1. Debt – Before 1930 – Nominal Debt: $17 Billion. Debt to GDP Ratio: 16%. Today: Nominal Debt: $23 Trillion. Debt to GDP Ratio: 106%.
2. World War 2 – Before 1930 – There was World War 1. 1945 with a nuclear bomb, the US was christened the winner of WW2.
3. Global Reserve Currency – Before 1930 – U.S. Dollar was not the global reserve currency. Then, in the 1944 Bretton Woods Agreement made it the global reserve currency (backed by gold). August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end, and rendering the dollar a fiat currency.
4. Social Security – Before 1930 – There was no Social Security in America. Now there is:
$32.4 trillion ($32.408,000,000,000) in unfunded obligations for current Social Security participants. $38.3 trillion ($38,300,000,000,000) in unfunded obligations for current Medicare participants.
5. Unemployment Insurance – Before 1930 – Unemployment insurance did not exist. If a man lost his job, he had to find another one as quickly as possible simply to keep from going hungry. A lot of other men in the same position competed desperately for what work was available, and an employer could hire those same men for much lower wages and expect them to work harder than what was the case before the depression. As a result, the men could get jobs and the employer could stay in business.
6. Welfare – Before 1930 – If hard times really put a man down and out, he had little recourse but to rely on his family, friends, or local social and church group. There was quite a bit of opprobrium attached to that, and it was only a last resort. The breadlines set up by various government bodies were largely cosmetic measures to soothe the more terror-prone among the voting populace. People made do because they had to, and that meant radically reducing their standards of living and taking any job available at any wage. There were very, very few people on welfare during the last depression.
7. Regulatory Agencies – Before 1930 – Most economies have been fairly heavily regulated since the early 1900s, and those regulations caused distortions that added to the severity of the last depression. Rather than allow the economy to liquidate, in the case of the U.S., the Roosevelt regime added many, many more regulations—fixing prices, wages, and the manner of doing business in a static form. It was largely because of these regulations that the depression lingered on until the end of World War II, which “saved” the economy only through its massive re-inflation of the currency. Had the government abolished most controls then in existence, instead of creating new ones, the depression would have been less severe and much shorter.
8. Taxes: Before 1930 – No Social Security tax, no state income tax, no sales tax, and no estate tax. The income tax was new to the U.S. in 1913, and by 1929, although it took a maximum 23.1% bite, that was only at the $1 million level. The average family’s income then was $2,335, and that put average families in the 1/10thof 1 percent bracket. And there was still no Social Security tax, no state income tax, no sales tax, and no estate tax. Furthermore, most people in the country didn’t even pay the income tax because they earned less than the legal minimum or they didn’t bother filing. The government, therefore, had immense untapped sources of revenue to draw upon to fund its schemes to “cure” the depression. Roosevelt was able to raise the average income tax from 1.35% to 16.56% during his tenure—an increase of 1,100%.
9. America: Before 1930 – The world was largely rural or small-town. Communications were slow, but people tended to trust the media. The government exercised considerable moral suasion, and people tended to support it. The business of the country was business, as Calvin Coolidge said, and men who created wealth were esteemed.
10. Production: Before 1930 – Relatively slow transportation and communication localized economic conditions. The U.S. itself was somewhat insulated from the rest of the world, and parts of the U.S. were fairly self-contained. Workers were mostly involved in basic agriculture and industry, creating widgets and other tangible items. There wasn’t a great deal of specialization, and that made it easier for someone to move laterally from one occupation into the next, without extensive retraining, since people were more able to produce the basics of life on their own. Most women never joined the workforce, and the wife in a marriage acted as a “backup” system should the husband lose his job.
11. Financial Markets: Before 1930 – The last depression is identified with the collapse of the stock market, which lost over 90% of its value from 1929 to 1933. A secure bond was the best possible investment as interest rates dropped radically. Commodities plummeted, reducing millions of farmers to near subsistence levels. Since most real estate was owned outright and taxes were low, a drop in price didn’t make a lot of difference unless you had to sell. Land prices plummeted, but since people bought it to use, not unload to a greater fool, they didn’t usually have to sell.
12. Corporate Bankruptcy: Before 1930 – Banks, insurance companies, and big corporations went under on a major scale. Institutions suffered the consequences of past mistakes, and there was no financial safety net to catch them as they fell. Mistakes were liquidated and only the prepared and efficient survived.
The 1930s depression was a deflationary collapse, a time when currency became worth more and prices dropped. This is probably the most confusing thing to most Americans since they assume—as a result of that experience—that “depression” means “deflation.” It’s also perhaps the biggest single difference between this depression and the last one.
Comments by Luis G de la Fuente