Analysis of 1929 Depression Survivors' Advice

As the 2007 Depression continues, we expect that still-living survivors of the 1929 Depression will be getting more air-time. In our mind, it is sad that an economic calamity had to occur before these people's well-tested advice is given its due. The frugality and thrift which is so deeply ingrained in the individuals would have prevented much of what is occurring today - if only the greater public would have listened.

But that is neither here nor there; we want to discuss both the advice that these survivors offer (taken from two articles), and some inherent problems. First, the advice: in this article from The Ledger, one individual recommends a 20% personal savings rate; another says not to buy things one cannot afford. The most interesting insight, at least to us, is the thought that the young of the United States, having lived with nothing but a knee-jerk consumeristic lifestyle are in for a serious shock, at the very least. All in all, we recommend this article; it's interesting to hear the perspectives of these survivors, and their advice is never out of style.

On the other side of the coin is the bad advice, as seen in this otherwise excellent article from Utica Observer-Dispatch. One of the survivors says that the 1929 Depression was completely different from this 'recession,' but fails to suggest how or why (as an aside, she gave corollaries and outcomes of the 1929 Depression, not causes). The general thrust of the article seems to us to be that "the government is prepared;" “I don’t think [a Depression] could happen again” said one interviewee.

These two articles highlight some inherent difficulties in turning to 1929 Depression survivors: these people are old. There are sharp-as-a-tack survivors (we know one), but that term does not describe every survivor. A not-insignificant number of these survivors are not in as full of command of their faculties as they once were. This has a number of implications.

First, even when the advice survivors give is sound and useful, they cannot defend why it is as such; to them, it is only the way things must be done. Because of that, these survivors come across as a bit senile at best, or outright loonie-tunes at worst, from the perspective of later generations. It is easy enough for one to dismiss well-defended advice; it is infinitely easier to dismiss advice without supporting argument.

Second, because of the loss of facility which comes with increasing age, many of these survivors probably have to rely - at least in part - on what they hear and read, rather than anything they actually remember. The post-1929 Depression mantra carries with it a healthy dose of Franklin Roosevelt worship, and Herbert Hoover bashing. Both of those Presidents have similarly damaging policies; Roosevelt's was remarkable for being aggressively un-Constitutional. This loss of first-hand memory allows for retroactive continuity: the 'memories' of the survivor are clouded by the rhetoric of later generations defending the expansion of the Federal Government.

And finally third: these survivors can only reflect the point-of-view of persons who didn't die during the 1929 Depression. Almost all survivors came from fairly well-off families; they owned their own home, they could hold some jobs, they could buy and grow some food. There were many more families which had none of the above, and many simply died of stress and starvation. The survivors who speak today do so through a bias: they were comfortably-off before the 1929 Depression, and so had a cushion between death and survival. They did not see the absolute horror that the 1929 Depression brought to the United States.

We expect the 2007 Depression will bring similar horror. The only question, in our minds, is when.

Sound Advice From Hollywood!

No, really...

Actor Michael Douglas has made a statement supporting the legalisation of marijuana in the United States. His argument is based on several levels: one, he points out, rightly, that the Federal and State Governments made an excellent profit on the sales of alcohol after the repeal of the Eighteenth Amendment (a.k.a. Prohibition) in 1933; and two, the present illegality of marijuana is fostering the presence of organised crime and violent gangs, as had occurred during the Prohibition Era in the U.S.

Mr. Douglas' points are both very valid, and are ones that we ourselves have used in arguing the validity of marijuana legalisation. Taking alcohol sales as an example, there are numerous states in the Union (Michigan and New Hampshire, among others) which own outright the alcohol sales business. The revenue off of this business is enormous, and represents a sizable portion of funds incoming to the state's coffers.

The additional benefits of marijuana legalisation would be a serious reduction of the number of non-violent prisoners who serves under marijuana-related convictions. Release of these individuals would significantly reduce the pressure on the United States' already-vast penal system. Legalisation would also break the back of those gangs and crime organisations which thrive upon the sale of marijuana, thereby increasing the safety of the average American city. These two changes would save untold amounts of money, which would be very helpful indeed in the Depression.

However, legalisation will likely not be happening under President Obama: he has already made his position clear, and it is an emphatic "no." This may seem surprising to those who expected the President to bring about deep changes to the American system, but in our minds it is further evidence that Mr. Obama is the Herbert Hoover of the 2007 Depression (President Hoover was a supporter of Prohibition; it took until the Franklin Roosevelt Administration until the Era was over).

