If this were 1930 or 1931, you would think you were experiencing a cyclical downturn–not a Great Depression. In an econtalk interview, Stanford’s David Kennedy begins this way, placing the listener in a contemporary context. Instead of looking backward at the Great Depression, we look forward to the 1930s.
I recommend this podcast because Dr. Kennedy and George Mason economist Russ Roberts discuss facts from the 1930s that relate to today. Then we, as listeners can decide how contemporary economic policy and politics compare to that era. Kennedy alludes to “Black Swans“. If the Great Depression was perhaps the greatest Black Swan, how will this Great Recession compare?
Looking at presidential policy, he says we make President Hoover worse than he was and FDR better. While Hoover wound up not doing enough, he did initiate policies to fight the downturn and the Smoot-Hawley Tariff. By contrast, Dr. Kennedy reminds us that when FDR was president, unemployment remained high and production sluggish. Dr. Kennedy hypothesizes that perhaps FDR cared much more about creating a safety net for the bottom third of the economic population fighting the depression. After all, during the Roosevelt presidency the Social Security Act, Fannie Mae and the SEC were created.
Do we have parallels? A cyclical downturn or a longer recession/depression? A minor black swan or a significant one? A president who cares more about the recession or a social agenda?
The Economic Lesson
As economic historians, our perspective changes when we look forward rather than backward. We see that when the stock market crashed and production declined in 1929, Herbert Hoover believed we were undergoing the beginning of a business cycle contraction, similar to many others. When FDR entered office during 1933, many worried about a balanced budget and federal spending. Meanwhile, the Federal Reserve was at best ineffectual.
In December, 2007 our GDP started to decline and by the summer of 2008 financial markets were experiencing turmoil. After a 2009 stimulus package, we are debating whether more spending or austerity is the best policy.
Looking at the past, we have implemented fiscal and monetary policies that do indeed reflect a grasp of the inadequacies of the past. But, I have to wonder what economic historians will say when they look back at us.