The Great Depression and the 2008 Economies Fiasco

What I keep hearing are comparisons between our economic woes now, and the Great Depression.

First, let me point out that if your economic life is going down the toilet then what is happening to you IS equal to or worse than the Great Depression. It is common for us to think, "What happens to you is a problem, but if it happens to me it is a tragedy." People are suffering. People are losing their jobs, homes, and what is worse is this: people are losing their confidence and self respect. Once you stop feeling competent and start hating yourself, you are in a very poor position for coping with trouble.

Secondly, let me say clearly that what we are going through is not the Great Depression. That does not mean that what we are going through is not bad. In fact, it doesn't mean that what we are going through might turn out to be historically worse than the Great Depression.

History doesn't repeat itself, but it does rhyme. - Mark Twain

Nothing that has happened happens again, not exactly, not perfectly. There are similarities between now and then, but now is always now and then is always then. This focus on the Great Depression might be helpful, but to consider it a template for today is little more than distracting nonsense. If we attempt to solve our problems today by reaching for what worked in the 1930s we are going to suffer and every wound will be unanticipated an unique. This does not mean that some of what worked for Roosevelt might not also work for Obama, but if it does, it is not because then and now are identical problems.

In the Year of Our Lord 2008, we are experiencing a credit tsunami, a credit debacle and yes there were aspects of credit foolishness that also lead up to the Great Depression. The year of 2008 and 1929 may have similar origins because money mismanagement was involved with both then as now led to a sharp reduction in consumer demand. (Well, the demand is still in our spend happy hearts, but having no money to pay the minimum debt repayment does take the man out of demand.)

The Great Depression and the 2008 Economies Fiasco are substantially different events. You need to have grandfathers who were adults during the Great Depression to know that as a time, it was anything but great. What happened to America then was life threatening critical condition. What is happening to America now is more like serious but stable condition.

Again, remember, if you are one of the more unfortunate of our citizens, then what is happening to you is critical. Even taking the long, gestalt view of things, being in serious but stable condition doesn't mean that you won't eventually die from the condition. America is in trouble, but it is not to the same degree as it was in the early 1930s, at least not yet.

One reason then is not like now is because we have federally insured the bank deposits of our citizens. There is no need to have a run on the banks like there was during the Great Depression. History tells us that by the middle of March 1933, almost every bank in this country was closed, and over 4,000 banks had failed. The failure of banks totally wiped out the savings of vast numbers of our citizens. Remember, people actually saved money back then, and for tens of thousands of Americans this bank failure not only wiped out their life savings, but it also, in some ways, wiped out their lives as well.

The Great Depression (a sort of recession on methamphetamines) went on for a grueling 43 months, and caused the rate of unemployment to go as high as 25 percent, and the National Income of the United States was cut in half.

In this current and on-going recession of 2008 we have only had 19 bank failures, and unemployment is expected to go no higher than 7.6 percent. (Again, if you are among that 7.6 percent we do not wish to imply you are not suffering, because clearly you are. If you are part of the 7.8 percent then, for you, it is 100 percent.)

We do not, of course, know how long this economic mess is going to last, but some highly regarded economists believe this recession started in April 2008, it will probably be over by the summer of 2009.

CAUTIONARY NOTE:

Q: Why did God create economists?
A: In order to make weather forecasters look good.

Some of the differences between the Great Depression and the 2008 Economies Fiasco are comforting. It is good to think, well, things are really not as bad as they were then.

The world economy is not in depression. It probably won't fall into depression, despite the magnitude of the current crisis (although I wish I was completely sure about that). ~ Paul Krugman, Nobel laureate in economics

But all of those differences are not good. For one thing, when we had the Great Depression America was the leading manufacturing nation in the entire world. We made everything we needed to function as a nation. Today we are no longer a manufacturing leader of the world, we are instead the leading consumer in the entire world.

We still make cars here, of course, but even that industry is in question. Many of the worlds greatest products, many of the fastest selling products are invented here, improved here, and the method of manufacturing these products are designed here, but then we turn around and ship the knowledge off to other countries and they make the products we developed and made practical. There was a time when we made a lot of stuff: televisions, clothes, washing machines, radios, typewriters, shoes, telephones, and furniture. There was a time when America was the world leader in making the raw materials used to make other stuff: steel, aluminum, plastic, rubber, glass, and electrical components. While you might look long and hard and find some US companies making some of these products we are clearly not the leaders in manufacturing these products, not by a long shot. We buy tons of stuff made somewhere else, largely, usually, and mostly made overseas. We buy stuff manufactured in countries that once were our enemies, and some of these countries still cannot be described as our friends. Many USA hating countries are sending us their stuff and we are send them our money, money that we don't have and can only get buy either borrowing it from China, or by allowing the government to just printing it up and dump it into the economy.

When you look at our countries ability to manufacture the products we need to survive, you see that in some ways, America was better off during the Great Depression than we are now. The America of the 1930s could, and did, eventually manufacture our way out of a horrible economic crisis. Are we going to use our consumer-based society to get out of trouble now? Can we buy our way to a stable economy and prosperous times? Is allowing the auto-industry to join the shoe industry, and the textile industry, and the electronic industry and become the forte of our other countries, many of which would like nothing better than to see us suffer and fail, and become punished victims of our own foolish economic choices?