Here’s the way it works. First, the Crash. If the crash is bad enough, the Panic. If the panic takes hold, there is nothing politicians or economists can do to stop it.
You can’t end a full-throated panic like the one we’re in right now. Like a fever, it has to run its course. And like a serious illness, it leaves the patient in a weakened, depleted state. The name of that state is depression.
Depressions follow panics like tock follows tick. We’re already most of the way through our crash, I’ll be surprised if the panic part of this financial disaster lasts more than another few months. But we’re too close to the bottom for any parachute to open, we’re going to hit hard.
The depression that follows we can do something about. We learned how in the last depression, the one we call the Great Depression. You can sum it up in three words: Help the people.
I don’t hold out much hope for the bailouts, in fact they worry me. We may just be throwing good money after bad. In a perverted way, the Republican obstructionism in congress may be a good thing, if it buys us some time. I know we need to try something, but what if we try everything too soon and run out of things?
Will we have the cash to help the people during the depression? Maybe not, if we front load the stimulus so strong we’re staring at a debt even the Chinese can’t fund.
Panics and their subsequent depressions are not new in American history and they weren’t in 1929, either. During the 19th century America suffered a serious panic about every twenty years.
The panic of 1819, triggered by a collapse in cotton prices and farm foreclosures caused a depression that lasted over two years.
The panic of 1837, caused by cotton, wheat, land speculation and currency crises was a doozy. It lasted six years, the longest until the Great Depression.
The panic of 1857, life insurance, banks, railroad speculation and Wall Street all collapsed (staring to sound familiar, isn’t it?) leading to a short, sharp, two year depression.
The panic of 1873, Jay Cooke and Company, the Lehman Brothers of its time, went bust overspeculating on railroads, the real estate of its time. Millions out of work, businesses collapsed, farms failed, starvation stalked rural America. It lasted five years.
The panic of 1893, a stock market crash, followed by a credit crisis, 16,000 businesses failed, 500 banks, one in six Americans out of work for four long years.
All this as America was growing so fast it overtook nearly every other economy in the world, during the fastest global growth century yet seen in human history!
You may find it difficult to take heart from such a long litany of woe. Don’t. If history is any guide, and what other do we have, our current depression will last about half a decade, give or take.
It is up to our government to decide how to give and what to take to make this one bearable. It’s a skill set we began to learn during the last depression, navigated by another inspirational Democratic president.
Conservatives have created a particularly malignant piece of revisionist history about the Great Depression. They say that FDR and the New Deal only prolonged it and made it worse. Not only is this pernicious nonsense, it misses the point.