided toavoid another European war simplyby isolating itself. The Senate refusedto approve joining the League of Na-tions — an international peacekeep-ing body established when the warended in 1919. Congress also passedthe Neutrality Act, which forbade anyloans or the sale of munitions to anycountry involved in war.

War weary, throughout the 1920sand early 1930s, the Allies committedthemselves to preventing another warand its destructiveness. Great Britainand particularly France worked to en-force the Versailles Treaty and keep Ger-many weak. They negotiated andsigned treaties seeking to limit thebuild up of navies, a cause of the FirstWorld War.

In the 1920s, there was a positiveoutlook for international peace. In1925, Germany signed treaties at apeace conference in Locarno, Switzer-land, attended by representatives ofBritain, France, Italy, Belgium, Czecho-slovakia, and Poland. In a treaty withFrance and Belgium, Germany guaran-teed to respect their borders. In treatieswith Poland and Czechoslovakia, Ger-many agreed to change borders by arbi-tration only. In 1926, Germany alsojoined the League of Nations. Officially,Germany was committed to keeping

the peace and to settling any disputesthrough negotiation rather than force.Finally, in 1928, European powersjoined the United States in signing theKellogg-Briand Pact, which attemptedto outlaw war entirely.

With the coming of the Great De-pression in 1929, many in GreatBritain had come to believe that theFirst World War had been a mistakeand that their country had gainednothing from the war. Intellectuals,such as John Maynard Keynes, ar-gued that the Versailles Treaty hadbeen too harsh and was contributingto the economic turmoil. Many fearedthat another world war would beeven more horrible, as airplanescould devastate cities with aerialbombardment. Memories of the warwere still alive in 1933 when the Ox-ford Student Union debated a resolu-tion stating: “That this House will inno circumstances fight for its Kingand Country.” Arguing in favor of theresolution, a student stated: “The jus-tification urged for the last war wasthat it was a war to end war. If thatwere untrue it was a dastardly lie; if itwere true, what justification is therefor opposition to this motiontonight.” The resolution passed by275 votes to 153.

Undoing the TreatySince the 1920s, Adolf Hitler had

led the National Socialist German

BRITISH PRIME MINISTER NEVILLE CHAMBERLAIN(1869–1940) negotiated the Munich Agreement in 1938,which he believed would bring “peace in our time.”

MUNICH AND‘APPEASEMENT’JUST 20 YEARS AFTER THE END OF FIRST WORLD WAR, ONE OFTHE MOST DESTRUCTIVE WARS IN HUMAN HISTORY, EUROPE STOODON THE BRINK OF WAR AGAIN AS ADOLF HITLER’S GERMANYTHREATENED AN INVASION OF CZECHOSLOVAKIA. NEVILLECHAMBERLAIN, PRIME MINISTER OF GREAT BRITAIN, MADE THREETRIPS TO THE CONTINENT TO TRY TO NEGOTIATE PEACE WITH THEGERMAN DICTATOR. THOUGH HE WAS SUCCESSFUL IN THE SHORTRUN, HIS EFFORTS HAVE BEEN CRITICIZED EVER SINCE.

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Workers Party — the Nazi Party. Even before the Great Depression,Germany’s economy had sufferedthrough wild inflation and high levelsof unemployment causing great hard-ship and distress on the population.Hitler used this discontent in his rise topower, promising to fix the economy,shred the Versailles Treaty, and makeGermany strong again. He advocatedexpanding Germany’s borders andcleansing Germany of all Jews andother “racial enemies” of the state,who he falsely blamed for the lossof the war and for the country’seconomic woes.

Hitler’s promises earned him a sig-nificant following and in the 1930 elec-tions, Hitler’s Nazi Party won 18.3percent of the vote and 107 seats in theGerman parliament. With even greaterpopularity, in 1932 Hitler ran for presi-dent of Germany and came in secondwith 35 percent of the vote. Early in1933, he was appointed chancellor,and in the March parliamentary elec-tions, the Nazi Party won nearly 44percent of the vote and the largestnumber of seats. By 1934, through po-litical maneuvering and repression ofany oppression, Hitler had become ab-solute dictator of Germany.

Almost immediately Hitler began toviolate the Treaty of Versailles by in-creasing the size of the army and reacti-vating the Luftwaffe (air force). TheEuropean powers voiced only minimalprotest and essentially decided to ignorethat Germany was starting to rearm.

On March 7, 1936, Hitler again vio-lated the treaty by ordering the Ger-man army into the Rhineland, a50-mile-wide strip of Germany border-ing France. The decision to bringarmed troops into the Rhineland vio-lated both the Treaty of Versailles andthe Treaty of Locarno, which Ger-many had signed only 10 years ear-lier. It caused tremendous shock inboth Britain and France. Unsure ofhow to proceed, and unwilling tomobilize their armies, the Allies de-cided to appeal to the League of Na-tions. But the League had no militarypower and could only get an emptypromise from Hitler, who claimedthat “All Germany’s territorial ambi-tions have been satisfied.”

Public opinion in Great Britain gen-erally approved of the Allies’ responseto Germany’s sending troops into theRhineland, but some saw a great threatlooming. One strong spokesman forpreparing the military was WinstonChurchill (who later became primeminister of England). Churchill realizedthat if Germany was allowed to bringtroops into the Rhineland and buildfortifications along the border withFrance, it would then be free to moveto the east and attack some of the newstates created after the war, includingPoland and Czechoslovakia. On March26, 1936, Churchill spoke to the Houseof Commons about his concerns. “Fiveyears ago,” he said, “all felt safe . . .[and] all were looking forward topeace.” Now, he said, the Nazi regimehas gained new prestige; Germany willfortify the frontier opposite France, andall of central Europe will be in danger.

