Other Possible Causes of the Great Depression

Changes over time in the nature of employee pension plans

Changes over time in the nature of employee pension plans have encouraged people to learn about, and eventually accept, stocks as investments. The most revolutionary change in these institutions in the United States has been the expansion of defined contribution pension plans at the expense of defined benefit plans.

Growth spurt in the mutual fund industry

The stock market boom has coincided with a peculiar growth spurt in the mutual fund industry and a proliferation of advertising for mutual funds. In 1982, there were 6.2 million equity mutual fund shareholder accounts in the United States, about one for every ten U.S. families. By 1998, there were 119.8 million such shareholder accounts, or nearly two accounts per family.

A lower inflation rate

High inflation is perceived as a sign of economic disarray, of a loss of basic values, and a disgrace to the nation, an embarrassment before foreigners. Low inflation is viewed as a sign of economic prosperity, social justice, and good government. It is not surprising, therefore, that a lower inflation rate boosts public confidence, and hence stock market valuation.

Higher equity turnover rate

The higher equity turnover rate may be symptomatic of increased interest in the market. According to a study by the SEC, there were 3.7 million online accounts in the United States in 1997; by 1999 there were 9.7 million such accounts.

Dramatic increase in gambling

There has been a dramatic increase in gambling opportunities in the United States in recent years. Gambling suppresses natural inhibitions against taking risks. A spillover from gambling to financial volatility may come about because gambling, and the institutions that promote it, yield an inflated estimate of one’s own ultimate potential for good luck, a heightened interest in how one performs compared with others, and a new way to stimulate oneself out of a feeling of boredom or monotony.