Is History Repeating Itself?

By James Donahue

The similarities between the events that lead up to the Great Depression of 1929 and those occurring today are scary. It almost appears as if our government’s economic advisors are ignorant of the historical record and are blindly following the same path that America did in the 1920s.

A third possibility, which we are loathe to suggest, is that the people pulling the economic strings know very well what they are doing and are purposely steering the nation and the global economy into another planned crash.

America was at war in Europe from 1914 to 1918. During that time federal spending grew to three times more than the national income from tax collections. A decision to cut federal spending to balance the budget in 1920 triggered a severe recession that became the catalyst for what was to follow.

By comparison, our nation today is still involved in heavy war spending in Afghanistan and Iraq, our national deficit has now grown into the trillions, and Republicans are pushing hard to continue the Bush tax cuts for the wealthy and at the same time, reduce federal spending in an effort to balance the budget. America is currently in a severe recession with no clear sign of a recovery soon.

During the period from 1920 to 1929, an average of 600 banks failed every year. A similar cycle of bank failures has begun in the midst of the current crisis. It began with three banks crashing in 2007, then 25 banks in 2008, and 140 banks in 2009. So far in 2010, as of August 20, another 118 bank failures have occurred. The pace of bank failures this year appears to be leading to an even larger number of banks to be shut down than 2009.

Organized labor membership declined during the years preceding the depression. The United Mine Workers Union, for example, experienced a drop of membership from 500,000 in 1920 to only 75,000 in 1928. Because many major industrial plants have been moved out of the United States to Mexico, China, Indonesia and India as corporations search for low cost labor and non-union shops, labor has been losing its membership and its influence in the United States. Statics show that union membership declined steadily in the United States since 1983.

During the decade before October 24, 1929, an estimated 1,200 business and corporate mergers swallowed up more than 6,000 different companies. By the time of the crash, only 200 corporations controlled more than half of all American industry. The picture appears much more complex today, but corporate mergers, often on a global scale, are in the news almost daily. They range from banks and manufacturing companies to electronic and pharmaceutical corporations as well as Internet business ventures. Some of the nation’s banks have swallowed up so much of the banking industry they are labeled “too big to fail.”

In the 1920s people were working but wages fell below the minimum standards to meet household needs. Consequently families were struggling. An ultra conservative U.S. Supreme Court favored big industry, striking down legislation designed to stop child labor practices and a proposed minimum wage law for women in the District of Columbia. An almost identical work environment exists in America today, with even people earning at the established minimum wage failing to bring home enough money to meet household financial demands. And like it was prior to the depression, the current Supreme Court is strongly conservative.

Just prior to the 1929 crash, the bottom 80 percent of all income-earners in America were removed from the tax rolls. Also taxes on the rich were drastically reduced. By 1929 about one percent of the people owned 40 percent of the nation’s wealth. The bottom 93 percent experienced a drop in real disposable per-capita income between 1923 and 1929. Are we not seeing this exact same scenario being played out in America today? As the national deficit grows to incredible levels, the wealthy are working hard to force an extension of the Bush imposed tax cuts for the wealthy. The tax burden, then, is shifting to a disappearing middle class and the poor who are earning so little that most have dropped off the tax rolls.

In 1924 the stock market went into what was then described as a “spectacular rise,” with investors enjoying rich returns. Yet what was occurring on the markets did not reflect the reality of economic conditions on the street. It was an artificial boom. A similar situation is occurring in the country today. The stock market has been making erratic fulgurations, with the Dow Jones Industrial Average remaining at or around the 10,000 level, while business struggles to remain afloat throughout the nation.

Another recession swept the country in August, 1929. During a two-month period before the collapse production, wholesale prices and personal income all began to slide. October 24, 1929, was remembered as Black Tuesday. The bottom fell out of the markets and losses were estimated at $16 billion. That was a lot of money in 1929.

The Federal Reserve didn’t act to cut prime interest rates on money loaned to banks until February, 1930. Currently the reserve has already acted to reduce rates to incredibly low levels. As happened in 1930, and is occurring again now, the action proves to be of little help in stimulating the economy.

Everything continued to get worse during the four years from 1929 to 1933 that Herbert Hoover remained in office as president. It was not until Franklin D. Roosevelt took office in 1933 that steps were taken to fix the mess created by the power figures that were in control of the nation’s wealth.

When a panic caused a run on the banks in March, 1933, Roosevelt declared a Bank Holiday. He closed all of the banks, and launched a plan to redistribute the wealth from the rich to all of the people.

Alarmed by Roosevelt’s “socialistic ideas” a group of millionaire businessmen led by J. P. Morgan and the Du Pont empires, attempted to overthrow Roosevelt with a military coup and install a fascist government modeled after the government Mussolini had established in Italy. The plan was foiled when General Smedley Butler got word of the plan and reported it to Congress.

Is the Tea Party movement, which also expresses grass roots concerns about big government spending and President Obama’s “socialistic ideas,” designed to stop the Obama Administration? Instead of doing it by force, this group is trying to accomplish its goals at the ballot box. It the Tea Party wins, what then?

The Congress under Roosevelt had some spine in 1933, unlike the Congress currently serving under President Obama. Within a year after Roosevelt came to power his administration created the Agricultural Adjustment Administration, the Civilian Conservation Corps, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Emergency Relief Administration, the National Recovery Administration, the Public Works Administration and the Tennessee Valley Authority.

Congress also passed the Emergency Banking Bill, the Glass-Steagall Act, the Farm Credit Act, the National Industrial Recovery Act and the Truth-in-Securities Act.

These were all brilliant steps in the right direction, but Roosevelt, concerned about maintaining a balanced federal budget, at first rejected a proposal by controversial British economist John Keynes to go into heavy deficit spending to create government financed jobs to get people back to work. This same see-saw thinking is being bantered around among Washington politicians and their economic advisors today and it is stalling any chance of recovery.

While federal public works jobs became a key to the nation’s recovery during the Roosevelt years, the president’s reluctance to dip heavily into deficit spending resulted in a slow recovery that lasted, some say, until the United States entered World War II. During this period, unemployment rose to about 25 percent.

The Obama Administration, even though hampered by an already overwhelming federal budget deficit created by the former Republican dominated Bush Administration, attempted to launch a public works program designed to put a lot of Americans back to work rebuilding a crumbling infrastructure, moving into a green technology and building public rail transportation systems to replace the need for so many automobiles. Republicans, however, managed to whittle the amount of money devoted to the bill to a point where it became relatively ineffective.

The question raised at the beginning of this report continues to nag us. Is history repeating itself? Are we blindly plunging into another economic collapse, perhaps worse than experienced during the Great Depression?