Wednesday, October 15, 2008

The Great Depression

Since the media loves to talk about it so much these days, let's have an honest look at part of what caused our greatest economic crisis.

International factors: Europe entered a crisis of their own making way before the United States felt problems. The massive war debts hung on Germany at the end of World War I stymied the economic engine of Europe. Only US loans kept that country afloat in the 1920s. When credit was cut off after the stock market crash, Germany and the rest of Europe collapsed completely.

Domestic factors: Agriculture and industry produced way too many goods for the market in a time when foreign trade was restricted by tariffs. Surpluses built up by 1929 that resulted in factories cutting jobs and food prices dipping too low for small farmers to survive. The closest analogy to today's problems was the stock market bubble fueled by irresponsible lending practices that depended upon an ever expanding market.

The response: President Herbert Hoover preached a strong adherence to classical capitalist non intervention. The Federal Reserve Board did not step in to prop up banks as they began to fail by the hundreds. At the same time, Congress passed a higher tariff that cut foreign trade by 2/3 between 1929 and 1932. The tariff, of course, was not part of classical capitalist theory. above and beyond that, the economic crisis took on political and social dimensions. People were suffering in a way we cannot imagine today. This would loosen their commitment to capitalism and later even democracy. Democratic and capitalist governments failed in Europe while even in the United States some favored the tinpot, Latin American style dictatorship of Louisiana governor Huey Long.

President Bush and Congress acted this month in a way that Hoover did not. They stepped in to prop up the banking system which is the foundation of any capitalist economy. The public perception that something is being done addresses the social fears while the action should help restore confidence in financial markets. Also the crisis has produced effects that should balance out the problems and restore some equilibrium. Here in Keyser, gas has dropped almost fifty cents in the last ten days. This drops prices across the board and puts more money into consumer pockets to pay their bills, go Christmas shopping, or do anything else.

This is not the Great Depression. Government acted decisively to stop the bleeding and I pray it works. Government intervention is like medical care. You do not need a doctor to watch over you daily, but when you get really sick, sometimes you need help. I realize this is not going to reflect the opinions of most people I know, but it's my perspective on the issue.

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