One of the major American economic crises of the last century was the Great Depression. In the year that followed the stock market crash of October 1929, everyone from President Hoover down to line workers at auto plants believed that their fortunes were not inextricably linked to those of the
stock market. Hoover's quote the day after Black Thursday of that year could have been written and uttered by the current administration or candidate McCain:
The problem isn't that the quote was factually incorrect. It was right. The problem is that having good fundamentals in one area of the economy doesn't protect you from failures elsewhere. These same assumptions have been made erroneously in the last two years. As I watched the Administration attempt to pump money into the economy and then individual banks, I found an unspoken assumption that this would fix our economy and we'd all go back to buying crap on easy credit.
Obviously this isn't happening. I began to look to the history of the Great Depression, not as a mirror image of what we're going through today, but as an example of what tactics have been tried before that we might not even realize we're repeating. Possibly the highest ranking economic expert in the US is Ben Bernanke, who also happens to have spent his life studying the Great Depression, which appears to be useful knowledge in this day and age. Sadly, it doesn't appear to be enough to move the rest of the government's apparatus to action as quickly as necessary.
There are two texts I picked out to read as I went on my question for information about the Depression for some insight into today. The first is "The Hungry Years: A Narrative History Of The Great Depression" by T.H. Watkins. Though it is thick, this is an excellent crash course in the Great Depression. Watkins covers the twelve years from about 1929 through 1941 from every angle,
the White House, the Congress, Wall Street, wealthy Americans, poor Americans, black and white.
There are a number of similarities, and I was struck the number of times I read about events
from the time that could have been written in 2007 or 2008. Hoover's statement about the fundamentals of the economy was one. Another was the government injecting cash into financial institutions to restabilize them, and then discover that they had no intention of significantly creating easier credit for lending with that money.
It was like I was reading a New York Times piece last month, instead of last century, "So When Will Banks Give Loans?"
When I read Watkins section on the stock market that described the Dow Jones as "a rubber ball bouncing down the stairs, spiking up and down, but on the average, always further and further downward" I was particularly hooked. I felt like I had watched that very same experience over the last 8 months. See CNBC article, "Barry James of James Advantage Funds likens the current market to a ball bouncing downstairs".
Unfortunately the more I read, the more depressed I became. The famed projects I had heard about my whole life, such as the CCC and the WPA, actually only employed a fraction of the nation's 25% unemployed. Furthermore the Depression was followed by a recession. The only thing that pulled us out of it was the spending on the second world war starting with Pearl Harbor. As my friend Jennifer points out, "We're already in two wars". The important implication in this is that war spending at our current rate of $10 billion per month in Iraq and Afghanistan is not enough to pull us out of the current economic crisis. It's not clear that in our global economy that war spending could have enough of an effect on our domestic economy because so much of what we purchase or spend is produced overseas.
Furthermore, I don't think anyone in this country has any more stomach for war, economics benefits included.
Weirdly, out of such public policy despair came FDR's presidency, when the country's morale was so low. The parallels to the transition from Bush to Obama are obvious, and FDR's legacy remains today.