|
|
|
|
|
Lessons from The Great Depression - You Just Don't Know: "I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover." - Pres. Hoover, May 1930
|
|
 |
This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 1 year 16 days ago (online.wsj.com). Views: 118
Tags: great depression |
| Related Tags: housing bubble credit crisis economics economy jobs wall street inflation |
Tomorrow's Recession Recovery Is Today's History Lesson:
The best that can be said about the economy right now is that it could start looking up by fall. At least that is the view of Fed Chairman Ben Bernanke, who gingerly pegged the downturn ending this year and new growth beginning in 2010. At one point in congressional testimony, he said, "We're not completely in the dark. We know broadly speaking what needs to be done."
Yet it is hard not to be tugged back by history. Read through the accounts of the Great Depression and one is struck by how politicians, policy makers and regular people were caught off guard by the severity of the events that would engulf them.
President Herbert Hoover made his case to the American people in May 1930, saying that "I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover."
We have learned plenty about combating recession since then. But still our expectations of recovery remain oddly precise and restless. Business television makes the crisis feel like it has the tempo of a videogame. But this isn't Wii Economy. It is plate tectonics.
You wouldn't know by listening to the 52 economists surveyed by The Wall Street Journal last month. Their consensus view was that the economy would begin growing again by August. Just five of the economists saw gross domestic product falling through all of 2009.
Where exactly is growth going to come from? Look at the portrait of the economy before it went over the edge: The finance, insurance, and real-estate industries were the greatest contributors to growth between 2003 and 2007, according to Bureau of Economic Analysis data. In 2006, for instance, the industries accounted for 30% of all new U.S. economic expansion.
So how does the country replace that incremental growth?
We know the answer by now: The government is going to stimulate it.
Despite the reputation of the New Deal, deep government interventions are unpredictable and sometimes harmful, reminds Amity Shlaes, who wrote a popular history of the Depression, "The Forgotten Man."
Ms. Shlaes points to the period of 1936 and 1937, when the Federal Reserve used New Deal laws to tighten reserve requirements on the nation's banks. The goal was to make the banks stronger, but the result was that banks tightened still further. That cut off credit to the economy at a sensitive period. The Dow Jones Industrial Average fell by more than a third between August 1937 and January 1938. Unemployment surged. It was the "depression within the Depression."
It wasn't the revival that FDR had predicted back in 1935, when he boasted: "Never since my inauguration in March 1933, have I felt so unmistakably the atmosphere of recovery."
Today, we continue to scour for signs of hope, as did FDR. And one day they will appear.
For now, it is worth remembering that the main force in the economy -- government intervention -- is subject to the whims of politicians and the foibles of newly minted political appointees. It is finely tuned to the unpredictable goings-on in places like Kiev, Beijing and Brussels. It is being done on the fly and with little sleep, as were some of the interventions to save American International Group.
This doesn't mean this current downturn will last as long, or as severely, as the Great Depression. But it is instructive to see how wrong, and how often, so many people were some 75 years ago.
"When you're in the expert business, after a while you realize there are no experts," says Richard Sylla, New York University's Henry Kaufman Professor of The History of Financial Institutions and Markets.
The important thing to know, it seems, is how little we know.
< Prev Item | Next Item >
|
|
|
|
|
|