In 1937, Neville Chamberlain be-came prime minister of Great Britain.His prior government experience aschancellor of the exchequer gave himdeep experience in Britain’s economyand domestic matters, but he lackedexperience in foreign relations. Yet, hewould have to deal with the growingtensions in Europe.

The ‘Triumph’ at MunichAfter remilitarizing the Rhineland,

Hitler promised that Germany had nomore territorial ambitions. In March1938, however, he engineered atakeover of Austria called the “An-schluss.” He ordered the Wehrmacht,the German army, to march over theborder and seize control. After theAnschluss, Hitler’s next goal was totake over the Sudetenland, an area inCzechoslovakia with a large ethnicGerman population and near the

German border. A small country cre-ated in 1919 by the Treaty of Ver-sailles, Czechoslovakia was one of thefew democracies in Eastern Europe. Ithad strong industries, a well-trainedarmy, and fortifications on the moun-tainous border that separated it fromGermany. Czechoslovakia also had analliance with France dating back to1925 and another pact of mutual as-sistance with France and the SovietUnion. By the terms of these agree-ments, if Germany attacked Czecho-slovakia, France and the Soviet Unionwould come to its aid, and therewould be war throughout Europe.

The leader of a Nazi Party in theSudetenland claimed that the 3.5 mil-lion German speakers who lived in theregion were members of the Germanrace and were entitled to their own au-tonomous state. Hitler meanwhile or-dered his generals to draw up plans toinvade Czechoslovakia on October 1.

In May 1938, it seemed that Hitlerwas preparing to make an attack. TwoSudeten German motorcyclists wereshot in the Sudetenland. This gaveHitler a pretext to invade, and newspa-pers reported that German troops wereassembling near the Czech border.

The French believed that it wastime to stand up to Hitler and urgedBritain to be ready to resist. ButChamberlain did not agree. Chamber-lain thought he could “sit down at atable with the Germans and runthrough all their complaints with apencil” and get an agreement. SoChamberlain set out for Germany onSeptember 15, 1938, to meet withHitler. At the initial meeting, Hitlerdemanded the transfer to Germany ofall districts with a 50 percent or moreGerman-speaking population. Afterdiscussion with his Cabinet and theFrench prime minister, Chamberlainwas ready to agree to that demand.

When he flew back to Germanya week later, Hitler had changed hismind, saying, “I’m sorry, but thatwon’t do anymore.” Now the Ger-mans demanded the immediate oc-cupation of the Sudetenland andthat non-German speakers whowished to leave could only take onesuitcase with them. Hitler put hisdemands on paper and said that if

After remilitarizingthe Rhineland,Hitler promised

that Germany hadno more territorial

ambitions.

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8 WORLD HISTORY

they were not accepted, in “six dayswe will all be at war.”

Chamberlain then proposed an in-ternational conference to settle thematter. On September 29, Chamber-lain, Hitler, Prime Minister of FranceEdouard Daladier and Italian dictatorBenito Mussolini met in Munich with-out consulting Czechoslovakia. In theearly hours of September 30, theysigned an agreement.

The agreement provided thatthe German occupation would becompleted by October 16 andwould be supervised by an interna-tional commission. For his part,Hitler agreed to sign a piece ofpaper stating that Germany andBritain would use consultation todeal with any further disagree-ments and that it was their jointwish “never to go to war with oneanother again.”

With the Munich agreement,Britain and France accepted Hitler’sdemands, forcing a small nation toconcede territory to a major powerand depriving Czechoslovakia ofthe fortifications it had builtagainst German invasion.

Chamberlain returned to Eng-land in triumph waving the paperwith Hitler’s signature. Crowdscheered as he rode from the airportto Buckingham Palace, and againwhen he arrived home at DowningStreet. After a few minutes, headdressed the crowd stating that hehad come back with “peace withhonor,” and “I believe it is peace inour time.”

From Triumph to TragedyChamberlain was confident that

his policy of appeasement hadworked and would continue towork. A few days later, he told Par-liament that by working together,“the four great powers can find itpossible to agree on a way of carryingout a difficult operation by discussioninstead of force of arms . . . .” Otherswere less optimistic. The nextmonth, Churchill wrote in a Londonnewspaper, “By this time next yearwe shall know whether the policyof appeasement has appeased orwhether it has only stimulated amore ferocious appetite.”

As it turned out, the MunichAgreement led to war, not to peace.Soon after the agreement, Hitler bul-lied the government of Czechoslova-kia into giving up more territory toPoland and to Hungary. Six monthslater, on March 15, 1939, Nazi tanksrolled into Prague. Czechoslovakiawas no longer an independent coun-try, and the Munich Agreement wasdestroyed. It was now clear thatdiplomatic agreements signed byHitler had no value at all.

Public opinion had already shiftedon the likelihood of making peacewith Hitler. Information about Naziatrocities on November 9, 1939,known as Kristallnacht, when Jewish-owned shops, homes, and syna-gogues were pillaged and set on fire,outraged the British public. TheBritish Cabinet and military insistedon increasing the size of the armyand spending more on rearmament.

