by John Robson
At the Democratic National Convention, U.S. President Obama claimed America’s in “one of the worst economic crises in history” then called for “the kind of bold, persistent experimentation that Franklin Roosevelt pursued during the only crisis worse than this one.” But his self-serving invocation of FDR is as unconvincing as his self-serving portrayal of the current crisis.
The United States has seen many of what were called “panics” before they were renamed “depressions” then “recessions” on the theory that giving something a long name makes it better. The current one does look as long and deep as any of the 12 the non-profit National Bureau of Economic Research (NBER) identifies since 1945. Unemployment went slightly higher in 1982 than 2009′s 10% peak. But eight million American workers have quit seeking jobs and count as out of the labour force, not unemployed.
NBER, which calls a recession a period of falling GDP lasting more than a few months, says the current one ended in June 2009. Hard times certainly didn’t. But it’s still fatuous to compare today’s troubles to the Great Depression, which lasted over a decade and saw unemployment spike around 25% in 1933, dip to 16% then surge back to 20% during the 1937-38 “Roosevelt recession”. And the fall in GDP from late 2007 to June 2009 was less than half the 1945 dip and less than a quarter of the disastrous 27% plunge from 1929 to 1933, with a further 18.2% drop in 1937.
This is no Great Depression and Obama’s no Roosevelt. Besides, history didn’t start in 1929 and while statistics get fuzzier as we move backward we know the U.S. had major downturns in 1819, 1837, 1857, 1873, 1893, 1907 and 1921, of which the worst was the “Panic” of 1873.
It technically lasted five and a half years. But hard times of one sort or another went on for a generation; the period 1873-97 was called the “Great Depression” until the 1930s. And hard times then were really hard.
Even with most people still on farms, a financial panic – followed by factories and workshops closing – saw unemployment in New York City soar to around 25%, workers clash with police from Chicago to Boston, gunfire in Pennsylvania coalfields and a nationwide railway strike in 1877 with mobs trashing property and militia killing dozens of rioters. That sure beat today’s troubles. As did the early 1890s slump that pushed unemployment to around 16%, twice today’s level.
The Panic of 1873 had complex causes from horse influenza to the U.S. demonetizing sliver, a runaway railway boom screeching to a halt and falling commodity prices that made food cheaper for urban workers but turned farmers radical for a generation. And it had complex results.
Despite hard times for many, a “Second Industrial Revolution” took the world from iron, coal and steam to steel, oil and electricity while giant corporations like Standard Oil and United States Steel pushed down prices as much as 90%. And Americans prospered. From 1873 to 1896, GDP quadrupled and per-capita income more than doubled despite massive waves of poor immigrants.
If that doesn’t sound like today’s troubles or even those of the 1930s the president should consider why not. Until recently, when a “panic” sent interest rates up and exposed many investments as unsound, people liquidated worthless assets and started over. It hurt, but destruction soon gave way to creation because politicians had neither the power nor the desire to stand athwart the restructuring yelling “Stop” and throwing money at failure.
The Great Depression of the Dirty Thirties broke that pattern. First Hoover’s Republicans hiked tariffs and taxes, then FDR’s Democrats messed around with the economy in endless foolish ways. And hard times just hung around. And since 2007, the government’s response to a burst housing bubble has been to crank up spending and the printing presses and prop up bad investments everywhere. And hard times just hang around.
It’s not only self-serving partisanship for Obama to invoke FDR. It’s bad economics because we’ve had four years of budget-busting “persistent experimentation” from bank bailouts to car bailouts, alternative energy and “quantitative easing”.
If history’s any guide, we need to stop it, not do it again.
Categories: Contributor Columns