Seeing the Pattern: 1929 and 2008

The stock market is plummeting, businesses are closing, banks are in trouble of shutting their doors forever, and the incumbent Republicans want you to persevere and promises that change is coming just around the corner. Meanwhile, the challenging Democrats offer plans that include controversial spending and widespread alterations to the governmental structure. The American people have to decide which is best, and they must decide who will lead them through what has been dubbed “The Great Depression.”

The paragraph you just read may have spawned images of the economic state we currently find ourselves in, considering it depicted the economic state of the 1930s, we have a problem. In 1932 incumbent president Herbert Hoover defended himself against the onslaught of public opinion and the hard-charging Franklin Roosevelt. Hoover is still regarded as one of the worst presidents in history, and the mythical status of his “do-nothingism” is unshakable.

Our current economic crisis has seen the Dow Jones Industrial Average fall almost 6,000 points in one year and almost 2,000 points in just one week. To many, this resembles the infamous crash of 1929, Black Tuesday, the day the markets died. Most economists accept that we are certainly in a recession, but discourage any notion of a clear path toward “depression.” Regardless, the similarities between then and now are unmistakable, as reported by The San Diego Union-Tribune.

Politicians, from Congress to the Treasury Department argued – largely unconvincingly – that their actions were necessary to avoid an economic depression. Considering the administration was denying that the economy had any fundamental weaknesses just weeks ago, their abrupt about-face is a bit alarming. It is as if the crisis, which most Americans had seen building for months, was able to sneak-up behind the people tasked with protecting us from it.

Market crisis, then and now, is driven by fear. Shareholders fear that their company is incapable of sustaining itself and sell-off in droves. One fire sale leads to another, and eventually the entire market stumbles. When one company is deemed unfit, it can expect to see drastic reductions in share prices. When an entire system is deemed unfit, we see indexes plunge as has been the case in the DJIA, NASDAQ and S&P 500 during the past week.

In the 1920s, housing values were greatly inflated in many places around the country. Real-estate in California and Florida boomed. This was also the case in the early 2000s, when American home values reached historic highs. In the 1920s people began to live off lines of credit, just as today's Americans live off their credit cards and home equity. The 1920s saw the first explosion of Wall Street's super-rich elite. This is mirrored in modern times when executives make tens of millions, even if they drive their companies into the ground in the process.

The financial world in modern America is strikingly, startlingly similar to the state of the economy 80 years ago. It is being pilfered by foreign companies for its best and most valuable resources, it is fundamentally unstable and unsustainable, and its collapse is bringing much of the world down with it. Unfortunately, America in 2008 no longer has the industrial and manufacturing base with which to climb out of this hole. We aren't yet in a “depression,” but our current hardships are too alarming to ignore. We aren't yet in a “depression,” but if we take action – and more importantly, if we don't take the right action – we may find ourselves in one down the road.

The San Diego Union-Tribune

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