Five Economic Strategies I Learned From the Great Depression That Don’t Work Now

The Great Depression lasted from 1929 until just about 1939. When Black Tuesday hit on October 29th 1929, the world was plunged into one of the worst economic downturns in history. The Jazz Age (1919 – 1929) was a period of economic prosperity and it was also a time of easy, low cost credit. An economic depression is characterized by two percent negative growth. What has been so great about this latest depression is that no one wanted to call it a depression. To this day, the Bush administration still refuses to do so. Currently we are in a “slow down.” Here are five solutions that worked (sort of) in the Great Depression will not work today.
When we examine the US Bureau of Labor Statistics, we notice that something is seriously wrong with the US economy. Productivity has declined every quarter, currently down 3.6% since the third quarter in 2007. Unemployment has gone up 0.9% percent since February. The number of full time jobs has declined an additional 51,000 in the month of July, yet the average hourly wage in America has gone up by six cents. So that’s good right? I guess when you cut 51,000 people out of the equation the average tends to go up a bit (not to mention that, the total number of jobs lost this year is at about 387,000). The best part is that, according to the Federal Reserve Bank chairman Ben Bernanke “inflation went up by five percent while employment incomes grew by less than three percent.” This is negative growth of two percent. Boom! Depression! Let the good times roll.

1.    Go To War

Arguably, the main factor that ended the Great Depression was the world going to war. When Hitler sent his tanks into Poland in 1939, a massive effort made by the west was undertaken to defeat him. George S. Patton said: “compared to war, all other forms of human endeavor shrink to insignificance.” Jobs opened up in factories and America became the great arsenal of democracy. Soldiers, workers, rationing, raw materials, shipping, and new technologies were all needed quickly. A massive amount of deficit spending began and anyone who needed work was given some. When people have jobs, they spend money.
The state and private industry spent a great deal of money to finance the Second World War. England went bankrupt in the end, but it got them out of economic stagnation. Bernard Mandeville advocated that even when a state acts in the name of private vice there is public virtue. This was argued in 1705 when England began its participation in the war of Spanish succession. Regardless of the intentions, a war will prove profitable to the society.
War creates jobs, jobs create incomes, and incomes create spending. This spending would revive the economy. In the 1940s, people had jobs: they were being paid to build, fight and win. In our current time we see a reduction of jobs while the state fights an expensive war. I guess going to war no longer has the reviving effect on an economy it once had. If it did we wouldn’t be in the current crisis we are in.
America has been at war since 2001. US debt is about 9.5 trillion dollars. More war would not do much good. Most of the money spent in America’s latest conflict has failed to have any positive impact on the US economy. Taxes have been cut, but spending has increased. The government cannot afford to wage a war that it has no interest in ending, especially when it need a government loan to pay for it.

2.    Keynesianism

John Maynard Keynes laid down the principals that influenced the New Deal. When the invisible hand of the market gets burned, it is necessary for the state to create an artificial level of demand. How? Deficit spending. The basic theory states that through effective taxation during prosperous times, the surplus government revenue that has been accumulated can then be spent when the economy tanks. Governments create artificial demand by funding public work programs (e.g. the highway system, the national parks system). People use the money they receive from their steady employment to buy stuff, helping out local stores who then use their money to buy or invest in other items and so on.
Why this would not work today? When Clinton left office there was a budget surplus of $127 billion (largely thanks to some of the policies set forth by his predecessor: Bush Sr.) and now we have a budget deficit of $811 billion. Total US debt is measured somewhere around $9.5 trillion. Spread out across the entire US population, everyone owes about $31,500.
The current solution to the economic slump is to have citizens buy more things. It doesn’t matter what, as long as they are buying more things. Not making more things though, that would be insane, right? That means they would have to have jobs. If the government decided to step in and increase spending to fund public work projects where individuals would be given work (not a stimulus checks) where they can actually afford the stuff they buy, would that actually work? It would only work if we lived in an era of rational common sense. 9/11 changed too much apparently. Keynes is dead and, apparently, so is Keynesianism. We washed it away with bad credit and poor long term fiscal policy. Much of the New Deal has been gradually dismantled by fiscal conservatives who removed the social safety net.

3.    Volunteerism

Herbert Hoover has taken a bad rap over the last seventy years. Many blame him for the reason that the Great Depression sank as low as it did. Hoover wasn’t as bad as many believe. Granted, his policy of volunteerism was less effective than the New Deal (lowered unemployment more effectively) it still had many positive qualities that did a great deal of good. Volunteerism emphasized that private organizations, companies, etc. should take responsibility for helping to end the economic hardship.
Direct government involvement would have infringed upon the liberty of individual citizens, therefore it would be up to the best and the brightest of society to set the example, make profit a secondary objective to helping their fellow man. Ron Paul supporters should be familiar to this thinking. This also included remaining on the gold standard. Through tenacity and American ingenuity, the people of America (over a long enough time span) would theoretically pull itself out of the depression.
Volunteerism had the effect of pushing the private charity systems that kept many of the most destitute clothed and fed in the early days of the Depression. Non–profit organizations are a direct result of volunteerism.
Why this would not work today: America has become a corporatist state (different from Fascism since Fascism is ideologically driven while corporatism is the emphasis of profit over the will of the people). Corporate influence on the non-profit sector has eaten away at the generous spirit of individuals. A secondary aspect is that volunteerism keeps people fed and clothed but does not allow for market forces to properly rebuild themselves. There still is a major lack of potential capitol investment required to bring about effective market recovery.

4.    Work Harder, Invest Properly and Buy Less Disposable Crap

When many people across the globe felt the effects of the Great Depression, they decided that it was in their best interest to give it the old Protestant work ethic a try. The Protestant work ethic as defined by Max Weber states that the most effective way to better one’s fiscal lot is to work your ass off and invest the excess revenue one generates back into one’s self (e.g. small business growth). That means that people would be working greater and greater amount of overtime, spending responsibly, paying off debts, and saving. Thanks to the incredible high level of credit card debt and the general notion that credit card companies never go for a quick kill but will keep you bleeding, most people will remain in debt for years, and that is just the way they want it. Unfortunately, instead of keeping task of our credit levels and our debts, we are encouraged to buy, and will forever make minimum payments in order to keep the gravy train flowing.
What is alarming to many is that America is becoming much more irrelevant on an economic and political level as other countries catch up when it comes to the standard of living (see Fareed Zakaria’s The Post-American World). Scientific and research advances are happening around the world in many different countries. New frontiers are being explored everyday, but less and less by Americans. There has been a lack of investment in US pragmatism and ingenuity. Better jobs are springing up around the world and with the new era of globalism, the movement of peoples is much easier than ever before. What incentives remain to keep domestic investment flowing? Not much. America needs to understand that if they are to remain strong they need to reprioritize and begin to not only pay of their debts (foreign and domestic) but also put money into infrastructure. Reinvest in yourself to make yourself better.
It is also important to note that the reliance on a minimum wage is perhaps detrimental to an economy. Instead of having a living wage people accept people accept the bare minimum that is required to keep from starving. Instead of being able to earn a little extra that we can save we live pay check to pay check. Financial alienation follows.

5.    Polio

Think bird flu for hobos and the elderly. Polio provided us with FDR and removed the threat of a marching homeless. Plus Polio inspired the March of Dimes. The March of Dimes led many to give up hard earned dimes for scientific research. Oh right, there’s a vaccine for it. Damn. I guess Polio wouldn’t help now either. Maybe SARS would work.