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A World in Crisis

What the thirties tell us about today.

Jan 3, 2011, Vol. 16, No. 16 • By MATTHEW CONTINETTI
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Both Hoover and Obama were activist presidents who believed in a progressive social philosophy. This is not to say that Hoover would have been comfortable blogging for an early-’30s version of the Huffington Post. Throughout his presidency, he opposed direct relief to the poor and unemployed. He was a reluctant economic interventionist. But the idea that Hoover was a lazy bystander is false. He was in the news all the time. The scope of his initiatives grew as the Depression went on. In his message to Congress in December 1931, for example, he called for a tax increase and the creation of the Reconstruction Finance Corporation to spur lending.

On December 27, the New York Times reported that Hoover also wanted to “increase the capitalization of the Federal Land Bank System, enlarge the discount facilities of the Federal Reserve System, revise the banking laws to afford greater security to depositors, and increase taxation which he regards as necessary in the existing financial emergency.” The reaction to Hoover’s plan revealed that snark is not unique to postmodernity. “The president says that we must cushion the shock for our credit institutions (with government cush) so that industry can start moving again,” Howard Brubaker quipped in the New Yorker. “He is a great believer in federal aid for the unemployers.” 

While the president haggled with Congress over the details of his revenue package, he was also wrestling with the problem of European war debts. Throughout December 1931, European statesmen were trying to resolve the issue of German reparations in light of the Great Depression. Early in the month, Hoover called for reinstatement of the Versailles-era War Debt Board. A headline in the December 29 Times read, “Hoover Ready to Act if Debt Conference Links Our Interests.” In the headlines of the time, international politics regularly commingled with domestic news​—​just as it does in 2010.

And yet it would be wrong to overstate the commonalities between the Great Depression and the Great Recession. The differences are just as significant​—​if not more so. Most important of all is the difference in magnitude. There really is no comparison between the Depression and other modern financial panics. According to the National Bureau of Economic Research, the initial contraction lasted a whopping 43 months, from August 1929 to March 1933. During that time American output fell by close to 30 percent. The Great Recession, by comparison, lasted 18 months from December 2007 to June 2009. During that period U.S. gross domestic product contracted by about 4 percent. 

In 1931, moreover, the U.S. unemployment rate was 15.9 percent. It would peak in 1933 at 25 percent. During the Great Recession, unemployment rose to 10.1 percent in October 2009 and stood at 9.8 percent in November 2010. What these percentages don’t convey, however, is the qualitative difference in unemployment then and unemployment now. There were no “automatic stabilizers” in the early 1930s. There was no unemployment insurance or deposit insurance or Social Security or Medicare or welfare or federal home lending. The millions of unemployed could not depend on federal aid. The poverty was real and omnipresent and debilitating. “Many old businesses are going to the wall,” Youngstown lawyer Benjamin Roth wrote in his diary on December 10, 1931, “and many of them lived thru 5 previous panics but never saw anything like this.” 

The paradox is that, while Americans in the Depression were worse off than Americans today, they were nonetheless more optimistic. Jodie T. Allen of the Pew Research Center recently looked at public opinion during the Depression years and found that “despite their far higher and longer-lasting record of unemployment, Depression-era Americans remained hopeful for the future.” The Gallup organization began conducting regular surveys in 1935, so we have no polling data showing how people felt in December 1931. But if survey findings from later in the Depression are any indication, the country was filled with cockeyed optimists. Half of Depression-era Americans, Allen writes, expected the economy to improve in the next six months. Close to two-thirds told pollsters that their economic opportunities were at least as good or better than their fathers’.

The sunniness shows up in other sources as well. “Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices,” Benjamin Roth wrote in his diary on July 30, 1931. “They say that times are sure to get better and that many fortunes have been built this way.” On December 19, 1931, the Times gleefully reported: “A wave of buying enthusiasm swept over the security markets yesterday, producing the broadest recovery in more than two months.” 

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