For the past week I’ve been rushing home every night to catch The Roosevelts: An Intimate History by Ken Burns. I’m not really a big Ken Burns fan. And yes, it’s the fiddle music. But this one is worth a watch. (And the music is not so incessant.)
The episode on the Great Depression made me wonder about our Not-So-Great Recession. We complained bitterly about our losses during that time, but seeing those lines of people winding down the street just to get a free lunch makes me think we might be a little ungrateful for what we do have.
Hoover was president during the stock market crash of 1929, and he did little to help stimulate the economy due to his conservative economic philosophy. He was not insensitive to the struggles people were going through; he sincerely believed he was doing the right thing in keeping government out.
F.D.R.’s New Deal seemed to be the remedy, but we must remember the economy still took a very long time to recover. Then came WWII, which boosted productivity as scores of people were employed in wartime efforts.
I got into a discussion about Hoover’s perspective with my husband, who knows a lot more about economics than I do (which still leaves us both at the level of amateurs). He told me the idea behind doing nothing in times of economic crisis is that the market has a natural cycle of ups and downs and will eventually even out—in time. He said to think of the economy as a human body. “Hooverites” say let it heal itself—medicines and artificial means of healing will only make it worse.
To which I responded, “Yes, but how many lives are to be lost in the meantime? How many people ruined?”
A response which shows my tendencies to be on the side of government intervention. During the controversial bailouts of businesses “too big to fail,” I had a great deal of sympathy with the Obama administration in making such a difficult decision. But I ask myself why. And what would have happened if the government had done nothing?
And then there’s the issue of spending money you don’t have…which I can’t even wrap my mind around because I know that personal accounting may not be analogous to international accounting. What does it mean to owe trillions of dollars to China?
Unfortunately, I don’t think hindsight is 20/20 in this issue. There are so many factors at play. How do we know for sure what policies worked in the past and how much of the recovery was simply ‘natural healing’? What can history tell us?
Perhaps economic historians can make a better contribution by ensuring the past is not abused in debates about modern-day crises. For instance, putting all the blame on Wall Street for the Great Depression—or on bankers in the current crisis—does not stand up to historical scrutiny. The responsibility may more properly lie in a complex combination of factors, like how global financial systems are structured. But this still needs be interpreted from modern day evidence rather than in over-simplistic “lessons” from the past.—C.R., The Economist
My question to you is this: Did we avoid a Great Depression? What can history teach us?
I’d love to hear your thoughts.
Diotima's Ladder 
‘Did we avoid a Great Depression?’
I’m afraid I don’t believe we did Tina; we simply delayed an inevitable one. The only way the government could save its own neck, and the country’s too, was to hand the keys over to Goldman Sachs and the like, saying in the process ‘do whatever you must but get us out of this, and here’s as much free money as you need to rig the markets’. This has to come home to roost at some point; I’m very much inclined to agree with Chris Hedges on all this. [http://www.truthdig.com/staff/chris_hedges]
Have a great day! 😉
Hariod.
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Oh no don’t say this! I’m still young and I have investments!
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No problem Tina, you can make money as the markets move in either direction. This is what the big players do all the time; it’s just a case of them rigging the movements and hedging accordingly. I have to say though, that I’m far from being as sanguine as SAP on all this, and am sure this is going to end in tears. Economically, we’re living on life support currently, but the plug will get pulled at some point.
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You assume I know what I’m doing! 🙂 I’m definitely a small player. I just stick everything in index funds and check to make sure the bottom line is going up instead of down. It’s all quite mysterious to me, even after reading “Mutual Funds for Dummies.”
Well, for everyone’s sake, I hope SAP is right!
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I haven’t seen this but my Mom binge-watched all of it! She loves Eleanor. Well, who doesn’t?
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Those two remind of the Clintons in so many ways. They had a rocky relationship and I wonder if it was an open one. F.D.R. had his little posse of women friends and Eleanor did too. Well, of both men and women, but mostly women. And they acted as a sort of tag team in the political sphere with a lot of mutual respect for one another, but I wonder how much of their relationship was merely professional. And I wonder how much of their relationship was lost because he cheated on her, or whether it was already strained to begin with. In any case, they both deserve kudos for all the amazing things they did.
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“Did we avoid a Great Depression? What can history teach us?”
I don’t think there’s any question that we did, and it was the result of the Bush administration, the Obama administration, and the Fed acting properly, when they needed to.
To see how bad it could have been, all we really have to do is look at the years 1929-1933: as far as I know, the worst economic contraction in our country’s history. The government let banks fail by the thousands, they cut government spending repeatedly in a vain attempt to balance the budget, passed ruinous tariff taxes discouraging international trade, and the fed contracted the money supply to meet our obligations under the rigid international gold standard, all of which killed spending throughout the economy, sending it into a tailspin. The New Deal stabilized things and alleviated suffering, but there wasn’t a serious economic recovery until that huge stimulus package known as WWII kicked in.
In 2008-2009, the government pretty much did the opposite. It stemmed the cascading failures before they got out of hand with the much reviled bailouts (Bush administration), passed the much reviled stimulus package (Obama administration), and stuck to an expansionary monetary policy (Fed), driving libertarians crazy. These actions were far from perfect (the stimulus probably should have been much larger), but on balance the performance of our government in modern times far surpassed the performance of the government in the early 30s. Lamentably, many governments later exacerbated the suffering in later years with premature austerity.
The problem, of course, is that it’s very difficult to demonstrate what could have happened. There are always conflating variables giving alternate narratives just enough oxygen to survive. But I think the Great Recession is, on balance, a demonstration that we can learn from history, even if most of us don’t recognize the win.
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This is such an amazing and thoughtful response, SAP! I had to read it to my husband to show him the quality of thinkers in the blogosphere with whom I am so fortunate to interact. We are both very much impressed.
I think basically the same way, although much less articulately than you! I just worry about what it means to be in such debt to other countries. So far it seems to mean nothing. I wouldn’t even know what to look out for, to be honest.
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Wow, I’m flattered by your kind words. I’ll just note that your writing prompts are excellent. (Also, just fyi, I’ll probably paste my comment above in a post on my blog, linking back here of course.)
I do think foreign debt is something we should be cautious about, but it always helps to be aware of three things.
First, debt is a two way dependency. A country with a lot of reserves tied up in our country is, to some extent, dependent on our country’s health as much as we are on their reserves.
Second, we’ve always had foreign debt, going back to the beginning of the republic. Of course, in the early years it was mostly British. People worry today because a lot of it is held by China, but the British debt didn’t seem to be that harmful, despite the two wars we fought with them in the early years.
Third, it’s not the raw amount of debt we need to watch, but the ratio of debt to the size of our economy. Check out this table, and sort it descending by the % of GDP column. You might feel better.
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
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Thanks for the info! I was wondering who would foreclose our country and kick us out into the oceans, but now I feel better. I’m a good swimmer, but not that good.
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