Perhaps the President after Mr. Obama will help legalise marijuana. We feel that would be a happy thing; there are already too many people in prison for using an herb, which is arbitrarily found to be, somehow, less desirable than alcohol or ordinary tobacco products. On the other hand, if this next President is to be the Franklin Roosevelt of the 2007 Depression, there will be other consequences that are not something we look forward to.

Government and the Concentration of Decision Making

There is a trend we have noticed in the past: in the course of Depressions, a Federal or Republican Government will attempt to usurp various regulatory and legislative powers from its constituent nations (be they States, Provinces, Territories, et cetera). This can be seen in the efforts of the Hoover and Roosevelt Administrations during the 1929 Depression; many of Roosevelt's social programmes were so heavy-handed in their scope, they were struck down as unconstitutional.

The justification for this centralisation (in the U.S., as well as elsewhere) is simple: a single, cohesive approach to 'solving' a Depression has a higher chance for success than numerous, uncoordinated approaches. Logically this can make sense, as it would seem that, if a recovery programme (or programmes) are based on a Federal/Republic level, it would be less mired in regional politics.

In practise, we feel such a top-down approach simply does not work. One only needs to look at the American super-huge banks to see how a top-heavy administrative technique will inevitably pan out. Simply put, it concentrates the decision-making powers into too few hands... and those hands will make many mistakes. One person given the decision-making powers of ten thousand will eventually make one bad choice with the power of ten thousand bad choices.

It is a serious fallacy to assume that Government, somehow, is bereft of this concern, when it is just as mired by the problems of the concentration of decision-making. As a Federal/Republican Government works to gather-up the power of decision-making in various sectors - ostensibly to alleviate an economic problem - it increases the destructiveness of its bad decisions. Such concentration seems more efficient, but in actuality it is a very large problem.

That is why it is important for members (States and Provinces, cities and municipalities, et cetera) of a Federal or Republican Government to defend their decision-making powers. At the very least, this is to avoid the concentration of decision-making and the damaging actions which come from this concentration. Beyond that, though, the only feasible way to craft a regional recovery programme at the regional level; the best place of the Federal/Republican Government is to coordinate these various lower-level programmes, rather than usurp them.

If the sub-Federal/Republic level is gutted to such a degree that they are effectively rendered non-functional, this creates an even bigger problem: lack of resiliency. That is a serious concern in the 2007 Depression, as it is placing an unbelievable amount of stress upon the Federal/Republican Governments of the world. If such a Government were to collapse (or suffer 'interruptions'), having gutted the powers of its constituent entities, there would be no effective system of law-enforcement beneath it to ensure some degree of social order. Without State or municipal governments, it is not outside of the realm of possibility to see the rise of another Somalia, and the many problems which that non-nation experiences.

What Would Lincoln Do?

Yesterday the United States Mint released the first of four Abraham Lincoln commemorative pennies, on the bicentennial anniversary of his birth. This latest sliver of copper-coated zinc is dreary as anything we've yet seen from the U.S. Mint. In all honesty, we really do wish the U.S. would just have its coins minted by the Royal Canadian Mint. At least R.C.M. coins are interesting to look at.

But seriously, this new penny is just a portion of renewed Lincoln-interest in the United States: President Barack Obama is making waves as the proverbial 'next Lincoln.' This goes beyond President Obama as a visible minority: he is a rhetorician from Illinois, and he is President at a critical juncture. The question that some are asking is the same as this post's title: What Would Lincoln Do?

According to TIME Magazine, Lincoln would spend, spend, spend. Well, our honest opinion is that President Lincoln would spend, spend, spend... and start a war. A really big war. It is conventional wisdom that war strengthens an economy; President Franklin Roosevelt found that to be true during the 1929 Depression. The War Between the States (a.k.a. 'Civil' War) helped vastly to increase the industrial base of the United States at the expense of the Confederate States. World War II did much the same for the U.S. at the expense of Europe.

We're not saying that President Obama is necessarily a war-monger. However, if he is indeed the next Lincoln, or the next Franklin Roosevelt, then there are certain unspoken policies that we expect will come into play. Those policies are ones of war; not small, overnight invasions like Iraq or Afghanistan, but major engagements the world hasn't seen since World War II.

