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Monday, January 11, 2010

The Great Depression Redux

I grew up with stories of The Great Depression because I was lucky enough to be very close to my grandparents on both sides. Although my mother's parents refused to discuss it, my father's parents had many 'entertaining' tales, such as:

1. The fact that my grandmother owned only one bra and one set of panties, which were religiously washed out the night before and hung up to dry for work the next day.

2. My grandmother had 7 siblings and two parents. Her father was the town drunk, who drank away any wages he got for the little work he did. That left it up to the rest of them to find money somehow. My great grandmother, Nana, raised chickens and sold the eggs for a little extra money, and my grandmother was the only one of the children who was able to find work.

3. Grandma was a telephone operator in New York and that was considered to be a plush job by Great Depression standards. Her bosses insisted on perfect diction, so the women would hold pebbles in their mouths and learn to speak clearly around the pebbles. If those standards were applied today, most telephone operators would be on the streets.

But what really stuck in my head was the great deprivation they all suffered. And it scares me, because I truly do not believe the American people are equipped for The Great Depression Redux. And although experts weren't sure before, they are now: We are in it. The job statistics and home foreclosures prove it.

Did I say it scares me? I should have said I'm terrified, because we have much farther to fall. No matter how much deprivation they faced in The Great Depression, they were never used to all the luxuries that we are. Think of how many things we have made "standard" since The Great Depression that were unheard of or luxuries at that time:

1. Electricity
2. Vaccinations and health care
3. Cable TV
4. Computers and internet
5. Electric Appliances such as microwaves, blenders, electric stoves, electric 'iceboxes'
6. Reliable and cheap food supply
7. Reliable and cheap clothing and shoe supply

I'm sure there are more: This is just off the top of my head.

Can we forgo all these 'necessary' items? Some of us may have to. And although I'm typing this on my computer in the comfort of my warm(ish) home while it's 34 degrees outside, I realize that I cannot fully appreciate the horrific impact should I lose it all. And I know that others are thinking the same thing. For a very bleak view of what the UK is seeing, read this article in The London Telegraph.

Is there any hope? Experts can't agree, so I cannot really say. But as long as we keep glossing this over and vegging out by watching mind-numbing TV, we will not be able to do anything at all about it.

My statistics professor once told us that our chances for winning the lottery are not nearly as good as our chances of being hit by lightening. But what he didn't tell us is that you can't win if you don't play: You have to get involved.

It's time for the American people to get involved. The current administration is busy ignoring this and we must wake them up. Although Nero fiddled while Rome burned, Obama is fiddling around, too.

8 comments:

Angela said...

There are two things I want to say about this. The first being that anybody who is truly worried about this needs to take the steps to make their lives as financially secure as possible. There are no guarantees that this will work but the people who pay off debt and create substantial savings will be better off than the people that do not.

The second being, it would probably do the U.S. a world of good to go through a real and true depression so as to stop being so greedy and self satisfying and to start being decent human beings again.

Ed said...

Although Obama's administration didn't start this crisis, it has inherited it. Obama may be fiddling around but would you have him do, spend lots more money that we don't have to reverse it? Increase government control through oversight or regulations? Neither of these options seem very attractive to me and personally I would be very happy if Obama and his administration did nothing and just let our economy right itself, even if it takes getting worse first before getting better.

The Lazy Iguana said...

I really do not know why ANYBODY wanted the job of President after Bush. Really.

The problem as I see it is that the usual crap is gumming up the works. The right (which has become the far right) thinks that more of the same will fix the mess, but it will not.

Lets look at lowering taxes. How will this help? Lets say you have a business. Will it matter if your taxes are 100% or 0% if you have no customers?

And lets say you are a customer. Does it matter what your taxes are if you have no job?

And lets say you do have a job, but you are afraid you may lose it. Will you spend? What if you are underwater with your home because of forces beyond your control? Do you keep paying it off (while getting further behind) or do you walk away and rent?

Well who knows.

Employers are also taking advantage of times by lowering wages. Even if they are making money - why raise wages? Plenty of unemployed people will be happy to take a job for lower pay.

Right now only the government is in a position to spend money. And money has to be spent, as this is what makes cash flow possible. But there is the debt. It SHOULD have been paid down in the fat times, but it was not. Any surplus was quickly squandered in "tax cuts" (mostly to the top by the way)while deficit spending was increased - in large part due to the war. And now when deficit spending is needed the most - we have to worry about how to pay it all off.

During WWII the debt grew larger than the GDP. Taxes went up to pay it off. Post war times were good, largely because there was so much industrial capacity and the birth of consumerism.

Well this time around China makes everything. The debt will have to rise, and it will still have to be paid off.

Somehow Obama will get all the blame, even if the deficit was already sky high before he even started to run! And that is just how it is.

Three Score and Ten or more said...

