A Far Cry from "Hooverville"

I am hearing the word "Hooverville" bantered about by the talking heads on TV lately. Now, am I the only one laughing?

Things are not perfect currently, but can we get just a little perspective here? Let's look at what the conditions were actually like when the term "Hooverville" was coined.

Robert J. Samuelson, at The Library of Economics and Liberty says:

It is hard for those who did not live through it to grasp the full force of the worldwide depression. Between 1930 and 1939 U.S. unemployment averaged 18.2 percent. The economy's output of goods and services (Gross National Product) declined 30 percent between 1929 and 1933 and recovered to the 1929 level only in 1939. Prices of almost everything (farm products, raw materials, industrial goods, stocks) fell dramatically. Farm prices, for instance, dropped 51 percent from 1929 to 1933. World trade shriveled: between 1929 and 1933 it shrank 65 percent in dollar value and 25 percent in unit volume. Most nations suffered. In 1932 Britain's unemployment was 17.6 percent.

So where are we at today? Unemployment sits at 4.8%. Let's also note here that this is a full 33% BELOW the 1991-92 unemployment rate of 7.1%, the period of the last actual US recession.

Now, when we look at the "Hooverville" period, we also see a 30% contraction in US GDP. That means we would see a current GDP number of -30.0%!! But, today we see a number calling for an expansion of .6%.

Anemic? Yes. Catastrophic? Laughable...

There are several reasons the US will avoid a recession and not remotely approach the "Hooverville" period:

1. The world's economies as far too intertwined today to allow industrialized nations' economies to deteriorate that far. Other nations have too much invested in each other to essentially allow one another to fail for an extended period. US economic pain is felt in China and vice versa.
2. Demand from developing nations places a floor on production.
3. Money flow: The ease in which investors are able to profit from the economic activities all over the world ensures wealth creation even with deteriorating conditions in their home country. This was not the case in the 1930s.
4. International businesses: An extended recession in the US would hurt, but not cripple, profits in virtually all US businesses in the S&P 500. Currently over 50% of the S&P profits are from international operations. While profits as a whole would be damaged in a severe scenario, the evisceration of them we saw during the depression would not happen.

Of course, a major catastrophic event (nuclear terror, China / Russia military conflict) could cause major disruptions. But, barring that, do not look for them.

Will it be all smooth sailing? No. It does mean that we need a heavy heaping of perspective as to where we sit currently. We have historically low unemployment, an expanding economy and moderate inflation. A far cry from "Hooverville".

Comments

[Dr. C.]

Comparing today's published unemployment rate to historical rates is meaningless. Today's unemployment rate calculated as it was calculated in the first half of the 1900's would be about 12%. See: www.shadowstats.com/ar... and www.shadowstats.com/al... .

[L Moore]

Hoovervilles no; Bushburgs yes (subdivisions of empty homes).

[AmesTiedeman]

Blame Bush? Give me a break. Blame Congress for letting the mortgage industry qualify dogs.

[wisdomseeker]

No, blame Bush for bringing in a regulatory team that would rather look the other way than fix the obvious abuses that crept into the system over the past 7 years. You can blame Congress too, though - there's certainly going to be enough dog poop to spread around.

[chrism1962]

I would blame 3 different entities for the current problems:

1) The ratings agencies, for their close relationship with banks who are selling securities/CDO's, from whom they received their fees.

2) The banks for allowing "liar loans", it had to end in tears.

3) The regulatory authorities for not understanding what was going on.

[RKenn]

Actually, the Fed gets the blame, with support from Congress. Had Greenspan not pushed interest rates to ridiculously low levels, "mortgage gambling" would not have occurred. Congress helped by excluding up to $500,000 in capital gains from the selling of property. Bottom line: Both entities wanted a housing bubble, but ignored the law of unintended consequences.

[billddrummer]

NO one is to blame, unless you target the cyclical nature of business.

[ezduzit]

you could fool me but if this isn't a recession then there is no such thing. i've been through all the recent "so called" recessions and this is worse, by a lot.

[Stillrenting]

Author tries to compare this to 1933. He should be comparing it to 1929.

September.

[Arle Lommel]

Interesting comments. Out of curiosity, where did the statistics about 50% of S&P 500 revenues coming from international commerce come from? I'd love to read the source of that point because it is directly relevant to the work I do.