Great Depression Lessons For Our Great Recession

Today’s Great Recession, now into its 19th month, is certainly not as bad as the Great Depression of the 1930s—at least not yet. But as happy talk about glimmers and green shoots has gradually been morphing into suggestions that the recession will likely end sometime this summer, and that a recovery will begin then, it’s worth wondering what kind of economy might emerge during this “recovery”. Some hints in this regard might be found by looking to the 1930s.

—Depending on whose histories you read, the Great Depression in this country either lasted from 1930-1938 or from 1930-1940. All agree, however, that it did last at least eight years. Deep economic slides usually require long periods to get back to previous economic levels. Our own Great Recession has lasted a mere year-and-a-half.

—Between 1933 and 1936, right in the middle of the Great Depression, the Dow actually doubled. Market rallies such as this can last for years, economic hard times notwithstanding. A booming stock market, in other words, is not a sure symptom of a booming (or soon to be booming) economy. Our own stock market is up more than 30 percent from its low point last year, and shows no signs of calming down anytime soon.

—Unemployment peaked in 1933 at 27 percent, but had only fallen to 19 percent five years later in 1938. Hiring can take a long time to come back after very steep economic slides. Our current unemployment rate is 9.4 percent (or more than 16 percent if you count people who have given up looking for work or forced into part-time jobs), and no one expects these unemployment rates to decrease quickly when a “recovery” finally sets in.

—FDR came into office promising to balance the budget in order to get the economy back into gear, but soon had to institute a New Deal big spending program to put a bottom on the economic free-fall. Barack Obama came into office promising to initiate big government spending programs that would reanimate the economy, but in recent days, in response to public fears about the soaring government debt, has shifted gears and indicated that exorbitant spending that creates huge deficits must be kept in check. It looks like the same flip-flop, just reversed.

—During the Great Depression many people migrated to parts of the country where economic opportunities still seemed abundant—like California. There aren’t many places like that today—except perhaps South Dakota, where jobs in credit card call centers are still abundant.

—Currently some foreign countries, notably China, seem to be recovering more quickly from economic problems than our own country. Different national recovery rates were also on view in the 1930s. Indeed, the Great Depression in the United States lasted longer than any other country, a fact some people attribute to excessive efforts by the government to improve things.

—FDR’s New Deal actually changed regulation of the financial industry dramatically, and put a damper on that industry’s influence on government policy. To date our government’s own efforts in this regard have been mostly talk. And it now appears that many of the biggest financial crisis causing perps are actually getting richer than ever “vulturing” the economic sectors they almost destroyed.

—What got most of the rest of the world out of Depression earlier than this country (with our isolationist politics in the 1930s) was a manufacturing buildup in preparation for World War II. Will it require wars, famines, natural disasters or ecological horrors to achieve the same economic uplift today? Let’s not ever stop to consider that possibility.

Ever mindful that while the past only provides hints of a possible future, but is never a sure guide, what nonetheless might the experience of the Great Depression hint about what lies in store for America when we finally “recover” from our present Great Recession?

There might well be very high levels of unemployment for years, with those who are employed working harder, for less pay, with fewer company benefits, and with diminished job security. Strapped state governments will be able to offer less succor than in the past, as will a federal government whose revenues to a great extent will go toward servicing a huge old debt overhang (unless, of course, the decision is made to monetize this debt, in which case a ruinous inflation will occur). People with a lot of money will get richer buying distressed assets from the hard-pressed, Many traditional perks of the American middle class will fade away. A fair number of Americans will get so angry they gravitate into extreme politics.

This isn’t our inevitable economic future. But alas, it seems like a very likely one.