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.

It's Not What Reagan Would Do!!!!

The proposed $700 billion dollar loan package to the financial sector has ruffled feathers across the political spectrum. Both liberals and conservatives have expressed considerable anxiety about the plan that President Bush and Congress are close to assembling.

Liberals dislike a plan that seems to bail out Wall Street for making foolish choices while ignoring Main Street. To be honest, conservatives have many of the same qualms. Why are we rescuing these people? I hate to use the word greedy, but both they and many borrowers were gambling on an ever expanding bubble. The housing bubble was like a huge game of musical chairs. When the music stopped, some would be rich, and others would be in desperate shape. Economists should have known better.

Our president, congressional representatives, and economic experts have mostly agreed that allowing these firms to die would have a catastrophic impact on our economic system. In theory it may be okay to allow a boat that wanders into a hurricane to go under rather than risk the lives of rescuers. Apparently, however, we are all passengers on that boat whether we know it or not.

In 1929 Herbert Hoover acted as many conservatives would have President Bush act today. Hoover was a rock solid conservative and 90% of the time his ideas were sound. However the situation in 1929, as today, was an extraordinary combination of events from the economic and political realms. Inactivity led to disaster because we were not just talking about stupid business decisions, but a crisis of confidence in the system. The potential for that is developing today. 2008 is not a replay of 1929, nor are things as bad as they were then. Certain crises do demand leadership and action. We elected a "decider" in 2000. When has President Bush ever backed off of a crisis?

But Reagan would have let them go, or would he? The closest leader to Reagan in his time was Prime Minister Margaret Thatcher. In the early 1980s she unleashed howls of doctrinaire criticism by implementing an economic intervention plan. Thatcher explained that business and individuals need more freedom to make their own decisions about the economy. That being said, fear, instability, and lack of confidence restrained people's activities more than government action. To act freely, people need confidence in the free market system. Extraordinary situations demanded action.

People used poor judgment in the past several years, as people often will. In most cases, government "help" is often the worst medicine. In a few severe cases, it becomes necessary. No, government should not always be there with a band aid, milk, and cookies every time we get a boo-boo. But we do expect that if the catastrophic happens, they will send an ambulance.

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Speaking of Thatcher, she also criticized socialist governments for relying on large prestige manufacturing projects for economic development instead of real reform. She was talking about 1980s Mexico, but the comment hits close to home.