And Germany was making demandson Poland for more territory. In re-sponse, Britain announced on March31, 1939, that it would guaranteePoland against any attack byGermany, and the Polish-British Com-mon Defense Pact was formallysigned on August 25, 1939.

In August, the British guaranteewas put to the test. Letters were ex-changed between Hitler and Chamber-lain about the possibility of a peacefulsettlement concerning Poland, butChamberlain was determined to “carryout our obligations to Poland.”

On September 1, 1939, Germanyinvaded Poland, sending 57 army di-visions, supported by tanks and air-craft, across the border. The next day,Britain issued an ultimatum that itwould declare war unless Hitler with-drew his troops by 11 a.m. on Sep-tember 3. At 11:15 a.m., Chamberlaindeclared war. “Britain is at war withGermany,” he stated in a radio broad-cast, and “everything I have workedfor, everything that I hoped for, every-thing I believed in during my publiclife has crashed in ruins.”

The Judgment of HistoryAfter World War Two, politicians,

historians and the general public criti-cized the policy of “appeasement.” Itwas seen, in the words of one histo-rian, as being a “cowardly surrender toa threat of force.” Some also arguedthat Hitler was not prepared for war atthe time and that if he had been chal-lenged, he may well have backed awayfrom the use of force. As more evidencecame forward of Hitler’s atrocities andthe 6 million Jews killed in concentra-tion camps, many questioned how theAllies could have pursued the policy ofappeasement with Hitler. Chamber-lain’s name will always be associatedwith this disastrous policy.

Other historians are more sympa-thetic. They argue that Chamberlain’spolicy of trying to appease Hitler andavoid war was very popular in Britain,with the country in the midst of theDepression and memory of World WarOne still fresh. In addition, they pointout that Britain had no defense pactwith Czechoslovakia at the time ofMunich, nor was Britain prepared to

FOUR SIGNERS OF THE MUNICH AGREEMENT were (from left to right) British Prime Minis-ter Neville Chamberlain, French Prime Minister Edouard Daladier, German dictator AdolfHitler, and Italian dictator Benito Mussolini.

Wikim

edia C

ommons

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9WORLD HISTORY

confront Germany even if it hadwanted to. They credit Chamberlainwith learning from the experience andforming a pact to defend Poland anddeclaring war when Hitler attacked it.He was also a key player in re-armingBritain, especially in acquiring fighterplanes, which were so crucial to thecountry’s defense in 1940. EvenChurchill, the most prominent critic ofappeasement considered Chamberlaina man of steady and valuable judg-ment when he joined Churchill’swartime cabinet.

Still, the memory of the appease-ment policy echoes even today. Itserves as a warning that negotiationwith an aggressive state must be con-ducted through strength and notthrough mere hope of a positive result.

For Discussion and Writing1. How did the Treaty of Versailles

contribute to the rise of Hitler inGermany?

2. How did Britain and France try toassure peace after the First WorldWar? Why do you think theseefforts failed?

3. What events leading up to theMunich Conference might havedemonstrated that Hitler couldnot be trusted?

Foreign Policy AdvisorsImagine you are a foreign

policy advisor on the eve ofChamberlain’s trip to Munich.Working in small groups, pro-pose positions to inform theprime minister on the followingquestions supported by factsfrom the article. Be prepared toshare your positions with theclass.1. If we negotiate with Hitler,

is there any reasonablebasis for believing he willkeep his word?

2. Is there any reasonable ar-gument to be made thatCzechoslovakia should notbe represented at the con-ference?

3. Is it better to refuse to agreeto let Hitler take over theSudetenland on principleeven if we are not preparedto go to war if he does?

ACTIVITY

Sources FDR and BanksAlter, Jonathan. The Defining Moment: FDR’s Hundred Days and the Triumph of Hope. NY:Simon & Schuster, 2006. · “Bank Failure Brief.” FDIC. 27 Jan. 2012. URL: www.fdic.gov · Ben-ston, George J. The Separation of Commercial and Investment Banking: The Glass-Steagall Act Re-visited and Reconsidered. NY: Oxford U.P., 1990. · Chernow, Ron. The House of Morgan: AnAmerican Banking Dynasty and the Rise of Modern Finance. NY: Atlantic Monthly P., 1990. ·“FDIC Insurance Coverage Basics.” FDIC. 22 Aug. 2011. URL: www.fdic.gov · “The First FiftyYears, A History of the FDIC 1933-1983.” 1984. FDIC. 18 Jan. 2012. URL: www.fdic.gov · Hafer,R. W. The Federal Reserve System: An Encyclopedia. Westport, Conn.: Greenwood P., 2005. ·Kiewe, Amos. FDR’s First Fireside Chat: Public Confidence and the Banking Crisis. College Sta-tion, Texas: Texas A & M U.P., 2007. · “Moral Hazard.” Wikipedia. 9 Jan. 2012. URL:http://en.wikipedia.org · Rulison, Larry. “Walls Come Down.” Baltimore Business J. 26 Nov.1999. · Wicker, Elmus. The Banking Panics of the Great Depression. Cambridge: Cambridge U.P.,1996.

MunichChurchill, Winston. The Gathering Storm. Boston: Houghton Mifflin, 1948. · Gilbert, Martin.The Roots of Appeasement. London: Weidenfeld & Nicolson, 1966. · Manchester, William.The Last Lion. NY: Dell, 1983. · McDonough, Frank. Neville Chamberlain, Appeasement,and the British Road to War. Manchester: Manchester UP, 1998.

