The scariest thing about the little rumble in the stock market this week is that it happened for good reason. The market slid three percent in one day because it appears that the governments of the world are backing away from support for the economy. If the politicians of the world have forgotten the lessons of history, the market has not. If we do not continue to stimulate the economy with government spending, there will be a depression the likes of which has never been seen.
Not that we ever did pay attention to history. If we had we would not be in this mess. We learned an excellent lesson back in the 1920s. Then we had a president who had little more than contempt for the federal government. “If the federal government should go out of existence, the common run of people would not detect the difference in the affairs of their daily life for a considerable length of time,” said Calvin Coolidge. (Compare to Ronnie Raygun’s “scariest words”… “We’re from the government and we are here to help.”) Silent Cal set the tone for governing in the 1920s by espousing a partnership between the government and industry. “This is a business country,” he said, “and it wants a business government.”
The GOOP of the 1920s championed tax breaks for the rich and channeled $3.5 billion in tax rebates and waivers to millionaires and their corporations. It opposed labor unions and ensured that the working classes stayed poor while the richer classes got even richer. High tariffs demanded by business protected the world’s most prosperous market from imports while the export market exploded … primarily because European buyers borrowed money to buy American goods from American banks. Business boomed. (And when Europe could not afford to pay its debt, American banks lost, but that wasn’t until 1929.)
The federal government, which had busted trusts and effectively regulated the economy for years, quit regulating. The Federal Trade Commission walked away from the antitrust laws and replaced them with industry-wide trade agreements. The concept of transparency in the stock market was widely derided. It all made for a robust ride up, a shimmering bubble at the top, and a quick disaster in 1929.
Herbert Hoover has been president for six months when the stock market crashed and like all free market thinkers he was sure it would correct itself. He suggested that restaurants give leftovers to needy people and ran Coxie’s Army out of the Nation’s Capital at gunpoint.
The economy was a shambles by 1933, when Roosevelt took over. FDR reregulated Wall Street and stimulated the economy. He did the later by pumping billions into the government projects. He put people to work and built infrastructure. By 1937 the people had forgotten all that. They believed it was time to get back to the balanced budget and stop deficit spending. The economy tanked. The depression was so deep that it took a war to get us out of it.
In Washington D.C. it’s 1937 again. They want to quit spending money, cut the deficit and let the economy correct itself. Something tells me that history is going to repeat itself again. Good Luck with That!