I don't mean to be panicking anyone with talk of the D-word (Depression) but every time I hear anything about the state of the world economy I get the funniest feeling of deja vu, all over again. The savings rate of American's is at Depression-era levels, has been for a few years now. This situation was scary but somewhat sustainable as long as people had equity in their homes to fall back on. Now, of course, housing values have also sunk to Depression-era levels leaving millions of Americans with gigantic credit card bills with nothing else but their paychecks to survive on, which continue to get smaller as the price of gasoline and food skyrocket.
Banks are reluctant to issue credit for anything, which might not be so much about fear of bad loans as the fact that they have no money to lend. Investors were shocked when the biggest banks in the country began announcing muli-billion dollar write downs; just wait until the other shoe drops. Some bright person once said that things that can't continue won't, and one has to wonder how long the global economy can sustain losing trillions of dollars each week.
The more I hear denizens of the dismal science
talking up the new stimulus package cooked up by W. and the HOuse as the right answer that will lead to recovery in a matter of months, the name Herbert Hoover
pops into my mind.
Shortly after the Crash of 1929, Hoover sought to calm the public, skittish investors and industrialists by using the Fed to flood the banks with money, easing up credit for businesses to begin reinvesting in order to counter the rising unemployment problem. Sound familiar?
Hoover's Robber Baron Treasury secretary, Andrew Mellon, assured everyone that he "saw nothing in the present situation that is either menacing or warrants pessimism." The Employment Service issued a statement saying: "Within the next sixty or ninety days the country will be on a normal employment basis."
Despite this happy talk, the economy continued to spiral downwards and millions of workers lost their jobs. Just as the markets tumbled moments after Bush's announcement of the agreement on a stimulus package this time around, no amount of best scenario optimism coming out of Washington could prevent the Captains of Industry from running for the hills. Senator Simeon Fess of Ohio, chairman of the RNC, observed that: "Every time an administration official gives out an optimistic statement about business conditions, the market immediately drops."
Hoover's take on the ever worsening state of the economy was to rein in spending, get back on the Gold Standard and sign into law the Smoot-Hawley Tarrif Act
, the infamous protectionist law that really got the Depression roaring along. At the time a thousand members of the American Economic Association signed a statement denouncing the bill, but Hoover, much like Bush, was not deterred by academic naysayers. Republican Indiana Senator Jim Watson said of Smoot-Hawley, by passing the bill "this nation will be on the upgrade, financially, economically and commercially within thirty days, and within a year from this date we shall have regained the peak of prosperity." Famous last words!
Many progressive Democrats like Robert Wagner, for instance, were calling for massive government spending for public works, aid to states (which were baring the brunt of the unemployment crisis), and the novel idea of unemployment insurance for those millions out of work. Hoover would have none of it. Hoover was a man who stood by his principles.
The government was there to protect the nation and property rights, that's all. Charity started at home and the best thing the government could do was balance the budget. Although he did later come to the conclusion that the government would have to spend a litttle money, it was too little too late. By the time he left office, the unemployment rate was at 24.9%.
Long after his administration Hoover insisted that "people left their jobs for the more profitable one of selling apples." Years from now I'm sure W. will still be insisting Saddam really did have those WMD.