Why History Matters

What's happening today is not, of course, a replica of the Great Depression. That nightmare was catalyzed by a prolonged market crash, thanks to banks lying about the real value of certain securities and too much debt in the system. Today’s crisis has been catalyzed by a viral pandemic spreading across the planet, by supply-and-demand shocks the world over, and by the collapse of a global economic system, as well as widespread lockdowns. Yet certain factors are common to both eras in which economic disaster was exacerbated by too much corporate debt, a Fed-stoked market rally, and grotesque levels of inequality.

A century ago, the Fed put just a financial toe in the water to support the markets on the assumption that this would be enough to sustain the economy. Today, it has jumped in big time and Chairman Powell has vowed that it “is not going to run out of ammunition.” The result could be a financial tug of war that lasts years.

The Fed can electronically print money, but it can’t print jobs. It can buy bonds, but it can’t cure a virus. It can continue to try to stimulate the market, but it can’t banish fear. As it happens, the economy needs much more than Fed-style monetary support. As even Powell noted on May 13th, “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”

What’s needed, above all, is greater strategic action from Washington politicians who are more desperately divided and tribalized than ever in the Trump era. History tells us that political actions matter even more in times of crisis. During the Great Depression, the state of the country became so bad that, in 1932, Herbert Hoover lost the presidential vote to Democrat Franklin Delano Roosevelt in a landslide. However, it took until 1934, even with a president ready to do much to help Americans in trouble, for the country to slowly emerge from the malaise.