Another Great Depression... Not

Do a Google search for the phrase "since the Great Depression" and you'll get about 33,605 hits just from news reports, and 2.5 million hits on Google overall. But there are some major differences between now and the 1930s including:

Updated (thank to Michael Gordon): The money supply was decreased by 1/3 during the 1930s (the "Great Contraction"); there was no FDIC, unemployment insurance or Social Security in the early 1930s; and Congress raised taxes and imposed tariffs so high that world trade basically stopped, just to name a few differences.

The charts below illustrate some other differences.

We're nowhere close to the number of bank failures of the 1930s, when banks were failing at an average rate of almost 1,000 per year.

We're nowhere close to the 17.1% average unemployment rate of the 1930s.

On a per capita basis, real GDP is 7.6 times higher today than in 1932.

Food, clothing and shelter consumed about about half of disposable income in the 1930s, compared to only about 1/3 today.

Comments

[investor88:]

That's comforting, Depression not.

2008 Oct 16 08:11 AM

[Paul Killinger:]

Mark,

And it was the repeal of the depression era Glass-Steagall Act that shares the blame for the mess we find ourselves in now.

That and the advent of modern computers, which enable us to send billions of dollars around the world instantaneously with the click of a key. We couldn't have done it without them.

2008 Oct 16 10:27 AM

[Paul Killinger:]

"War Games, the Sequel"

One of my favorite movies from the Reagan years is War Games. If you recall, it's about a couple of kids who innocently tapped in to the NORAD computer and almost ended up causing WWIII.

It turns out the author was half right. The REAL LIFE sequel turned out to be about a bunch of Ivy Leaguers who figured out how to use the same technology to melt down our financial world instead.

2008 Oct 16 10:32 AM

[Paul Killinger:]

We raised 'em and you educated 'em, the lil' darlings!

2008 Oct 16 10:36 AM

[Joyful Alte...:]

I wonder what the comparative unemployment rates would be if they were calculated the same way in both eras; e.g., active-duty military have been counted as employed persons only since the 1980s.

2008 Oct 16 11:38 AM

[axelrod608:]

Comparing apples to oranges.... In the '30's a third of all Americans lived on family farms and were accustomed to griowing their own food. Today's "farmers" are mostly in agribusiness. I suspect a fraction of 1% live on small family farms today. This meltdown - if it occurs - will be substantively different.

Americans then were self-reliant. Today we're sheeple looking for big nanny government to bail us out of every calamity. If the wheels fall of, and it increasingly looks like they will, it will be a mess with none of the moral fiber underpinnings that were almost universal back then.

The "numbers" aren't comparable. In the 1930's the US was the world's largest oil exporter. Try fitting the oil "numbers" into a picture in which we rely on liquid fossil fuel for ALL our transportation and agricultural needs. Ooops ! The picture changed radically.

Today we live in a country which derives over 4/5ths of its GDP from consumer spending and finance. We in deep doodoo.

2008 Oct 16 01:17 PM

[Smarty_Pants:]

Validity of most of the data claimed is dubious.

1) "We're nowhere close to the 17.1% average unemployment rate of the 1930s"

shadowstats.com estimates current unemployment at 15% using the calculations previously used Pre-Clinton. That's pretty "close".

www.shadowstats.com/ch...


2) "On a per capita basis, real GDP is 7.6 times higher today than in 1932"

According to the Bureau of Labor Statistics CPI calculator the cost of a fixed basket of goodies is nearly 16 times higher now than in 1932. So the per-capita GDP buys less than half what it used to buy back then. Seems you could buy more stuff with your share of the GDP 'back in the day'.

data.bls.gov/cgi-bin/c...

3) "Food, clothing and shelter consumed about about half of disposable income in the 1930s, compared to only about 1/3 today"

2008 Median house = $219,000, (Realtors Survey)
6.5% monthly mortgage payment PI only = $1380
Taxes = $100/mo
Insurance = $150/mo
Total housing = $1630

3x housing = $4890/mo = $59,000/Yr estmate for median income?

NOT! 2007 median income = $50,233.00. (census)

The median income can't even afford the cost of a median home at 1/3 of income, much less food and clothing too.

The author should try to cite sources for data before drawing conclusions based on apples/oranges comparisons.

2008 Oct 16 03:36 PM

[Joyful Alte...:]

Thanks, Smarty, for showing the data I was too busy (lazy) to find. If you add in the changes Reagan made when the official unemployment rate exceeded 10%, that rate could be higher. I remember the era well, as the feds started outsourcing like mad.

Axelrod, an awful lot of those few remaining actual family farms are Amish, with no electricity and plenty of child labor.

2008 Oct 16 04:13 PM

[David Roskoph:]

Smartypants I appreciate your counterpoint. The key to the destructiveness of the Depression was the deflation. It punctuated a colossal inflation from a Federal Reserve overseen credit bubble. Things have gone one way since then, due to more inflation from the Feds. The current level of asset inflation went parabolic from the mortgage binge and did what all bubbles do, popped to reset prices.

We've experienced about 12 trillion in deflation vs only 2 trillion in fiat-sponsored reflation. Consider that there is far more consolidation in the banking system and thus WaMu alone represented how many 30's sized banks?

2008 Oct 16 06:15 PM

[PainfullyAware:]

We Did Not Have Shadow Banking In 1929 Either.

Got To Love "Financial Engineering".

2008 Oct 16 07:28 PM

[thedozer:]

This is going to be The Depression.... with the INTERNET.

it's already better!

2008 Oct 16 07:55 PM

[Steven Hansen:]

i guess you could make the same claims in oct 1929. let this one play out.

2008 Oct 16 09:03 PM

[BOHICA:]

Yeah, it seems odd to compare now to 1932, when 1929 would be a better comparison.

2008 Oct 17 03:19 AM

[Boaz Berkowitz:]

I was enjoying this positive outlook until Smarty_Pants ruined it for me. Impressive job done on the research Smarty. Perry still makes some valid arguments though or at least I hope so.

2008 Oct 23 09:57 AM