Is the U.S. Economy More Sound than It Was in the 30s? 20 comments
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Economic commentators are quick to point out that the misery of the global economic crisis will be less in the 21st century than in the 1930s because wealth in advanced economies is more evenly spread and the absolute level higher.
That may be true. But it is interesting to compare JK Galbraith’s five pointers to an unsound US economy in the late 1920s and today. Not so much has changed.
Five economic tests from the 20s
First, a bad distribution of wealth. To be sure wealth is not as concentrated into the hands of the rich but the US has certainly become a far less equal society over the past decade with low pay levels static, and well there are those who get bonuses.
Second, a bad corporate structure. The 30s had its holding companies and investment trusts. The 2000s has private equity and hedge funds. Both committed the cardinal sin of over leveraging, and forgot that it works in reverse in a recession.
Third, a bad banking structure. History is doomed to repeat itself. The banking structure of the 30s was inherently weak with too many small banks. The modern banking system became besotted with derivatives and securitized subprime mortgages, and over leveraged real estate, stocks and just about every asset class.
Fourth, foreign balances worked in reverse in the 30s with a US surplus sucking liquidity out of the global financial system that gradually bankrupted its trading partners. That position could be reversed this time round.
Fifth the great Professor JK Glabraith cites poor economic intelligence as a reason for the decline. How many economists foresaw last year’s calamity? Did central banks take rising house prices as a hint to raise interest rates?
Never again?
In the conclusion to his classic ‘The Great Crash 1929′ JK Galbraith asks whether such a slump could happen again, and he says only when these lessons of history had been forgotten.
You have indeed to wonder if the US economy is really more sound than in the 1930s. It was big then and it is bigger now. But that does not mean a painful period of adjustment is not awaiting the US after its long boom period.
Unemployment may not rise to 25 per cent, but it is 8.5 per cent and rising, so is 15 or even 20 per cent unthinkable as the recession rolls out? The bankruptcy of General Motors (GM) and/or Chrysler would contribute greatly to the dole queue, and redundancies at the banks can only have begun.
However, the government is spending and not trying to run a balanced budget or erect trade barriers, so this is not entirely a repeat of the 30s, and it will nationalize the banks rather than allow them to fail.
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This article has 20 comments:
Today's economy is vastly different and our employment struture is different with fewer people involved in agriculture and manufacturing, areas partcularly hard hit during the depression. Our international linkage is also greater.
The most common feature between then and now are the headlines .............barking and beckoning.
Brokers Believe Worst Is Over and Recommend Buying of Real Bargains
– New York Herald Tribune, October 27, 1929
October 29, 1929 - Stock Market Crashes!
BROKERS BELIEVE BOTTOM IS REACHED; Others Say a Sharp. Recovery Is in Order.
-October 30, 1929 (Glad they covered both sides of the story!)
On a more serious note, the policy responses of both the Fed and Treasury have been much more in formed than those undertaken in 1929 and after. We have moved to ZIRP and QE and are providing unmatched fiscal stimulus.
In addition to consistent easing of moneatary policy and forecul fiscal stimulus, I think we will avoid what could easily have been the most destructive policy initiative during the Depression: Smoot Hawley. And while all of the G20 memebers have protectionist sentiment, we are likley to refrain from destructive tariffs.
At the moment, these bold initiatives are serving a higher purpose and should help us avoid the massive loss of output and wealth experienced by that earlier generation.
2.Americans then, in my view, were more optimistic , more genuinely patriotic( wiiling to make tangible sacrifices for the Nation and the idea of America then than now) and more prepared to defer instant gratification for future gains than now.America also did not face the quotidian reality of mutiple, credible, security threats to the homeland and the very large and growing expense of protecting against these threats. Hoever, then our military was, at best, second rate. Today, our military is one of the finest in the history of the world and sets the global standard for excellence. Unfortunately, it seems, we are getting ready to degrade our military.
3. A high school education then provided far more solid preparation and relevant human capital than a 4 year college education now. However, an American today has vastly greater access to a diverse and high quality technical/scientific education today than in the 1930s.
4. Then, young people(under 25) were the great underused demographic resource. They were fitter both physically and mentally than young people today. However, today the great underused demographic resource is the "vigorous old---fit and alert people over 70 who are capable of making a major economic and social contribution. Such a national asset hardly existed then.
5. Our Strategic Depth(i.e the ability to swiftly and massively redeploy resources in response to opportunities and threats....owing to technology, infrastructure,management value added, property rights,risk capital, financial mechanisms ) is much greater now than then. Unfortunately, current public policy and maybe voter choice is rapidly eroding Strategic Depth.
On balance we are perhaps in about the same position as in the late 1920s/eary 1930s. The big difference is that then we were on an ascending national trajectory; now we are on a descending trajectory.
The highest paid leadership class ever is giving us the zombie bank solution that flattened Japan, on steroids. Taking handouts to preserve their privilege they built milking this country while social maladies kept increasing.
Recovery includes admission of mistakes. We can't recover by backing the liquor truck up to the bar.
Today's threats are from small bands of terrorists possibly backed by unstable but not very powerful regimes. The only way this country will be brought down is from within, yet whenever there is an actual attack, such as 9/11, people in the U.S. rally. Are we really so different from the people in the 30s and 40s?
Things look bad now, but we don't have dust bowl conditions, widespread hoovervilles, or a large-scale breakdown of governments running significant economies around the world. We can learn many lessons from the 30s, but this is hardly a repeat performance.
in the 30s i think more people knew how to farm, hunt, fish, and take care of themselves. i think it was probably a more innocent, gentle society. morality still governed the majority.
they even believed fdr and turned in their gold.
if things degenerate to the conditions in the 30s i hate to think of the reaction of the masses.
