Thursday, March 12, 2009

It's not that bad

Are we going into a recession or a depression. That depends: if you are out of a job, losing your house, car, etc it's a depression, if you are still working, making ends meet, even if just barely, then it's only a recession.
I still see many posts, articles and such talking about the U.S. and even the world beginning another Great Depression. There are some similarities, but there are also some big differences.
During the Great Depression the stock market tanked, banks went under, unemployment was over 20%, deflation bankrupted farmers creating the dust bowl and low food supplies, and people were starving. (William Manchester in his book The Glory and the Dream mentions that 40% of the men who showed up for induction into the military for WWII were unfit for duty due to poor eyesight (beri beri) and bowed legs (rickets) attributed to malnutrition while children. He concludes that had Hoover won election in 1932 and his policy of non-intervention continued we would not have been able to field an army in the 1940's.)
Today the stock market is tanking, the banks are going under, unemployment is rising, but I don't foresee mass starvation in the near future (at least in the U.S.).
Here's what we have today that was not available in 1929:
1. FDIC -- the banks may go under, but those who  have money in the banks won't lose it (unless you have more than 100 grand in it.
2. Social Security -- It's not much, and those who have to live off of it entirely struggle mightily, but with Medicare the elderly are less of a burden on their children and are not left out in the cold. They took a huge hit from 1929-1935.
3. Unemployment Insurance -- Again it's not much, and most likely won't save mortgages, but your not cut off without a dime to your name like people were back then.
4. Welfare, food stamps, free and reduced lunches for school children, and other social services in place now that our (great) grandparents didn't have.
5. A speedy response. What made the Great Depression so damaging was nearly four years of Hoover refusing to admit there was a problem and that the if there was, the market would fix itself. Obama's stimulus package may not be as large as Krugman and other economists think is necessary, but it's at least timely and more may be on the way if needed. Even the pork everyone is complaining about in the budget just passed and signed yesterday, that money will help stimulate the economy. Just about any spending that keeps people employed or creates jobs helps.
6. We have a stable food supply, it may not be as safe as we want it, but our biggest problem nutritionally in this country is not malnutrition it's obesity. A luxury not present 80 years ago.
7. The great fear is that as the Great Global Depression ended only by World War II and that this one might spark another great war. Certain factors are lining up for this. A) Europe is having economic problems, maybe even worse than us by some accounts, but they have formed a union and are not split into rival camps. There's less fear of National Socialism there at least.
B) Russia, China and Japan are too dependent on U.S. returning to a stable economy for their economic health, and any warlike actions bring up nuclear responses. C) the only trouble spot is the Middle East, but what's new there? It was a problem when the economy was booming and will continue to be a problem until the end of the world.

The closest parallel to what we are experiencing is Japan's lost decade, as painful as that was it didn't have the same problems as The Great Depression.


One Fly said...

Maybe these things will make the difference. You are more optimistic than I am and that's a good thing.

P M Prescott said...

Upon further reading today about Austria and Hungary's economic woes, I may be just a tad optimistic about Europe.