Unemployment and JobsAtlantic magazine articles: “Can the Middle Class Be Saved?” 9/11. · “How a New Jobless EraWill Transform Am.” 3/10. · “Making It in Am.” 1–2/12. ·|· Clifton, J. Coming Jobs War. NY:Gallup Pr., 2011. · “Census: Recession Turning Young Adults into Lost Generation.” Huff. Post.9/22/11. · “Decline of the Working Man.” Economist. 4/28/11. · “Econ. Impact of the Achieve-ment Gap in Am. Schools.”4/09. McKinsey on Society. · “Econ. that Works.” 6/11. McKinseyGlobal Inst. · “Education, Demand, and Unempl. in Metropolitan Am.,” 9/11. Brookings Inst. ·“Evolving Structure of the Am. Econ. and the Empl. Challenge.” 3/11. Council on For. Rel. ·“Face of an Am. Lost Generation.” Nation. 10/5/10. · Federal Reserve Bank Reports: “Inside theFOMC.” 8/17/10. FRB of Minn. · “Labor Market in the Great Recession.” 10/11. FRB of SF. ·“New Evidence on Cyclical and Structural Sources of Unempl..” 5/11. FRBank of SF. · “FiveLong-Term Unempl. Questions.” 2/1/12. Pew Fiscal Analysis Init. · “Globalization and Un-empl..” For. Affairs. 6//11. · Goldin, C. et al. Race Betw. Education and Technology. Cambridge,Mass.: Belknap Pr., 2009. · “Good Jobs Deficit.” 7/11. Nat. Empl. Law Project. · “Is the Unempl.Problem Cyclical or Structural?” CBS Money Watch. 8/5/10. · “Job Loss in the Great Recession.”5/4/11. Soc. Sci. Res. Net. · “Key to Job Growth.” Wash. Post. 3/12/11. · L.A. Times articles:“Am.’s Army of Jobless.” 11/30/11. · “College: A Smart Choice.” 8/15/11. · “Latinos Gain asEcon. Picks Up Pace.” 2/6/12. · “Maj. of New Jobs Have Low Pay.” 7/27/11. · “Men of ColorFalling Behind.” 6/21/11. · “Retraining Alone Doesn’t Do the Job.” 7/10/11. · “Speedup.”8/14/11. · “Unhappy Labor Day.” 9/4/11. · “When Droids Take Your Job.” 11/28/11. ·|· “Long-Term Unempl. in the Great Recession.” Test. to Cong. 4/29/10. · NY Times articles: “CompaniesSpend on Equipment, Not Workers.” 6/10/11. · “Defining Structural Unempl..” 11/29/12. ·“Has the He-covery Become a She-covery?” 3/9/12. · “How the U.S. Lost Out on iPhoneWork.” 1/21/12. · “Instead of Work, Younger Women Head to School.” 12/28/11. · “Millions ofUnempl. Face Years Without Jobs.” 2/21/10. · “More Jobs Predicted for Machines, Not People.”10/23/11. · “Older Workers w/o Jobs Face Longest Time Out of Work.” 5/6/11. · “RecessionOfficially Over, U.S. Incomes Kept Falling.” 10/9/11. · “Small Companies Create More Jobs?Maybe Not.” 2/24/12. ·|· “Pathways to Prosperity.” 2/11. Harvard Grad. School of Ed. · Peck,D. Pinched. NY: Crown, 2011. · “Polarization of Job Opp. in the U.S. Labor Market.” 4/10. Cen-ter for Am. Progress & Hamilton Proj. · “Real Job Creators.” San Bernardino Sun. 2/19/12. ·“Reasons for Skepticism about Structural Unempl..” 9/22/10. Econ. Policy Inst. · “ShatteredAm. Dream.” 12/10. Work Trends. · “Skills Gap Hobbles US Employers.” Financial Times.12/13/11. · “Structural Unempl..” About.com. 2012. · Time magazine articles: “Flight Plan forthe Am. Economy.” 5/30/11. · “Is College Worth It?” 5/30/11. · “I Owe U.” 10/31/11. · “Its NotSmall Firms but New Ones that Drive Empl.” 4/11/11. · “Newt’s Stamp-Out-Poverty Plan.”1/30/12. · “Restoring the Am. Dream.” 11/1/10. · “Tackling the Jobs Issue.” 2/20/12. · “WhatU.S. Recovery?” 6/8/11. · “Why Am. Must Revive Its Middle Class.” 10/10/11. · “Where theJobs Are.” 1/17/11. · “Where the Jobs Aren’t.” 1/17/11. · “Your Incredible Shrinking Pay-check.” 2/28/11. · “Unempl..” Wikipedia. 2/3/12. · “Unempl. Stats on Older Am..” 5/11.Urban Inst. Program on Retirement Policy. · “Unfulfilled Expectations.” 5/11. Work Trends. ·“Way Forward.” 10/10/11. New Am. Found. · U.S. Bureau of Labor Stats: “Empl. Loss and the2007–09 Recession.” Monthly Labor Review. 4/11. · “Empl.Projections: 2010–2020 Summary.”2/1/12. · “Empl. Situation Summary.” 3/9/12. · “Labor Force Stats from the Current Popula-tion Survey.” 3/9/12. · “May 2010 National Occupational Empl.and Wage Estimates.” 4/6 /11. ·“Overview of the 2008–18 Projections.” Occupational Outlook Handbook. 3 12/10. · “WhenAny Job Must Do.” AARP Bulletin. 6/11. · “Year or More.” 11/11. Pew Fiscal Analysis Initiative.· “Young, Underempl. and Optimistic.” 2/9/12. Pew Res. Center.

