History doesn’t repeat itself. As the cycles rise and fall there are always different circumstances, new actors and a different spirit in the people. Somehow, it seems, we even learn a thing or two along the way. As we confront the possibility of a new Depression we can see that our leaders are responding to it in a way that may make all the difference. First, however, it’s good to take a look back at what worked the last time – and what didn’t.
When FDR took office, the nation had already fallen hard. A third of all workers were on the street and banks were starting to fail rapidly. The previous administration had done nothing to help the situation, appearing to stand at a safe distance that allowed them to watch the wreckage fall. When it was FDR’s turn to take action, he took it decisively.
That’s not to say he knew exactly what to do. In fact, he admitted openly to his aides that since there was no precedent to the situation, they were going to try anything and everything to get the nation moving again. The one thing they were sure of was that there was an excess of production that was driving down prices and ruining entire industries at once. The solution was the National Recovery Administration (NRA) that would be a temporary suspension of the Sherman Anti-Trust Act, allowing companies to form cartels and fix prices.
Many other programs comprising the “alphabet soup” of recovery acts were put into action. The most successful were the Works Progress Administration (WPA) and Civilian Construction Corp (CCC), which provided jobs rather than blank checks. But these were generally underfunded because there was a general belief that massive budget deficits would only make things worse.
As time went on, the headline NRA proved less successful than hoped, and may have made things worse. Eventually, the arrival of World War II created the transformation that brought us out of the Depression. Wars are, rightly, seen as events of mass slaughter, but they are also times when governments spend tremendous amounts of money they have to borrow.
This was the stimulus that ate up the excess capacity, created jobs, and transformed American in ways never imagined. By the time the war was over farmers had moved in from the countryside, blacks migrated north into cities, and California started to develop rapidly. We achieved the restructuring that is essential for escaping a Depression and greeting a new world.
This time, Obama inherited a very different world. We are no longer shy about deficit spending, and the previous administration certainly did their part. It didn’t entirely work. While we don’t have the unemployment that was at the core of the last Depression, the reasons are more subtle; the over capacity lies in the manufacturing centers which are located oversees. Our main problem is reliance on the financial sector that died a fairly quick death in something like a giant Ponzi Scam.
What can we learn from this? Interestingly, our reaction to this downturn has been exactly opposite our reaction to the last one. We’ve done all the things that they should have done, avoided the big mistakes, but not taken any action to provide jobs or stabilize our financial sector with an insurance program.
Does this mean that our leaders believe FDR was wrong about everything? I admit, I’m starting to wonder a little bit. The one thing that escaped us the previous downturn seems to be the one thing that is being stressed heavily, which is deficit spending to keep the economy running. Programs like the WPA provided immediate relief for individuals while starting the process of transforming the nation that would be completed in the War; these are suspiciously absent today.
FDR knew that the nation needed to be transformed to get out of the problem, but they weren’t sure how to do it. In the end, they guessed wrong on a few key things but events conspired to do it anyway. Our leaders are clearly trying to not repeat the same mistakes, but in the process may be missing a lot of things that worked well the last time around.
Most important of all, the spirit of trying anything that seems reasonable and working towards a wholesale transformation of our economy are simply not part of the situation. That may yet have to change.