Oct 12 2009

Old News

There are many web sites out there that make me think, “Man, why didn’t I think of that?”  So many ideas seem obvious once someone else thinks of them, but they weren’t beforehand.

One of my favorite recent finds of this type is News from 1930.  Each day, he quotes and summarizes a bunch of articles from the Wall Street Journal of the same day in 1930.  (The page I linked to was a Sunday so the Journal wasn’t printed that day, so he picks some favorites from the week.)  Some typical selections:

A. Coleman, Asst. Postmaster General, says inquiries indicate higher volume of mailings planned in Oct. and Nov., says this is one of best business barometers.

W. Procter, Pres. Procter & Gamble: “In our opinion we have passed the bottom of the curve and business is slightly but unmistakingly better and in our opinion will continue to improve slowly.”

T. Girdler, Republic Steel Chair.: “Steel prices are touching bottom”; large buyers now placing orders for future delivery; “Prices of many steel products have dropped to a point where many large consumers themselves realize any further decline would serve no constructive purpose.”

As the owner of the site points out, these were intelligent people making judgments based on the information they had in front of them.  They just weren’t looking at the whole picture, especially the effect of massive debt and government spending.  They thought if businesses were borrowing money to ramp up production, and the government was putting spending money in people’s pockets, things would have to be good.  They weren’t stupid, just wrong.

The parallels to today are hard to miss.  This was almost a year after the Crash of 1929, and from the perspective of history, we know they were actually just entering a long depression.  Their leaders took all the steps our current leaders are taking to try to stimulate things (except that ours can do even more of the same things, because Hoover and FDR were more limited by the gold standard and the Constitution back then).  We know what it did to them; it remains to be seen what it will do to us.

It’s striking how optimistic most of the economic news and certainly the opinions were in 1930.  Businesses were borrowing money and expanding again, and almost everyone was predicting a recovery by the next year.  The small minority of bears were shrugged off as contrary grumps, as they usually are.  If “consumer confidence” and a general positive attitude were what it takes to make a healthy economy, there would have been no Great Depression.  These people didn’t sit around depressed and talk themselves into a Depression.  They thought they’d had a very bad year and were on the way to recovery Any Day Now, and they were relieved and optimistic about it.

We have the same thing in 2009: every day there are articles pointing out “green shoots” in the economy, signs that the recovery is coming Any Day Now.  Some of it is cherry picking: people hunting through a pile of bad numbers until they find a good one, like the way they trumpet the unemployment rate dropping .1% when jobs actually fell by 240,000 and the only reason the percentage dropped is because a bunch of people fell off the unemployment rolls.  But most of them aren’t faking it; they really think everything is about to get better.  They see money available to borrow again, so businesses can make stuff and people can buy it with credit cards, so what could go wrong?

In the 1930s, they found out it takes more than a good attitude and borrowed money to have a healthy economy, whether you’re talking about a nation’s GDP or a family budget.  It takes producing more than you spend, encouraging (or at least allowing) people to be productive in the first place, and avoiding get-rich-quick schemes.  As a nation and as individuals, we need to get back to those principles if we expect ever to have a healthy economy again.

[By the way, News from 1930 excerpts other stuff too, like movie reviews.  The economic news is just especially interesting right now.]

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