Here we are headed into midterm elections and Obama in 19 months hasn’t managed to sort out the worst economic crisis since the Great Depression, circumstances he did not create. A lot of us contributed to that so let’s not point at the hapless George, the cigar-toking William, or George I.
Let’s look at the timeline of the Great Depression, shall we?
So it begins in the 1920’s when banks were failing in huge numbers, the top tax rate was cut to the lowest rate in 80 years, and there was an artificial stock market bubble, and there is a shift in wealth from the lower income to the upper income.
Hmmm…déjà-vu all over again? Maybe, if you stopped there, you might think so…but wait.
By the end of the 20’s production was declining at an annual rate of about 20% and in 2004, since the US peak in production in 1979, production fell by 17.5% (can anyone round up?)
By 1930, the GNP falls by 9.4 percent and employment rises to 8.7 percent and we currently sit at 9.5.
This is where the Great Depression begins o diverge, so are we in a lull before the real storm, or are we at a turning up point? That’s the question, and that’s what nobody seems to know or be able to predict.
By 1932 10,000 banks have failed, 40% of the total number of banks in 1929, unemployment hits almost 24 percent. Currently, 301 banks have failed since 2000 in the current crisis (About 3% of what is left, currently about 8,700 FDIC insured banks in the US), and as mentioned above, the unemployment rate stands at 9.5%.
So maybe we’re living in somewhat of a manufactured crisis. I mean if things are not even a third as bad as they were in the Great Depression, then why should we worry?
Interesting news from the past here – “Alarmed by Roosevelt’s plan to redistribute wealth from the rich to the poor, a group of millionaire businessmen, led by the Du Pont and J.P. Morgan empires, plans to overthrow Roosevelt with a military coup and install a fascist government modeled after Mussolini’s regime in Italy. The businessmen try to recruit General Smedley Butler, promising him an army of 500,000, unlimited financial backing and generous media spin control. The plot is foiled when Butler reports it to Congress.”
So by 1933 unemployment rises to almost 25% and YET Roosevelt rejects Keynes’ advice to begin heavy deficit spending.
Sweden is the first economy to recover due to a policy of deficit spending, unlike the US which begins a slow recovery in 1934.
By 1936 unemployment is falling and hits just under 17% percent and the top tax rate climbs to 79%.
The climb out of the Depression is finally aided by the boost in manufacturing created by WWII.
So perhaps trying to draw parallels between such different times is interesting but not very meaningful. After all, we won’t know what will work to bring the US out of its economic troubles until we are actually out of them, if we ever are.
All I know is that we have a President now who has the reins and is expected to find the right answers, whether popular or not.