> i think it was probably a more innocent, gentle society.
Yep. Just ask Al Capone.
> they even believed fdr and turned in their gold.
Nonsense. "After the confiscation announcement, 3.9 million ounces of gold coin - approximately 21.9% of the gold coin then in circulation - were turned in. Subsequently, the government no longer reported this statistic... Friedman and Schwartz go on to say: "We therefore concluded that in Jan. 1934 the bulk of the [13.9 million ounces] was retained illegally in private hands." (fgmr.com/confiscation.htm)
The image of the nation projected on television and through Hollywood is a complete farce. So is the propaganda about have the best work force in the word. Most Americans have no experience of working in a truly productive environment.
On Apr 06 11:03 AM Larrysyr wrote:
> In the 30s, the principle international threats to U.S. security
> were the very real and very powerful dictatorships in Germany, Italy,
> and Spain. The American political majority was so reluctant to face
> down these threats that the U.S. waited over 2 years to enter WWII.
> Seems like an example of "intellectual laziness and lack of alertness"
> from the same people we now call "The Greatest Generation." Luckily,
> I have the luxury of living in a very different time.
>
> Today's threats are from small bands of terrorists possibly backed
> by unstable but not very powerful regimes. The only way this country
> will be brought down is from within, yet whenever there is an actual
> attack, such as 9/11, people in the U.S. rally. Are we really so
> different from the people in the 30s and 40s?
>
> Things look bad now, but we don't have dust bowl conditions, widespread
> hoovervilles, or a large-scale breakdown of governments running significant
> economies around the world. We can learn many lessons from the 30s,
> but this is hardly a repeat performance.
"Thu Oct 02 01:00:00 CDT 2008 A new study released this week highlights what experts have been saying for years: the U.S. faces significant risk of power brownouts and blackouts as early as next summer that may cost tens of billions of dollars and threaten lives.
The study, "Lights Out In 2009?" warns that the U.S. "faces potentially crippling electricity brownouts and blackouts beginning in the summer of 2009, which may cost tens of billions of dollars and threaten lives." ...
www.utilityproducts.co...
We will see.
The US could send millions of our prime workers to war, and the industrial-agriculture complex could arm and feed the entire free world.
My grandmother was a child of the depression. She knew nothing of the economics of the day, only that she was poor and so was everyone else. She had a chicken coop, a patch for growing vegetables, and worked odd jobs to help feed the family. She and her siblings pitched in at church and worked the soup kitchen. She baked breads and cakes to sell at the market, along with eggs. It was a different time.
She told me that good family values led to a strong community. That was the lesson. They survived by working together with their neighbors, family and friends.
in the 1930's spain and italy were hardly threats to the u.s.a/ (mussolini was a threat to ethiopia but not much else).
the main international problem of the u.s.a @ that time was isolationism, europe's quarrels were of no relevance to the typical u.s citizen. u.s.a had been kept out of the league of nations by lodge/borah & the rest of the republican politicians. lindy had gone to europe & came back saying don't try to fight the german military machine, they're too strong. lots of people believed him, that ended in 1941. allan cranston (yes the later senator) translated mein kampf & published it @ his own expense, trying to warn america, but nobody paid any attention.
hoovervilles will be along presently, soup kitchens are here now.
the international threats today are islamic fundamentalism, on the doctrine that anyone (not just u.s citizens) who participates in western civilization is in league with satan. mcdonalds in cairo are offensive to many moslems.
> jack
The major drivers and initiators of the WWII were
1. Nazi dictator A. Hitler.
Treaty of Versailles signed on June 28, 1919 officially ended the WWI. Included in the 450 articles of the treaty were the demands that Germany officially accept responsibility for starting the war and pay heavy economic reparations. Germany itself was not included in the negotiations of the treaty and was forced to sign it.
The Treaty has made the WWII inevitable. It is of interest that Soviets leaders Lenin and Stalin never recognized Treaty of Versailles. The treaty was terribly unfair to Germany and its people. Germany could not accept a colonial status, and Soviets were on German's side.
2. Soviet dictator J. Stalin.
Soviet communist and terrorist regime started preparations for the WWII back in mid 1920s.
Soviet militarized society could not function without a war having military expenses above 70% of their GDP. [This was another reason why the WWII was followed by the "Cold war".]
On August 23, 1939, Soviet and German Foreign Ministers Molotov and Von Ribbentrop have signed the Nazi-Soviet Non-aggression Pact. The Treaty's Secret Protocol divided Europe into "the respective spheres of influence" following the upcoming invasion of Poland by both countries. Nazi invaded Poland on Sep. 1, 1939. Soviet invaded Poland just a week later.
3. American President FDR.
Failing to revive the US economy due to the Great Depression, FDR did everything in his power to initiate a world war in spite of the Congress efforts to keep America out off a war.
England tried not to be involved in the coming war. Chamberlain understood that England could not fight, even with France and the USA help, a war against both Germany and USSR. Consequently, as Chamberlain stated many times, FDR forced England to declare a war against just Germany hoping to keep USSR out off the conflict.
FDR also declare a blockade against Japan. By the international Law, a declaration of a blockade is an equivalent to a declaration of a war. Therefore, FDR was the first to declare a war against Japan. Consequently, the Japanese attack on the Pearl Harbor was legally fully justified.
Unfortunately for Japan and Germany, they both have lost the WWII and were declared responsible for all war crimes. At the same time, Soviets won the WWII and were capable of seizing Eastern Europe, the half of Germany, and big chunk of Asia.