In the coming days and months you will read lots of things about the Great Depression of the 1930's. You will read many things about how the United States climbed out of that Depression, and they won't all be the same. In today's New York Times, for instance, Tyler Cowen writes that the New Deal did not always work as planned, in fact some of its programs were counter-productive. Cowen succumbs to the demand for a simple answer to the complex situation and, nevertheless, makes a couple of astute judgments, but these are a "simple answer" and therefore only part of the story.
The world and the national situations are different from what they were in the 'thirties. For one thing we are now 85% urban and in 1935 about 55% and losing ground as some (mostly those who had just left for the cities) moved back to the land so they could eat. For another thing the U.S. was not the acknowledged leader of world economics, military preparedness, or anything. We were a newer country, untried except for a brief engagement in the Great War. We had begun to shed our Spanish-American War booty and had lapsed into a very cold isolationism and restrictive immigration policy. This played very importantly into the Holocaust, incidentally.
In a way, the academic discipline of Economics is a distillation of the History of Business. The supply v. demand curves and cycles and graphs of daily activities give Economics the aura of being a scientific study of human commercial behavior. It is more akin to Meteorology than History, though. It is a study of chaotic behaviors and opinions.
The discipline breaks into macro- and micro-economics when and where the curves and graphs fail to be predictive. Macro-economics makes only mild pretense of predicting individual behaviors, whereas Micro-economics makes only occasional pretense of understanding the baffling chaos of mass activity. Yet Economists do not tell you every time which branch of their discipline they are practicing, an affect that tends to blur the differentiation and to hide errors.
The Great Depression was avoidable. Greed is avoidable, but nevertheless contagious and very much addictive. The Roaring Twenties could have been the Rumbling Twenties, if only Wall Street could have understood what a limb they were climbing out on with the mammoth amount of unregulated margin buying. The economic collapse of 2008 was avoidable, as well, but the reasons for the collapse have been buried under tons of political name-calling and blame-throwing.
I have read that J.P.Morgan may have been at the root of the problem when they discovered back in the late to mid-nineties they were overloaned with weak loans. They invented a very complex way of selling the risk (no real investment, just risk) to others and these instruments soon multiplied like cancer cells and flooded the market, eventually metastacizing to home loans, which were being made under the guise of the Clinton and Bush "ownership societies," both a reaction to racial upheavals of 1965 and then again the riots of 1992 and the emotional discussions in the aftermaths of these riots. The complexity of the stock markets reached and then surpassed the ability of CEOs or regulators to understand what the real, market, or quarterly-report value of a given security instrument might be. At the same time regulation had fallen out of favor under the cant slogan that free-markets don't need regulation.
The Great Depression was exacerbated by DEFLATIONARY pressures brought to bear by wrong-headed monetary policy. Cowen is clear about this and the message is just as good for today. DEFLATION will kill the finance industry because no one wants to pay current debt (in the trillions) with future money that deflation makes more valuable than the debt.
Accordingly, we are faced with the problem of guiding the economy amid at least thirty other national economies into a shallow INFLATION that will not scare away international lenders, but will not freeze up domestic borrowing.
The other side of the situation is labor. The New Deal provided work for perhaps two million people in direct WPA/CCC type minimal pay jobs. WWII conscripted eleven million men and put another twenty million men and women to work in armaments industries. You can see that this "solution" to the 2009 problem is not viable. We are already in two wars and a draft is extremely unlikely.
The solution set for the current problem will create problems of its own downstream. Huge borrowing today will be a debt paid off for generations. The mortgaging of our government to save today at the expense of tomorrow is a grave and solemn act. As we consider this approach we have to understand that there must be permanent and apolitical agreements and regulations imposed that prevent ... short of nuclear war or invasion from space ... the economy from wagging the dog like this again!
JB
James R. Brett, Ph.D. taught Russian History before becoming an academic administrator in faculty research administration. His academic interests are the modern period of Russian History since Peter the Great and the history of science and the (more...)
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Georges Santayana said: "Those who do not remember the past are condemned to relive it!"
NO ONE REMEMBERS THE PAST ...and Americans are the worst offenders. NOTHING IS EVER LEARNED FROM HISTORY.
Moreover, ingrained behaviors thousands of years old play out over and over again, primarily, war and a finite set of causes for it.
It's in our genes.
It's the same old story the same old sh*t year after year, century after century throughout mellenia.
JUST ONE EXAMPLE: Rome invaded Dacia for its gold, just as Bush invaded Iraq for its oil. Rome over invaded Briton because it believed Briton was rich in pearls and silver. Hitler invaded Poland for the coal --his personal neuroses notwithstanding. Those are but three from THOUSANDS if not millions of examples.
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Len Hart (134 articles, 175 quicklinks, 0 diaries, 555 comments) on Sunday, Nov 23, 2008 at 4:10:55 PM
I can assure you that History does not repeat itself. Only historians repeat themselves. What you refer to as "sh*t," is life itself, countless lives and events, each predicated on what went before, largely ignorant of the past, but striving to make sense of a moving present, a shrouded future.
In any case, the coming Depression will have features congruent to the Great Depression of the 1930's but it will not be the same, nor ... my point ... will the solutions to overcoming it be the same.
Fortunately we have elected a activist, but cautious pragmatist to the presidency, and his willingness to act without the constraints of pernicious ideology will provide both a way out and a way into the next one.
I never said that History was not ironical.
JB
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James Brett (130 articles, 96 quicklinks, 3 diaries, 189 comments [17 recommended, 0 rejected]) on Sunday, Nov 23, 2008 at 6:11:08 PM
read Christina Romer's "What Ended the Great Depression", or indeed what started it according to Obama's latest pick Romer.
I've just watched David Walker's IOUSA, which has just been finished on the BBC in England. David Walker was Comptroller General of the USA 1998-08. If you have not watched it, might I suggest you have a watch at
I am too old to wait fifteen minutes for a download. I Googled IOUSA and understand that IOUSA is about national debt, banks, monetary policy, and that it credits the National Debt for the Depression. Well, debt in and of itself is not necessarily toxic. A large debt and a monetary policy of deflation is toxic as FDR and his enemies found out in the 1930's.
Please, next time you comment, put some information into your text, especially when you have a creaky slow download for us.
JB
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James Brett (130 articles, 96 quicklinks, 3 diaries, 189 comments [17 recommended, 0 rejected]) on Monday, Nov 24, 2008 at 5:27:12 PM
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