1929=
FROMBOOM
TOBUST
THELESSONS
OFTHEGREAT
DEPRES5ION
AREHELPING
THENATION
DEALWITHTHECURREI{T
RECESSION-AND
AVOIDANOTHER
ECOilOMIC
CALAMITY
ByJoseph
Berger
he recession
grippingthe nationtodayhasmade
life hard for many Americans,with an unemployment rate of more than 9 percent, millions
of pmple losingtheir homesdue ro foreclosure,
and the auto and banking industries trying to
recoverwith the help of an $800 billion bailout
by the federalgovemment.
As bad as the economyis, howwer, it doesn't begin to compare with the miseryof the Great Depression,at leastnot so far.
At the height of the Depression,which beganafter the stock
market crashedin October 1929--80 yearsago next monthunemplol'rnenttopped 25 percent. More than 9,000 banks
failed, wiping out the life savingsof millions of Americans.Tens
of thousandsof farmsand other businesses
went bankrupt.
Beyond the grim statistics was the untold number of
people who lost their dignity waiting on breadlines,clawing
through garbagefor scrapsof food, selling apples on street
corners,or living in makeshiftshacks,asthe nation sankinto
a decadeof profound despair,
But out of that suffering came a sea changein the phiIosophy of the federal government.\flashington'srole in the
economy-and in the daily lives of all Americans, in good
times and bad-increased exponentially,with a host of social
and economic programs that are still in place today, and
helping to blunt the effectsof the Great Recessionin 2009.
\X/hat made the Depression such an exquisite insult was
that it came after a prolonged period of prosperity. Recoiling
za @bel(etrrdort@tmes
upFRoNr . upFRoNr MAGAzI NE.c oM
after the slaughterof World \flar I, Americansmoved into the
Roaring Twenties with a devil-may-careindulgence fueled by
the promiseof new technologieslike the automobileand radio
and by a firm-and, it tumed out, naivs-[elief in the stock
marketasa perpetualwealth-generating
machine.
tr
America'sleadersreassuredthem that prosperitywould last r *
indefinitely,with Herbert Hoover telling the nation just before
I9
he was electedPresidentin 1928that unemploymentwas dis- Eappearingand that the United Stateswas "nearer to the final
ftiumph over poverty than everbefore."
He made that remark about a year before the stock market
crashedon October 28th and2gth of 1929,now known asBlack
Monday and Black Tuesday,Miltons of middle-classinvestors ;:
<+
were wiped out, many of whom had been buying stocks on
margin-with borrowed money-in companiesthat were worth E;
dz
far lessthan their inflated sharepricesmade them seem.
s;
For severalyearsbeforethe market collapse,there werewaming signsof economictrouble. As Europe recoveredfrom World 6 9
\Var I, it no longer neededto impon asmuch Americanfood, so o U.S. farms-which employed21 percentof the nationb workforce, compared with 2 percent today-began to suffer huge
lossesasdemandfor their products fell and pricesplunged.
\7hen farmers couldn't pay back their loans,banks began
FQ
>d
42
F;
Bergeris a rEorterfor TbeNew Yo* Tines.
Josepb
-=
f
.(
S0UPKilI|.lENS
Mi0RANTS"
0f seven
in California,
searched
for workandfood,1936.
andbreadlines
couldbe foundail overthenation
duringthe 1930s.
likethismother
:.:$r,
,rl rr
i l i :i ' ; , l L j i l I N ; ' ri i U t ll i 5 li ]i (
@be
Nsn
TocKscOLuPsE
IN16.1t0.030"SHAnE
DAy.
BUfRALIYAT CLOSE
CIIt,IRS
8iO/GRJ:
BANKEf'S
OPTIMISNC,
TOCONTIIIUE
AID
;j"
i .: l { i al
, ! rlliltltlii{
(Fnn\qfi\)PRESIDEIII
}|(](IVER
took
ahands-0ff
appruad
b $eecrnomy
during
dreDepression,
while
PRESIIlEIII
R00SEVEIT
gotWashingbn
mudmore
inrolved.
Asarcsufi
ofilewDeal
prcgrams,
jobs
trose
who
lose
bday,
liketrese
MEN
Ili MIl{NEA
P0LlS,areeligible
torunemployment
benefib,
and
most
W0RKERS,
especially
at
beentylflel aruguannbed
aminimum
wage.
to collapseor just stoppedmaking
loans-thelifeblood of their business, Nervous depositors began
lining up to withdraw theirmoney,
and these"bank runs" contributed to an epidemic of bank failures
in the early 7930s(seechart).
It soonbecamea dizzying,self-sustaining
downward spiral, their farms.Piling their mattresses
and dressersonto weather_
asbusinesses
devastatedby the \X/allStreetcrashwere unable beaten
trucks,theyheaded\West,or anyplacerumored to offer
to borrow money from troubled banks and began
laying off
prosperity,though prosperityusuallyeludedthem. (There
was
workers. As more Americanslost their jobs, they
spent less certainlyno shortageof mythic tales during
the
Depression,
and less,which led ro nore failed businesses
and layoffs.
and the story of such farmers-embodied by the
Joad family,
For those who lived through the Depression_when
who leaveOklahomafor California-was eloquentlycaptured a?