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In 2007, many Americans couldnot make their home mortgage pay-ments. Foreclosures followed, whichdepressed housing values. By thefollowing year, many banks andother financial firms, holding bun-dles of nearly worthless home mort-gage products, were in danger offailing. The U.S. Treasury bailedthem out to prevent a collapse ofthe financial system.

Consumers, many already maxedout on credit, stopped spending, andplunging sales caused companies tolay off workers in massive numbers.The resulting economic recession, theworst since the Great Depression ofthe 1930s, soon was called theGreat Recession.

The U.S. economy lost nearly 9million jobs. Some industries were es-pecially hard hit. Jobs fell in con-struction and manufacturing by morethan 2 million each. Job losses inservice industries (such as healthcare, accounting, restaurants, andtourism), which make up 77 percentof the economy, fell by over 4 million,the steepest decline in that categoryever recorded.

The unemployment rate, based onthe number of jobless people seekingwork, reached a high of 10 percent ofthe labor force in October 2009. Sincethen, the unemployment rate has

declined, but by less than 2 percentby early 2012. (Unemployment figuresused in this article are from the U.S.Bureau of Labor Statistics.)

The 10 percent unemploymentrate high in the Great Recession hasbeen exceeded only two times in thelast 80 years: 10.8 percent in the re-cession of 1982–83 and 14–25 percentduring the Great Depression.

Statistics show that unemploy-ment in the Great Recession hit cer-tain groups harder than others.Unemployment varied accordingto the sex, race, education, and age ofthe workers.

Men reached a peak unemploy-ment rate of 10.5 percent in 2009.They were more likely to lose a jobthan women, whose peak jobless ratewas 8.2 percent in 2010.

The highest unemployment ratefor black workers (16.7 percent) andwhite workers (9 percent) occurred in2010. Nearly half of black teens seek-ing a job in 2009 were unemployed.Hispanics, too, were hit hard by un-employment. In 2011, they sufferedtheir highest unemployment rate of13.1 percent.

The education level of workersmade a difference. Those worst hitwere those 25 or over who did nothave a high school diploma. Theirhighest unemployment rate hit 15.9percent. This contrasted sharply tothose with a four-year college degree

or higher whose jobless rate peakedat just 5 percent.

The unemployment rate for youngworkers 16–19 peaked at 27 percent,and for those 20–24, it reached 17.1percent. These rates were muchhigher than any of the older agegroups. Those 55 and older had thelowest age-group unemployment rate.If these older workers became unem-ployed, however, they had a muchmore difficult time finding a new job.

Statistically, the individual mostlikely to become unemployed in theGreat Recession was a male, black,young worker without a high schooldiploma who was working in con-struction or manufacturing. A workerfitting even one of these categorieswas at risk of losing a job.

How Is UnemploymentDifferent This Time?

Since 1980, recovering the numberof jobs lost during each recession hastaken 6–39 months. A 2011 study bythe McKinley Global Institute esti-mated that it will take 60 months foremployment to recover after economicgrowth reached its pre-recession levelin December 2010. Why is there such aslow job recovery this time?

The housing crash, consumerdebt amounting to $11.5 trillion, andthe fear of becoming unemployedhave all reduced consumer spending.This has resulted in slow hiring.

UNEMPLOYMENT

AND THEFUTURE OFJOBS INAMERICAUNEMPLOYMENT IN THE GREATRECESSION HIT CERTAIN GROUPS OFAMERICAN WORKERS HARDER THANOTHERS. THIS IS A WARNING THATTROUBLING U.S. EMPLOYMENT ANDEDUCATION TRENDS MAY THREATENTHE “AMERICAN DREAM.”

HUNDREDS STOOD IN LINE to fill out job applications at a hotel in Silicon Valley in 2009.

iStock.com/EdStock

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11CURRENT ISSUES

This recession differs from previ-ous ones in the much larger num-bers of “under-employed” workers.These people want a full-time job,but can only find part-time work.None of the millions of under-em-ployed workers are included in theunemployment rate. Also not in-cluded are those who have given uplooking for a job. If these groupshad been included, the national un-employment rate in March 2012would have been 14.5 percent ratherthan 8.2 percent.

In past recessions, most layoffswere temporary until employerscalled back workers when the econ-omy revived. This time, however,more job layoffs were permanent, es-pecially in manufacturing, due to au-tomation and other labor-savingmeasures adopted by employers.

Another difference is that most jobopenings so far have been in low-wageareas. Many desperate for work haveaccepted less pay and benefits than attheir previous employment.

The most striking difference, how-ever, between the Great Recessionand all others since 1945 is the lengthof unemployment. In February 2012,about 40 percent of those seekingwork had been unemployed for morethan six months. Most of these long-term unemployed have been joblessfor a year or more.

The extreme length of joblessnessfor so many has led to a debateamong economists. They argue overwhether unemployment this time is“cyclical” or “structural.”

Cyclical unemployment occurswhen consumer demand for goodsand services drop, causing employersto lay off workers. When consumerdemand returns, employers start hir-ing again. Cyclical unemployment canbe countered by stimulating con-sumer demand, using measures suchas tax cuts and more governmentspending.