Welcome to Futility, Mr. President

Now that President Obama has enjoyed the first day of the next four years of his life, we would like to take stock of the situation. In one fell swoop he has inherited a blown-out national economy, a global credit crisis of biblical proportions, two desultory wars of occupation, and the thankless task of fixing everything. No pressure, sir, no pressure.

Since it seems that a mass delusion has gripped many people across the globe, we feel it is our duty to break the bad news: President Obama will not make good on his bright, shining future. He is many things, this is true, but he is not a miracle worker. He is, first and foremost, a politician, and politicians can always be trusted to not be trustworthy.

All that said, he probably does realise the enormity of what is expected of him: 'fixing' the United States' economy, and indeed the world's economy. However, 'fixing' entails choosing some serious, mind-altering pain. He strike us as the sadomasochistic type of a different breed, to be honest, so we doubt he will do anything helpful. Instead, he will put the Citizenry of the U.S. -- not to mention other nations of the world -- through an entirely different, and worse sort of pain.

In the grand scale of things, we truly feel that the 2007 Depression is going to be far more painful than the 1929 Depression. At the same time, President Obama is not the Franklin Roosevelt of the 21st Century. He is, instead, the Herbert Hoover: the 2007 Depression has only just gotten started, and it's all downhill from here.

Good luck, President Obama.

Caution versus Confidence

Sometimes caution is a virtue. When things are going from bad to worse, one does not want to embark on boondoggles. Resources need to be conserved for redeployment in better times.

One of the functions of money historically is its use as a store of value. When prices are low enough that the desire for a good deal overcomes the fear of loss, money is pulled out of hoarding. In 1933, US President Roosevelt signed an Executive Order "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates." Evidently, Mr. Roosevelt decided that by forcing money out of hoarding, the same happy result would occur as if the money had come out of hoarding voluntarily.

We believe this was a critical error of judgment, and a factor which prevented the cure of some critical failings in the US (and indeed world) economic systems which caused the 1929-1939 Depression. We agree with the Austrian school of economics theory that excessive credit expansions are the primary cause of depressions. The excesses of these expansions are worked out primarily by a dissolving of the banking system and a subsequent reboot, so to speak. The policies of the Hoover, Roosevelt, Bush II, and now Obama administrations (and their international counterparts) did not allow the liquidation of the banking system. On the contrary, the popular solution to the depressionary stress is rescue of the failed banking system and further expansion of credit.

Classically, metallic money has acted as a brake upon credit expansion. In the Great Depression of 1929-1939 this brake became an inconvenience and was discarded. Since then, the world economy has been riding a runaway train of credit expansion. Sooner or later (and we vote for sooner), it will come off the tracks when spurious 'investments' do not produce intended yields.

Is the 2007 Depression then 'the big one'? It will be if world leaders decide to void the world's paper money supply of what little store-of-value-ness it has left. Zero percent interest rates and debt monetisation (both in progress) are a good start in that direction. Seeing their money become nothing other than something to spend, the world's citizens will dutifully spend away and the greatest crack-up boom ever will ensue, followed by the inevitable hyperinflationary catastrophe.

We would like to hope some other scenario is possible, but it seems less likely by the day.

Did We Say 2008? Hahahahaha...

It's now official, folks: according to the National Bureau of Economic Research, the United States is in a recession... which started in December 2007. Actually, the recession is really a depression, but that's a detail; the illusion that things are just 'slow' has been eradicated, a year into the problem. Whatever the case, we wish the Depression a happy first birthday!

It is customary to name a depression after the year in which it started, so officially the United States is in the 2007 Depression. We resist the temptation to retcon our previous posts to fit the present circumstances, but we will use 2007 Depression from now on. It is the way this depression will be remembered in the history books, and who are we to argue with history?

Now that the economic situation is 'official,' let's look at what this may mean. One thing we feel is certain: fear is going to be much stronger than before. As an example, news has broken that credit card companies are thinking of cutting $2 trillion in consumer credit. Although we aren't convinced the banks will actually do this, it's a sign of increased tension and fear.

Fear will also help drive President-elect Barack Obama's sweeping social programmes with neck-snapping speed. In the manner of President Franklin Roosevelt before him, we believe Mr. Obama will be coming out swinging... and one doesn't want to be in his way. We fear his new policies, like Roosevelt's inept and destructive New Deal, will only serve to worsen and prolong the 2007 Depression.