Echos Part 2: We're in the Money

Copyright, Joe Baker, 2017

A note to the reader: Since the middle of 2016, I’ve been struck by how many historical parallels connect our early 21st century with the 1920’s. This is not good news and is very much a cautionary tale. This is the second of four installments on those parallels and on what we ought to try to learn from them. You can read the first one here. I’ll be releasing the other two over the coming month. 

As always, I welcome your thoughts and comments. JB

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Sometime around late 1930 or early 1931, my grandfather got the bad news.

He was about to have his work hours at the Pennsylvania Railroad cut in half. This would reduce his family income to a total of $7.00 every two weeks. He was actually grateful. It could have been worse. He was bilingual and literate, and therefore more valuable to the track maintenance operation than men with less education. Railroad employment, affected by the deepening Depression and by the advent of automobiles and trucks, dropped precipitously by about 40%. For many railroad workers, when they lost their jobs, they also lost their company housing.

People he had known for years simply vanished into Hooverville homeless camps. Families dissolved. People begged for food at the doors of railroad shanties along Shady Lane where he and his kids lived. Homeless men stole rides on boxcars in the Enola Yards where he worked, and tried to make their way to California and other places where seasonal work might be available. His kids gathered dandelions and poke weed for food, and scavenged coal along the tracks to heat the house. People stole food from market stalls, poached rabbits, deer and people’s chickens, and did much, much worse things to survive.

Some of them didn’t make it.

It’s hard to overestimate the gravity and depth of the Great Depression, and it’s just as hard for modern Americans to fully wrap their heads around it. I have the advantage of hearing about it first-hand on the couch in my Mother’s living room from my grandfather who somehow survived it. As bad as the 2008 crash was, it pales in comparison to what happened after the 1929 crash. The parallels and the differences are instructive. Both crashes have their roots in economic policies that were in place in the preceding decade. Their differences come mostly from how American political leadership reacted to each crash.

There’s a reason they called them the Roaring Twenties.

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The 20’s featured one of the largest most prolonged periods of economic growth in US history. Much of it was driven by recovery from the First World War, by the rise of consumerism (especially the demand for automobiles, radios, and other modern wonders), and by one of the biggest expansions of public infrastructure in our history The first major automobile road network was begun in the 20’s, as was electrification and sewer and water systems. The first great skyscrapers and signature bridges drove the expansion of American cities. This was also an era of profound cultural revolution and progress in art, music, design and many social issues.

Sounds pretty good doesn’t it?

Beneath the glittering veneer, the economic and political underpinnings of the 20’s were toxic, and became steadily more so through the decade. Warren Harding’s campaign for the presidency in 1920 raised and spent over 8 million dollars, about four times what his Democratic opponent James Cox spent. Thomas Edison, Henry Ford and Harvey Firestone were big contributors as were less famous folks.

The 1919 Volstead Act (prohibition) created a lucrative black market in booze that injected an astronomical amount of black money into the economy. Lots of that money found its way into the political world. When Harding died in office in 1923, Vice President Coolidge took his place and was elected in a landslide the following year. Republican Herbert Hoover followed him in 1928. Harding, Coolidge and Hoover were the darlings of the moneyed class for very good reasons.

According to historian Robert McElvaine, these three administrations “produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007.” In 1926 one of the largest tax cuts in American history was forced through by Treasury Secretary Andrew Mellon (then one of the richest men in the world), producing record bumps in income for the wealthy. Some of these rich investors, mine owners, railroad magnates and industrialists weren’t the best sort of people. They suppressed the unions that had arisen during and before the First World War, sometimes brutally. Their money and influence were completely interwoven with the Republican administrations of the period producing scandals like Teapot Dome and many less well-known instances of bribery and collusion.

While this made these wealthy elites reviled in some quarters, they were also much admired in others. The mythology and promise of the land of opportunity enthralled a lot of ordinary Americans who imagined themselves the next Andrew Carnegie. If they could just catch a break and work hard, they could rise to become rich and powerful. To that end, many of them turned to debt. The concept of blue collar and middle class families buying durable household goods like cars, furniture and appliances on-time was a product of the 1920’s. Some folks, greedily eyeing the expanding stock markets, borrowed capital to invest, not unlike the chronic gamblers who sometimes borrow from the casinos they play poker in. Banks loaned freely, and a nearly complete lack of federal regulation and oversight meant lots of them loaned much more than they had in reserve. Everybody was on the installment plan. The 20’s produced an unprecedented rise in personal/household debt and in institutional lending far over margin.

What the hell…Everybody was making money!

Of course, we all know what happened. When the crash came in 1929, President Hoover’s administration attempted to respond with appeals for voluntary belt tightening, individual responsibility, and cooperation between labor and management. He explicitly avoided any attempts at bailouts, direct assistance to individuals or states, or anything else that smelled of socialism. He preached optimism and faith in the country’s economic strength.

By 1932, unemployment reached about 25%. A climate disaster in the Midwest (extended drought) gutted agricultural production in the breadbasket, and the sky filled with dust. The economy did not really recover for a decade, when bond-financed war spending finally pushed production and the factories began running on all cylinders. It’s also worth noting that the Republican Party took even longer to recover.

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And now we find ourselves with a conservative Republican majority in the US legislature with a strong distaste for any significant role for government, a Republican executive administration rife with corruption and lubricated with untraceable sources of money, a nearly complete absence of meaningful financial regulation, a white-hot stock market, rapid and dangerous climate change, and unprecedented levels of personal and institutional debt.

What could possibly go wrong?

Twain may or may not have said that “History doesn’t repeat itself, but it rhymes.” George Sanatayana certainly did say that “Those who do not remember the past are doomed to repeat it.”