1933 Redux?

by Liberty and Power

On the stock markets, corporate share prices have fallen precipitously. Unemployment is rising. Housing construction has declined greatly, and home builders are going bankrupt. Many homeowners are losing their homes to foreclosure or tax sale. Many banks and other financial firms are in trouble, and some have already gone under. Loans are harder to get than they used to be, especially for the least creditworthy borrowers. At the Fed, the central bankers are baffled, sensing their powerlessness to prevent further economic contraction. The president is discredited and eager to leave office, passing responsibility for dealing with all the economic problems along to his successor. Congress has earned the public’s hostility, and the legislators’ popularity, like the president’s, has sunk to an extraordinarily low level. Desperately, blindly seeking something, anything, anyone to stop the downward spiral, the electorate has chosen a new president, giving him a wide margin of victory. Awaiting his inauguration, the future chief executive promises to clean house and turn the country around, but the public does not have a clear vision of what is coming.

Yes, in the circumstances just sketched, the year 1932 was drawing to a close, much as the year 2008 is drawing to a close. Should we expect next year’s events to resemble those of 1933? Devoutly may we hope they will not.

If they do, we are all in for a great deal of unnecessary trouble. But when did that bleak prospect ever give pause to a new gang of looters and world-savers? People might act to preclude a repetition of the drawn-out wretchedness after 1932 if they understood what happened then and why, but, sad to say, their understanding of that episode is by and large a tissue of myths and mistaken ideas. In our present fix, then, we may be excused if we conclude with Hegel that “the only thing we learn from history is that we learn nothing from history.”

Little comfort may be drawn from Mark Twain’s observation that “history doesn’t repeat itself, but it does rhyme.” Given what I see on the horizon, I expect that our political and economic future will have more rhyme than reason, and that 2009 will have more similarities with 1933 than a well-informed friend of humanity would wish to see.

comments powered by Disqus

More Comments:

Robert Higgs - 11/6/2008

I am well aware that the severity of economic distress was much greater in 1932 than it is at present. My intent was only to highlight parallels between the sorts of events troubling people in 1932 and the sorts troubling them now, and to suggest that the election of a new president opens new avenues for disastrous policies to "cure" the present ills.

I see tremendous potential for misguided policies of all sorts, given the new president's apparent ideological convictions and the Democrat's control of both houses of Congress. Note that my observation is in no way an apology for anything the Bush administration or the Fed has done; on the contrary, they have both performed horribly.

A major difference between 1932 and now, however, is that in 1932 the economy remained relatively free, whereas it is now tangled in a thousand webs of regulation, subsidies, taxes, and restrictions of all sorts. When FDR took office, there remained a great deal of free-market territory to lay waste, but after Obama takes office, he will be carrying out his attacks across an institutional landscape already devastated by more than seven decades of economic fascism.

How many straws can be laid on the camel's back before it finally breaks? We all know Smith's aphorism about the great deal of ruin in a nation. But the economic order has already sustained a great deal, and we cannot asssume that it will continue to function tolerably well regardless of the insults and abuses to which it is subjected.

Bill Woolsey - 11/6/2008

The econonomic situation today is much less severe than in 1932. It is more like 1930.

I doubt whether deflation will be a problem, and, even it is, I doubt whether competition will be restricted to stop it.

I think the welfare state will expand--clearly in the case of health care.

The approach of more regulation of financial markets with government guarantees (especially deposit insurance) and less regulation of the rest, will change to more guarantees and more regulation.

However, I doubt that this regulation will be "worse" than that of bank lending. On the whole, finance will still be directed to firms expected to be profitable. It is possible that some expanding sector will be hindered because regulators fear a bubble. On the bright side, we will be less likely to see polticians encouraging bubbles.

I really don't see things getting as bad as they were in the thirties. And, certainly, the economy isn't nearly as bad.