Structural unemployment involvesa “mismatch” between the skillsworkers possess and the skills em-ployers require. Even if consumer de-mand comes back, employers maynot be able to find the workers withthe right skills or education. Counter-

ing structural unemployment takeslonger since large numbers of workersmay have to be retrained or go backto school.

Academic studies on this debatetend to conclude that both cyclical andstructural factors are causing the highunemployment and slow job recoveryin this recession. Right now, the cycli-cal lack of consumer demand is proba-bly the dominant factor. But trendssuggest increasing structural unem-ployment in the future.

Troubling Job TrendsOn the factory floor, computer-

ized machines do routine tasks 24/7without taking breaks, going on vaca-tions, or calling in sick. They are op-erated by a handful of highly skilledtechnicians, replacing the old assem-bly line of low-skilled workers whodid routine tasks.

In the business office, the samesort of thing occurs. Employees dotheir own scheduling on a smartphone or create their own documentswith computer applications.

Global free trade has benefitedAmerican businesses, especiallythose that export goods. Americanmultinational companies, however,have created many new jobs in for-eign countries where labor ischeaper, workers are well-skilled,and growing markets are emerging.Thus, U.S. manufacturing has actu-ally grown, but many of the jobsare overseas.

In 2010, MIT economist DavidAutor published a widely discussedstudy of U.S. jobs and workers. Hefound that high-skill, high-wage jobsand low-skill, low-wage jobs weregrowing.

Autor discovered, however, thatmiddle-skill, middle-wage jobs weredisappearing and hit hard in the GreatRecession. These are the blue- andwhite-collar jobs like those in themanufacturing, office-work, and salesareas filled by those with a highschool education. Autor concludedthat automation of routine work andoff-shoring of jobs to foreign coun-tries were the key causes of the miss-ing middle.

Another economist, MichaelSpence of New York University, stud-ied job creation in the U.S. between1990 and 2008. He found that almostall the new jobs were low-wage ones,mainly in services that had to be con-sumed in the U.S. (like home health-care work).

Spence also found that high-skilljobs like those in management com-manded top pay but were relativelyfew. Mid-skill, mid-wage jobs such assteelmaking were vanishing becausecompanies were adopting automatedmachinery and off-shoring or creatingjobs overseas.

Men are facing tougher job opportu-nities today. One reason is that opportu-nities are now open to women in fieldsthat were traditionally the exclusiveprovince of men. Also male workershave been concentrated in industrieslike mid-wage manufacturing that areshedding jobs. Women are more apt tobe employed in growing service indus-tries like health care. But most of these

jobs tend to be low-wage.

In High School Enough?For the first time ever, American

workers today face tough world-widejob competition. Yet, U.S. workers arefalling behind in the level of skillsand education possessed by increas-ing numbers of foreign workers.

The U.S. once led the world inhigh school and college attendanceand graduation rates. This producedthe best educated and skilled laborforce in the world. No more.

The study foundthat the lifetime

earnings advantageof an average

college grad was$570,000 morethan what onewith just a

high school diplomawould earn.

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12 CURRENT ISSUES

Today, the high school graduationrate of most European countries ex-ceeds 80 percent compared to 75.5percent in the U.S. While 70 percentof high school grads go to college,only 40 percent get a two-year associ-ate or a four-year bachelor’s degreeby their mid-20s. The U.S. now hasthe highest college dropout rateamong industrialized nations.

Women are proving more success-ful than men in college. Women makeup a majority of U.S. college studentsand earn 57 percent of all college de-grees. White men with college de-grees trail at 44 percent with blackand Hispanic males far behind them.

The causes of this educationalachievement slowdown in the U.S.are not entirely clear. They may be re-lated to faltering K–12 schools andthe cost of college going up over 500percent in recent decades. Many stu-dents are graduating from college indebt from student loans. The averagedebt for new college grads is about$27,000. Is it worth it?

A 2012 Census Bureau reportfound education made a great differ-ence in average earnings. A highschool dropout earns an average of$18,000 a year compared to a highschool graduate’s $27,000, a collegegraduate’s $48,000, and an advanceddegree holder’s $62,000. (The figuresare rounded off.)

A 2011 study for the Brookings In-stitution determined that the averagecost of a four-year college degree is$102,000. The study found that the

lifetime earnings advantage of an av-erage college grad was $570,000 morethan what one with just a high schooldiploma would earn.

A college education provides adefinite advantage for securing agood-paying job. But 50 to 60 percentof Americans never complete acollege degree.

By 2009, the years of educationrequired for the average U.S. job was13.5 and increasing. This seems to in-dicate that a high school diploma, thegold standard for middle-class jobsfor over a century, may no longer beenough. A 2011 Harvard GraduateSchool of Education study concluded,“The message is clear: in 21st centuryAmerica, education beyond highschool is the passport to the Ameri-can Dream.” Yet, this does not meaneveryone seeking a well-paying jobhas to get a four-year college degree.

Male workers who do best in afactory setting or hands-on jobs likeelectrical work, and female workers

who seek jobs in services like healthcare can still achieve a middle-classincome today. But to do the complexand higher paid jobs that more em-ployers are now offering, workers willhave to upgrade their skills.

They can get more more educa-tion and skills without going to afour-year college. One way is to getvocational training, job certification,and the Associate (A.A.) degree of-fered by two-year community col-leges. Another way calls forcompanies and labor unions to com-bine to create apprenticeship pro-grams that offer job training andwork while a student is still in highschool or right after graduation. Ger-many uses such apprenticeships totrain youth for 350 occupations thatare in demand.

