Why We Couldn't Handle Another Depression

Many TV pundits, ivory tower economists, and clueless Wall Street permabulls keep trying to make the case that, despite the bursting of history's biggest credit and housing bubbles and the chaotic unraveling of unprecedented excesses and global imbalances, the sharp downturn that is already underway won't be anywhere near as calamitous as the one that took place nearly 80 years ago.

Among the reasons: policymakers are more sophisticated than they used to be, and people have wised up quite a bit since the time when the world was poised on a cliff overlooking a dark abyss.

More realistic types would argue otherwise. In fact, Jim Rawles, an author, lecturer, former U.S. Army Intelligence officer, and publisher of SurvivalBlog.com, sets out some compelling reasons why the current economic downturn could turn out to be far worse than the Great Depression in Letter Re: The Depression of the 1930s--Why No Societal Collapse?: 

There are some substantial differences between our society in the early 21st Century, and America in the 1930s. With these differences, our society is now much more fragile and vulnerable to collapse. Here are a few that come immediately to mind:

Consider the Attributes of America in the 1930s :

A largely agrarian and self-sufficient society. (Now, just 1% of the population operating farms and ranches feed the other 99%).

Not heavily dependent on computing and communications, technology, grid power, and petroleum-based fuels.

Shorter chains of supply. Most food was grown within 100 miles of where people lived.

A very small underclass that was dependent on charity or public welfare.

Lower property tax rates and lower (or nonexistent) license fees, vehicle registration fees, et cetera.

The majority of workers lived near their work.

Most displaced workers were willing to accept lower-paying jobs - even doing hard physical labor.

The entire nation was economically self-sufficient and could carry on without many imports.

Far greater self-sufficiency at the household level (domestic water wells, windmills, wood burning stoves, home vegetable gardens, home canning, and so forth).

A much lower level of indebtedness (public and private). At the outset of the Depression most families had cash savings. (We are now a nation of debtors).

A sound currency, still backed by specie. (Although FDR's administration seized most privately-held gold in 1933, the currency was at least still fully redeemable in silver coinage until 1964.)

Lower percentage of corporate employment - so there were less risk of huge layoffs that would devastate communities.

A significantly more moral society that still had compunctions and a prevalently law-abiding attitude.

A homogeneous population that largely shared common Judeo-Christian values. A much larger portion of society attended church regularly.

A simpler, less extravagant lifestyle, with tastes in cooking and entertainment that did not require large outlays of cash.

Most families owned only one car (with proportionately lower registration and insurance costs), and they lived in smaller homes that were less expensive to heat.

In summary, in the 1930s it cost a lot less to live (as a percentage of income) and people were willing, able, and accustomed to "making do" without. When people lost their jobs, in many cases they didn't lose their homes because they were paid for. Many folks could simply revert to a self-sufficient lifestyle and earn enough with odd jobs to pay their property taxes....

The bottom line: If America were to experience a Second Great Depression, given the high level of debt and systems dependence, there would be enormous rates of dislocation and homelessness. And with modern-day immorality and the prevalent "me first " attitude, I have no doubt that riots and looting would absolutely explode.

Comments

[investor88:]

This is a useful article which goes against the grain that we can't possibly have a Depression. Based on logic, we can argue either way. The current economic dynamics suggest that we are lurching towards recession/Depression but we are not there yet. It is a black swan event, and the fact that no one can even think about it means that such a black swan event can happen. A very low probability event but it can happen.

2008 Oct 28 10:07 AM

[PastTense:]

In the 30s, people spend a much higher percentage of their income on food and other necessities--now lots of people spend the bulk of their income on their fancy lifestyles. I just don't see the problem cutting--you just dump the fancy lifestyle and live within your means. Why would there be a widespread problem of homelessness? Probably now there is more than 4 times as much housing space per person as there in the 30s. So people could just move in with their parents or other relatives, rent out rooms in their big houses--and still be less crowded than people were in the 30s.

I really don't understand the arguments for depression. So a minority of the population over-extended themselves? So they will have to cut back. I just don't see the catastrophic effects on the rest of us.

2008 Oct 28 12:09 PM

[Don Fishback:]

So what you're saying is that all those bitter hicks who cling to their guns and religion are the only ones who are prepared for the apocalypse those city folks created? Now THAT's ironic.

2008 Oct 28 12:13 PM

[Econ 101:]

This isnt a black swan event. It could be seen comming. As for PastTense's not being worried about those people who can "just cut back" I dont think he realizes the mentality. There is an entitlement mentality throughout America. When they dont have enough, when they lose cable, when they cant get credit at the liquor store they will be pissed. And by "They" I am not targeting any ethnic group, rather those displaced by layoffs, jobs shipped overseas, NAFTA and corporate greed.

One thing the author forgot, the job skills posessd by America in the 1930s were easier to acquire than they are now. And no one will need the financial planners and stock brokers in the comming economy. The carpenmters, plumbers, electricians et al needed arent there...

The ones in gated communities with armed guards will be ok for a while.

The rest of us will need those guns.

2008 Oct 29 11:26 AM

[carey_jim:]

Because America is still a functioning democracy with all of the institutions of democracy intact at state, local and federal levels, it would be relatively easy for the bottom 80% of Americans (who own only about 15% of the wealth sociology.ucsc.edu/who...) to wrest control from the top 1% of Americans who have power now and who own about 1/3 of the wealth.

The danger of vengeful and messy (democratic) revolution is real, in part I think due to the fact that the American plutocratic class brutally suppressed all serious socialist threats to its existence (Eugene Debs during World War I and McCarthyism after World War II) and stopped or dismantled the Keynesian measures taken by Roosevelt during the 1930's.

The Europeans, who have had a long history with socialism, have learned from experience just how difficult it is to make the idealistic dreams of socialism into realities. They have taken the best ideas and thrown away the rest while keeping the name "socialism" for window dressing only.

Unfortunately, we in America might have to learn the same lessons for ourselves if an angry, dispossessed American majority takes over the government in desperation simply to feed itself and find shelter.

2008 Oct 29 01:24 PM

[momomiester:]

Chicken Little just called and he wants to sue you for copyright infrindgement for his sky is falling speal

2008 Oct 29 03:01 PM

[momomiester:]

Chicken little called. He said the lawsuit against you for copywrite infrindgement is being processed. He claims to have dibbs on the "Sky is falling" idea.

2008 Oct 29 03:06 PM

[momomiester:]

double posts of a joke ruin the joke.

2008 Oct 29 03:07 PM