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A Perspective on The Economy

November 3, 2012

A PERSONAL PERSPECTIVE.

We are an impatient people.  And, no matter who becomes the next president, one can not microwave (systemic) change. It took a full ten+ years to pull us out of the great depression. We complain about our national debt but change begins at the individual level as well. Who of you in four years has paid down All of your OWN debt or have you just continued to go farther into debt. I am personally trying to get out of debt, but it seems like a loosing battle.

How many of you have hired just one extra person for a job to keep a family from going under, (split a higher paying job budget between two workers)?

How many of you have fed or invited an unemployed family down the street from you who is in foreclosure for dinner?

Change, starts with us, from the bottom up and not from the top down in all our efforts.

What ever similarities are drawn from the Great Depression and what we see today. Can we really immediate change in under 4 years?

1) I believe that there are two major differences in the economic circumstances of 1933 and 2008 which transcend other issues and have literally saved us in some respects comparatively speaking.  First, thousands of banks “failed” between 1929 and 1933, wiping out the savings of millions of “hard-working, playing by the rules” middle-class Americans.

Since fall 2008, not a single depositor in a U.S. bank has lost a dime of savings due to FDR’s Banking Act of 1933, which created the Federal Deposit Insurance Corp. Even though we’ve had banks fail or close.

While the stock market and housing prices tanked, the fact that bank accounts were intact was of immense psychological value to savers at all income levels. Undoubtedly, this depositor sense of security had a positive effect on the stock market rebounding fairly quickly so now it is more than double what it was in February 2009.

2) Secondly, and just as importantly, because of Social Security, which started in 1935, the purchasing power of today’s seniors has been greatly, although not entirely, protected. Social Security payments, combined with the unemployment insurance benefits (also initiated in 1935) paid to the millions laid off due to the downturn, have kept consumer purchases much more stable than they otherwise would have been. This is in contrast to the complete removal by 1933 of the purchasing power of nearly 25 percent of the workforce that became suddenly unemployed. The economy just shriveled up.

1. Stock Market Crash of 1929

Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression.

2. Bank Failures

Throughout the 1930’s more than 9,000 banks failed. (Since 2008-through 2012, 465 banks have failed)                Bank deposits were uninsured in the 1930 and thus as banks failed back then, people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures.

3. Reduction in Purchasing Across the Board

With the stock market crash, and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.

4. American Economic Policy with Europe

As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation.

5. Drought Conditions

While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. The area was nicknamed “The Dust Bowl.” This was the topic of John Steinbeck’s The Grapes of Wrath.

6. Unemployment to continue to purchase goods and services within the economy

Throughout the Great Depression, there was little information on the extent of unemployment in the country. More important, there was no good way to assess whether the situation was getting better or worse. The wealth of timely statistical information on the labor market that we now take for granted simply didn’t exist. Throughout the 1930s, researchers grappled with the issue of how to measure unemployment. To begin with, there wasn’t agreement on how to conceptualize or define the condition. Simply asking those out of work if they “wanted” work or if they were “able” or “willing” to work proved to be too subjective to serve as unemployment criteria. At the same time, attempts to gauge the number of jobless by looking at declines in employment or counting the registrations at public employment offices were found to be incomplete. By the way, the second dip during the Depression was in 1937 and came as a result of austerity measures.

The whole unemployment schema today is a numbers game and  it all depends on which lens one is looking through to sell those numbers. Systemically, we have more people, more kids, more families to feed no ifs and or butts about it, but today we are better off than many were in 1930’s.

One unemployment perspective today is about the actual current civilian workforce vs. the total US population. Many of our unemployed have dropped of the employment “books”. Times are tough, for most.

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