Well-Paying JobsIn February 2012, the U.S. Bureau

of Labor Statistics (BLS) released itslatest projections for the fastest grow-ing occupations between 2010 and2020. Economic predictions, of course,are not always accurate, but the BLSstated: “Occupations that typicallyneed some type of post-secondary edu-cation for entry are projected to growthe fastest during the 2010–20 decade.”

A question arises over whattypes of companies create the mostAmerican jobs. For many years, itwas thought that small businessescreated most jobs in America. A re-cent study of the past decade by theBLS, however, found that employ-ment at large companies (those withat least 500 employees) rose by 29percent, more than twice the in-crease in smaller companies.

Yet another recent study by theKauffman Foundation (which calls it-self the “world’s largest foundationdevoted to entrepreneurship”) foundthe real American job-makers are“startups,” new, often innovative,companies in their first year of oper-ation. Using U.S. Census Bureaudata, this study found that between1977 and 2005, first-year startups av-eraged 3 million net job gains peryear. Some startups go on to be verysuccessful job creators over timesuch as Domino’s Pizza and Oracle,

WHAT WILL THE JOBS of the future look like? How can American workers be prepared?

iStock.co

m/fatih

hoca

Occupations thattypically need some

type of post-secondaryeducation for entry areprojected to grow thefastest during the2010–20 decade.

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13

a software developer. Each has cre-ated more than 100,000 jobs sincethe 1980s.

The challenge for American busi-nesses is to innovate and create well-paying jobs that remain in the U.S.An example might be jobs to manu-facture, install, and maintain a na-tion-wide infrastructure forrecharging electric cars.

The challenge for Americanworkers, especially the younger gen-eration, is to take steps to acquirethe skills and education they willneed if they want a middle-classstandard of living. The American

Dream is within reach, but workersmust prepare themselves more thanever to secure it.

For Discussion and Writing1. How does unemployment in the

Great Recession appear to bedifferent than in other reces-sions? Why do you think this is?

2. What U.S. employment trend doyou think is the most serioustoday? Why?

3. What kinds of workers do youthink need the most help to se-cure a well-paying job? Why?

For Further ReadingClifton, Jim. The Coming Jobs War.New York: The Gallup Press, 2011.

Peck, Don. Pinched: How the GreatRecession Has Narrowed Our Futures& What We Can Do About It. NewYork: Crown Publishers, 2011.

More Well-Paying JobsAlong with businesses, labor unions, and workers themselves, the federal government has a role to play in the de-

velopment of well-paying jobs.

1. Students will meet in small groups to discuss and evaluate the policy proposals listed below for more well-paying jobs.

2. The groups will each decide on three recommendations, selected from the policy proposals below, to make to theU.S. president. The groups may also want to include their own ideas for developing more well-paying jobs in theUnited States.

3. The groups will make an oral or PowerPoint presentation, backing up their recommendations with facts and otherinformation from the article.

Policy Proposals• Support startups by making it easier for them to get credit, easing government regulations, offering tax breaks, and

reducing the time to secure patents.

• Keep more jobs at home by providing tax breaks to consumers who buy products made in the U.S.

• Fund federal infrastructure building or repair of roads, rail lines, bridges, broadband Internet, and other such proj-ects along with skill training for unemployed workers.

• Retrain older workers by upgrading their education and skills to match the needs of today’s employers.

• Organize with businesses and labor unions a nation-wide apprenticeship program for high school students andyoung adults.

• Fund two-year community college programs for job and skills certification tied to the needs of local employers.

• Expand federal college grants to enable more students to go to college without amassing huge loan debts.

• Fund more basic research, especially in the sciences, to prepare the way for innovation by businesses.

• Continue federal benefits for the long-term unemployed, but require them to enroll in job retraining programsor college.

• Provide tax breaks for businesses that hire unemployed workers in the U.S.

• Establish a national jobs database that lists job offerings and the education and skills required for them.

ACTIVITY

About Constitutional Rights FoundationConstitutional Rights Foundation is a non-proUt, non-partisan educational organization committed to helping our nation’s young people to be-come active citizens and to understand the rule of law, the legal process, and their constitutional heritage. Established in 1962, CRF is guided bya dedicated board of directors drawn from the worlds of law, business, government, education, and the media. CRF’s program areas include theCalifornia State Mock Trial, youth internship programs, youth leadership and civic participation programs, youth conferences, teacher profes-sional development, and publications and curriculum materials.Of3cers: T. Warren Jackson, Chair; Publications Committee: Marshall P. Horowitz, Chair; Louis E. Kempinsky, Walter R. Lancaster, L. RachelLerman, Peter I. Ostroff, Lisa M. Rockwell, Patrick G. Rogan, Peggy Saferstein, K. Eugene Shutler, Douglas A. Thompson, Lois D.Thompson,Gail Migdal Title. Staff: Jonathan Estrin, President; Marshall Croddy, Vice President; Lucy Eisenberg, Carlton Martz, Writers; Bill Hayes, Editor;Andrew Costly, Senior Publications Manager; Peter I. Ostroff, CRF Board Reviewer. John T. Young, Emeritus Professor of Economics, RiversideCity College, Academic Reviewer for the FDR and Unemployment articles.

facebook.com/ConstitutionalRightsFoundation

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A History of Bill of Rights in Actionby Marshall Croddy, CRF Vice President

Over its 50 year history, Constitutional Rights Foundation has developedmany programs and publications for civics, history, law-related, and service-learning education.