I was around during the depression. I was little, but I was around. In most communities (not farms) there was electricity and electric stoves and "ice boxes". I remember my dad having a stint on the WPA which he hated because he felt that it was boondoggle. I still ended up graduating from a WPA built High school. I often watched the CCC guys working up on the hills, and truthfully they; prevented a lot of serious erosion. My parents worked when they weren't laid off, grew enormous gardens from which they canned all kind of stuff, and I'm not sure that I knew I was poor. In retrospect, not many of the wellfare/workfare projects worked as well as WPA nad they were always somewhere doing something. I had friends (most of them recently passed) who did Puppetry and Theatre for WPA. I would really like to see the stimulus money used for something useful, I haven't seen much. I have a pantry that contains at least a six month supply of edible (not necessarily choice) food. I could live for at least a year without buying any other clothing item, and I think folks need to prepare.
Blaming this on Bush or Obama both of which screwed up rather thoroughy is silly, but the use of tax cuts DID get us past the Jimmy Carter disaster by improving the job market and paying off a lot of debt. (Yes tax cuts paid off a lot of debt), and quadrupaling Bush's debt hasn't helped us much and the tax credits on real estate puchases are showing hope. Grit our teeth, help each other and prepare.

Gary Baker said...

Angela,

I am not defending greed, but the bulk of the crisis was not created by people being greedy but irresponsible. When Congress encourages bad loans to buy votes, that's irresponsible. When banks make bad loans, that's irresponsible. When people take out loans they can't afford, that's irresponsible.

Ed,

The law that helped push irresponsible lending goes back well before the Bush administration. I can't think of any administration in history that didn't inherit problems. The fact that Obama is pushing policies which have already been shown historically to fail is not improving the situation.

Lazy,

Businesses traditionally operate with around a 6% profit margin. Many operate with lower. The health care insurance industry operates with a 3% profit margin. This means that a very small tax increase or increase in cost of complying with regulations (minimum wage, for instance) can push a business out of business. That means almost anything the government does to increase business costs will cost jobs, and this administration and congress is a killer.

Additionally, government jobs are losers for the economy. Assuming an average tax rate of 20%, it would take five taxpayers to supply the revenue for one government job if the pay scales were the same. Right now, they are not. Government workers are earning more than private sector, which means each government job is pushing us even further into debt.

Also, under the Bush tax cuts, if you research it you will find that not only did revenue go up after we recovered from 9/11, but the top echelon of income earners payed a higher percentage of income taxes than they did after Clinton increased taxes.

One lesson that we definitely can take from the Great Depression is that people need to start relying more on themselves and each other. The government can't solve all our problems and provide all of our needs. The more they try, the faster the situation deteriorates.

daveawayfromhome said...

You had me right up until the end. Sure, maybe Obama is fiddling, but he's just the latest band at Wahingtonpalooza.

We're no where near the level of the Great Depression, in terms of material lack. Some are, no doubt, but we've got a lot of cushion built into the system before we reach a 1930's of deprevation.
First, we have to get rid of prepared food, especially restaurant food. Next, take everyone down to one each of our major appliances. Making your own clothes yet? Is a Snickers bar a rare, special treat? America could probably supply half it's vegetable needs simply by converting 50% of its suburban backyards into gardens, but that's not yet remotely necessary.

Right now, we're still in great shape, but we're whining like a bunch of babies because we cant have every toy we want, and we're going to have to pay back some money after a long, long, stupid binge.

If "Rome" is burning, it was lit using tinder made from credit card reciepts*, decades worth of them. Everyone wanted something, and no one wanted to pay for it. Greed in Washington, greed at home and greed in the our industries. We're a nation of petty, short-sighted mental teenagers, none of whom want to do their chores or share their stuff. Everyone needs to buck up, roll over their sleeves, and get over themselves.
Things will be uncomfortable for a while, and we wont get to do a lot of the things we want to. Tough luck. Clutching your stuff to your chest and screaming mine! might be good for you personally (short term anyway), but it's not the behavior of a nation putting things to rights.



(*I use this term in both the literal and metaphorical sense)

Ed said...

Gary - I agree. I think it was during the Clinton Administration that the legislation passed to start the bankers of Wall Street along the path of economic destruction. But I also think Bush perhaps could have nipped things in the bud and didn't, instead denying anything was happening and after we fell over the brink, pushed the huge bailout of Wall Street.

Gary Baker said...

Ed,

"But I also think Bush perhaps could have nipped things in the bud and didn't, instead denying anything was happening and after we fell over the brink, pushed the huge bailout of Wall Street."

I recommend that you go to this link:
http://www.youtube.com/watch?v=63siCHvuGFg

This is a video of a Fox News story that shows the Bush administration beginning to warn congress as early as 2001 and issuing an upgraded warning in 2003. John McCain called on congress with major warnings in 2006. The major block: Democratic chairman of the House Financial Services Committee Barney Frank who not only insisted that Fannie and Freddie were in great shape but felt they should do more to put low income (i.e., sub-prime) borrowers into homes. He was in a position to essentially block any substantive change in regulation.

Don't think that I'm giving Bush a pass. His starting the bailouts set a very bad precedent, one that the Obama administration was all to happy to follow and then expand. Bailouts are a bad idea. Period. The only thing that Bush had moderately in his defense is that if you give money to prop up businesses, you might generate some jobs if you can save the business. If you give money to unions, sooner or later you will destroy jobs.

Dave,

"If "Rome" is burning, it was lit using tinder made from credit card reciepts*, decades worth of them. "

That's a popular refrain, but it doesn't hold up. The mortgage market was gold for over a century until congress started pressing banks to give loans to people that were not credit worthy. There were regulatory agencies and laws in place that could have stopped it, and they were ignored. Buying a lot does not lead to poverty. Buying irresponsibly does. If you buy and pay for it, you end up creating jobs. Unless, of course, you are the government. In that case, you end up creating debt.