This is one of those columns where I feel the distinct need to offer a disclaimer in the interest of the sort of accuracy that will keep someone from jumping from the top story of a building. I am as far from being an economist as anyone can be.
Given the times in which we live, I have read more of the work of the purveyors of the “dismal science” lately than in my previous half century of reading life. I am a Baby Boomer, and like so many my age, I am the son of the “greatest generation,” justifiably made famous by Tom Brokaw and many others.
Most Boomers were raised on tales of the legendary Great Depression, often used as a teaching tool aimed at this “softest generation.” Those stories were wielded by parents to explain how embracing frugality would enable us to avoid the hard times that they had experienced. These lessons in taking prosperity for granted were layered over our reality that the hard times we never knew were history, and now we were engaged in a headlong pursuit of the “American Dream,” with home ownership serving as the cornerstone upon which that dream would be built.
To us the word “depression” is the stuff of legend and folklore. Despite the severity of economic downturn, use of the word depression was almost as taboo as utterance of the word cancer once was. But lately the use of the “D” word is becoming all too comfortable for my pampered Baby Boomer ears. So much so that I felt the need to discover what comparisons might exist between today’s economic environment and those at the dawning of the real “Great Depression.” I only had to reach for the definitive work on the era, “Freedom from Fear: The American People in Depression and War, 1929 – 1945,” by David M. Kennedy to have a basis for comparison. If I was seeking comfort, it would not be found here. Too many of the passages related to the 1929 version of the depression were eerily similar to last week’s stories in the New York Times.
The administration of Herbert Hoover came in on the heels of the thoroughly Republican, government intervention-eschewing, free market administration of Calvin Coolidge. With the exception of hard times brought on by over production in agriculture, the economy was booming. As Kennedy says of the economic environment that existed in 1928, “Money to fuel the skyrocketing stock market flowed from countless spigots.” It flowed so copiously according to economist John Kenneth Galbraith that “it seemed as though Wall Street were by way of devouring all the money of the entire world.”
The result was speculative borrowing. In short, it was financially feasible to borrow money simply to turn around and invest in the galloping stock market. Money lent by banks for stock purchases didn’t go directly to the market but into brokers’ “call loans.” Call loans enabled the purchaser to buy stocks on margin by putting up only as little as 10 percent of the purchase price of the stock. Does this sound familiar? Stocks purchased by committing only 10 percent of the listed price using money that was borrowed in the first place. If one were to replace real estate purchased in a similar way today for the stocks purchased in 1928, the similarities leap off the page. There was news report this weekend of a woman who is an acupuncturist by profession who purchased six pieces of fairly expensive residential property with only a small down payment. In reality she was obligated for hundreds of thousands of dollars that she had no way to pay.
On Oct. 24, 1929, reality set in, or so it would seem. That day, known as “Black Thursday,” saw the first crash of the stock market, only to see it stabilize and repeat the performance on “Black Tuesday,” Oct. 29. It was on Oct. 25, 1929, that President Hoover announced that “the fundamental business of the country . . . . is on a sound and prosperous basis.”
Readers may remember that this is precisely the language used by Republican Presidential nominee John McCain the day after the precipitous drop in the markets in September of 2008.
Perhaps the biggest error made by us Baby Boomers is to think that the Great Depression was a singular event that commenced in October of 1929. Just as today the assumption is made that the worst is over at every pause in the continued litany of bad news. On May 1, 1930, President Hoover told the U.S. Chamber of Commerce, “I am convinced that we have passed the worst and that we shall rapidly recover.” To another group he proclaimed, “The depression is over.”
An additional similarity can be found in the immediate call for massive public works projects to deal with the mounting unemployment problem. The criteria for projects most desirable for funding in 1930 were those that had already been engineered and were ready to go. Anybody hear the phrase “shovel ready” in the news in the last few days? It was demanded then, as it is now, that the government intervene to create make work projects. This is where the stories turn to the time spent by my father sending money home from the Civilian Conservation Corp.
Dr. Marty Wiseman is director of the John C. Stennis Institute of Government at Mississippi State University.