Perhaps its most enduring contribution to teachers throughout the UnitedStates is Bill of Rights in Action, affectionately known as BRIA. It has beencontinuously published for 45 years.

First published in early 1967 as the Bill of Rights Newsletter, it was originallyconceived as a twice-a-year information piece for a few hundred Californiateachers. Each issue took on a particular theme or topic, often one suggested byteacher advisers. Early editions certainly reflected the issues of the day: “ColorBlind or Color Conscious?” (Fall 1968) and “Student Protest and the Law”(Fall 1969).

In 1969, responding to teacher requests for more hands-on classroom materials,CRF added a student supplement to the newsletter. By 1972, the newsletter hadbecome a subscription publication with some 400 California teachers receivingit four times during the school year.

In September 1976, the name of the newsletter was changed to Bill of Rightsin Action to better reflect the student orientation of the publication. At about thissame time Carlton Martz, a social studies teacher, became the principal writer ofthe newsletter. He had Urst come to CRF’s attention when he won a CRFcurriculum-writing contest. Martz continues to contribute to BRIA even today.

In the mid-1980s, educational changes and economic realities caught upwith the nearly 20-year-old publication. Not enough students were receiving itto justify the cost. With support of Jerome Byrne, the chair of the CRF Board’sPublications Committee, the staff proposed that BRIA be reduced to an eight-page format and distributed free-of-charge to educators throughout the UnitedStates. In the winter of 1984, the first edition in the new format was producedand mailed. Designed to meet the needs of a range of social studies teachers,themed issues typically provide one lesson each for U.S. government, U.S.history, and world history sequenced to arrive at the appropriate time of theacademic year when the topic is taught.

Today, each issue, now 16 pages, reaches some 40,000 educators andimpacts hundreds of thousands of students in all 50 states and throughout theterritories either by mail or electronic transmission. Past issues are availableon CRF’s main web site and account for thousands of additional downloadseach year.

Subscriber surveys and teacher comments over the years demonstrate veryhigh levels of satisfaction and use of the publication. Most poignant are lettersreceived from retiring teachers who have benefited from BRIA throughout theircareers, thanking us and asking that we remove their names from the mailinglist so new teachers can get the resource.

Join our 50th Celebration by visiting www.crf-usa.org/50th

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ConstitutionalRightsFoundation CELEBRATING 50YEARS

$50 for 50 years

Dear Friend of CRF:

For 50 years Constitutional Rights Foundation (CRF) has helped educatemillions of students about their rights and responsibilities as citizens — andwith your help millions more can become informed and engaged, changingour world for the better.

We’re reaching out to you to secure our future — and the future of thestudents of today who will be leaders of tomorrow.

Many of you are aware of CRF through Bill of Rights in Action. (See page 14.)This remarkable publication, now in its 45th year, goes out to 40,000 subscribersfree-of-charge, four times each school year. Every issue provides social studiesteachers around the nation with balanced, high-level content, discussionstrategies, and meaningful learning activities for the classroom. With your support, we can keep this vital resource coming for many years to come.

For our 50th anniversary, please consider a gift to CRF of $50 for 50 years.Or consider a gift of any amount. We guarantee to put it to good use.

Please use the enclosed envelope, or go to www.crf-usa.org and donate tosupport CRF. It’s an anniversary gift that can literally change the world — andyou are the one who can give it!

Sincerely,

T. Warren JacksonBoard Chair

P.S. Your generosity deserves recognition as well. If your total contributionis greater than $100, we will be happy to mention you by name on CRF’s website and on the “Donors” pages we create for the year-long 50th AnniversaryCelebration. It’s that important to us — and we want to thank you foryour support.

15

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601 South Kingsley Drive , Los Angeles, CA 90005213.487.5590 • Fax 213.386.0459 | crf@crf-usa.org • crf-usa.org

Non Profit Org.U.S. Postage

PAIDConstitutional

Rights FoundationLos Angeles, CAPermit #25777 Constitutional

RightsFoundation

For additional information: www.crf-usa.org/publications/

The most comprehensivesecondary criminal justice text

Our most popular publication, CriminalJustice in America, has been completelyrevised, updated, and formatted in color.It now has new and revised readings, up-to-date statistics, and new, expandedcase studies. It is the most comprehen-sive secondary text available on the sub-jects of criminal law, procedure, andcriminology. It can serve as a text for anentire law-related education course, oras a supplement for civics, government,or contemporary-issues courses.

Its extensive readings are supported by:• Directed Discussions • Role Plays• Mock Trials

• Cooperative and Interactive Exercises

• Activities to Involve Outside ResourceExperts

• Research Activities for Students to Usethe Library or Internet

The StudentEdition has six units:

Crime | Police | The Criminal Case | Corrections | Juvenile Justice | Solutions

The Teacher’s Guide, a completelyreworked comprehensive guide, providesdetailed descrip-tions of teachingstrategies, sug-gested answersto every ques-tion in the text,activity masters,tests (for eachchapter and unitand a final test),backgroundreadings, andextra resourcesto supplementthe text.

In addition, our web siteoffers links to

supplementary readings, the latest statis-tics, almost every case mentioned in thetext, and much more.

AVAILABLE AUGUST 2012

CRIMINAL JUSTICE IN AMERICA, 5TH ED.

Join CRF in Celebrating 50 Years, see pages 14-15.

Available August 2012Now With Full Color Photos,

Charts, and Graphs

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