Popular imagination has the Great Depression opening with a bang in
October 1929. We forget that even by December of that year, the market
had no idea what was really in store.
Lately, whenever the market has a bad day, the reflex among
financial-news editors is to compare our current situation with 1987
and wonder if a "Black Monday"-style crash is on the horizon.
much of what we are seeing now also took place in 1929. As we know,
that meltdown — unlike the 1987 crash — was not followed by a happy
ending, but rather by a decade of poverty, shantytowns and sporadic
the Great Depression opening with a bang in October 1929. We forget
that even by December of that year, the market had no idea what was
really in store. After a period of wild, bipolar volatility, stocks had
taken two big tumbles (a 12.8% drop on Oct. 28 and an 11.7% fall the
next day) while the top bankers and "captains of industry" rushed to
shore up the market. By November, the Dow had hit its low for the year
at 198, down from the giddy September high of 381.
pundits and government leaders of the day insisted, the economy’s
fundamentals were still strong. Mass unemployment was, some months
after the crash, still just something that went on in Germany and
Britain. America was strong and merely needed a push to keep the
financial markets from harming the broader economy.
Herbert Hoover — only nine months into his presidency — assembled
leaders from the public and private sectors to create an
economic-stimulus package. Among the measures, Time magazine reported
at the time, was a promise from Congress to offer bipartisan support
for a tax-cut package. The proposal called for $160 million in tax
relief — only about $22 billion if adjusted against the gross domestic
product at the time, and therefore much smaller than the plan under
consideration here in 2008.
would provide cheaper credit. Granted, the Fed had much less power over
the money supply in those days, mainly because the amount of liquidity
it could create was limited by the supply of gold it held to back the
litany of public-works projects, plans for new corporate investments,
and even a promise by Henry Ford to raise wages at his auto plants.
What was first seen as speed bump to the expansion of American finance
became something much larger. The Dow continued falling, hitting 157 in
1930, 73 in 1931 and finally a mere 41 points in 1932. It did not reach
its 1929 high again until 1954, a generation later.
Certainly, our economy
now has far more differences than similarities with the economy of
1929, and few expect a new depression for the decade ahead. But it’s
also worth remembering that the best laid plans of presidents, chief
executives and senators can sometimes come to nothing.