As is quickly becoming usual, Tina at Diotima’s Ladder asks excellent questions: Roosevelt and Obama: Did we avoid a Great Depression? | Diotima’s Ladder.
For the past week I’ve been rushing home every night to catch The Roosevelts: An Intimate History by Ken Burns. I’m not really a big Ken Burns fan. And yes, it’s the fiddle music. But this one is worth a watch. (And the music is not so incessant.)
The episode on the Great Depression made me wonder about our Not-So-Great Recession. We complained bitterly about our losses during that time, but seeing those lines of people winding down the street just to get a free lunch makes me think we might be a little ungrateful for what we do have.
Her entire post is well worth reading, but I’m interested in this question that she asks at the end.
My question to you is this: Did we avoid a Great Depression? What can history teach us?
I’d love to hear your thoughts.
I responded with this comment, which I’m reproducing here, slightly enhanced.
I don’t think there’s any question that we did avoid another Great Depression and, at least for the United States, it was the result of the Bush administration, the Obama administration, and the Federal Reserve system all acting properly, stepping up at the critical moments.
To see how bad it could have been, all we really have to do is look at the years 1929-1933. As far as I know, this was the worst economic contraction in US history. The government let banks fail by the thousands, they cut government spending repeatedly in a vain attempt to balance the budget, passed ruinous tariffs discouraging international trade, and the Federal Reserve contracted the money supply to meet its obligations under the then rigid international gold standard.
All of this killed spending throughout the economy, sending it into a tailspin. The nominal size of the economy collapsed by 40% and unemployment hit 25%. It’s fair to say that in early 1933, the economy was in free-fall and democracy was in jeopardy. The New Deal, starting in March 1933, stabilized things, alleviated suffering, and was able to provide a good amount of economic growth and lower unemployment, but there wasn’t a complete economic recovery until that huge stimulus package known as World War II kicked in.
In 2008-2009, when faced with a similar situation, and with the lessons of the Great Depression firmly in mind, the US government pretty much did the opposite. It stemmed the cascading failures before they got out of hand with the much reviled bailouts (Bush administration), passed the equally reviled stimulus package (Obama administration), and stuck to an expansionary monetary policy (Federal Reserve), driving libertarians crazy. These actions were far from perfect (the stimulus, for instance, probably should have been much larger), but on balance the performance of our government in this generation far surpassed the performance of the government in the early 30s.
Lamentably, this initial stabilization was followed by years of premature government austerity in both the US and in Europe, causing pointless suffering for millions. Fortunately, in the US, the Federal Reserve compensated somewhat with monetary policy, again to considerable revilement.
The problem, of course, is that it’s very difficult to demonstrate what could have happened. We can only see what did happen. In economic history, there are always conflating variables giving alternate narratives just enough oxygen to survive. But I think the Great Recession is, on balance, a demonstration that we can learn from history, even if most of us don’t recognize the win.