"Brother, Can You Spare a Dime?,, became
a national in John Steinbeck'snovel The Grapesof lVrath.)
anthem of sorts-memories of grim times are indelible.
Despite an economy in free fall, the Hoover administa_ tr
Sy Shulman,8J, recallshis mother throwing coins
wrapped tion stuck to the hands-offapproachof both
political parties =
in newspaperdown from the window of their apartment
in
at the time that left businesses,
and people,to prosperor fail )
Brooklyn,N.Y, to a man going build_
i
without the involvementof the federal
ing to building and playing the violin
government.
for change.
a
a
"I rememberseeingpeople in the
stfeetssurroundedby theirfurniture,,,
It nay be hard to believe todav. d
he says."They had been dispossessed
but in 1929lhere was no *"-ploifor nonpaymentof rent. Obviously
d
ment insurance,no SocialSecurityfor
there wasn't the samekind of social
the elderlyor orphans,no government
safetynet in thosedays.,,
z
guaranteeson bank deposits,virtually I
ThomasMoon, 87, a retiredelectri_
no regulationof stocksand other secu_ E
cal engineer,grew up near Huntsville,
rities,and few protectionsto makesure d
Alabama. One of six children of a
tr
workers receiveddecentwages.
sharecropper,he remembersthe fam_
6
AII those benefitswere intoduced
ily scavengingfor food.
d
starting
n 7933 by the administa_ E
"You could take a walk out in the mountains,,,
=
hetold The tion of a new President,Franklin
Delano Roosevelt,in what
Neu York Times. ',There was always something
to eat_all
becameknown as the New DeaI (seebox, p. 2l).
Roosevelt
kinds of berries-and in the winter you got p..*urrr,
hickory also stoppedthe bank runs by temporarily
closing
the
banks
nuts, walnuts. We used to eat bullfrog; that
was a delicacv.,, and then insuring depositors,money.
He
started
public-works
7
Shanrtrowns-derisivelycalledHoovervill.r_rp.ung
ui in
programs that hired the unemployed to build
highways, 6
cities,aspennilessfamilieshad nowhereto turn for
g
shelter.
bridges,and public buildings. Aad he stabilized
crop prices q
Outside the cities,farmersbesetby a combinationpunch
of for farmers.
calamities-an unrelentingdrought on top of
E
the steepdrop in
It's now a matter of debate whether the New DeaI
ended
crop prices-couldn't pay their mortgagesand
wereforced off
the Depressionor whether it was America,sentry into \World
ze @beN+ulfork @imegupFRoNr . upFRoNr MA
GAzI NE.c oM
\X/ar II n l94I that got farms and factories humming again.
But Rooseveltcreatedan atmospherein which people felt
the countrywason the move and that governmentcaredabout
their fate.He did so with wit and optimism,telling the nation:
"The only thing we havero fear is fear itself." \With the "fireside chats"he gaveon the radio, he becamethe first President
to speakdirectly to the peopleon a regularbasis.
Economistsconsiderthe current recession,which began
in 2007, to be the worst the nation has faced since the
Depression.It was caused,in part, by a home-buyingfrenzy
in which many people, respondingto banks offering low
interestrates,took out mortgagesthey couldn't afford.
When housing prices
There have been no real bank runs, Izrrgelybecausethe
FederalDepositInsuranceCorporatiorrnow guafanteesdeposits up to $250,000.Unemploymenthasneared10 percent,but
all 50 states,with federalhelp, provide paymentsto the unemployedto tide them overfor up to 79 weekswhile theylook ibr
work. SocialSecurityand Medicareprovicleboth income and
medicalcareto the elderlv.
Learning lessonsfrom Hoover and Roosevelt,both President
George \X/. Bush and President ()bama took actions to pre-
vent the economyfrom cav'
ing in on itself, and Congrcss
approved an $800 billion
beganto fall and interestrates
bailoutto prop trp somebig
rose,millions of homeowners
banks.cn.l help companies
couldn'tpaybackthosemortlike General Motors and
gages.Banks stopped lendChrysler weather bankrupting money to businessesthat
cies, stay in business,and
depended on them-from
keep hundreds of thousands
local restaurantsand shopsto
of peopleworking. In the last
giant car companies-which
few months,the stockmarket
began laying off workers to
has recovereda good deal of
cut costs;consumersstoppedspending,and the spiral began. the ground it had lost, and there are hopesthat the economy
By the beginning of 2009, people began to think the may havestoppedits downward slide.
unthinkable-that another Depressionwas possible-leadWhile no one knows whether the counry is out of the
ing to a host of storiesin the media comparingPresident woods, SanfordJacoby,an economichistorian atU.C.L.A.,
Obama'schallengeswith Roosevelt's.
saysthe Depressiondemonsratedthat the governmentcould
But becauseof programsset in motion by Roosevelt-and
play a constructiveroie in the economiclife of the nation.
a generalacceptanceover the last 80 yearsby both Democrats
"The New Deal was a seachange,"he says,"in the way
and Republicansof a larger governmentrole in the economy, that politiciansand the averageperson thought about the
particularly in times of crisis-Americans are not nearly as possibilitiesthat openedup when governmenthad a centralbad off asthey $/erein the 1910s.
ized involvementin the economv."a
SEPTEM BER 2 1 , 200 9
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