MemeWatch: The Second Great Depression

Wherever we are in the world, the economy is obviously in rough shape. In America, polls of likely voters have 60% saying the economy is the most important issue when it comes to deciding who to vote for. In the 1992 election (where the private motto of Bill Clinton's victorious campaign was famously "It's the economy, stupid"), that number never rose above the low forties. With all that attention, the media is sitting up and taking notice. Everyone suddenly wants to hear what previously-boring people like Ben Bernanke and Warren Buffett think of the crisis. And the one question that always seems to be asked is: "Are we on the verge of another Great Depression?"

As I've talked about in previous posts, no matter how bad the current crisis gets, it will be very different from what we call the "Great Depression." Banks failed left and right, and since this was pre-FDIC, the money in those banks effectively ceased to exist. A third of America's wealth disappeared essentially overnight, which led to hardships not just here but across what was at that time a fledgling global economy. It's estimated that about 25% of the country was out of work. And the thing is, though there are specific benchmarks for a "recession," there aren't for a "Depression." It's simply defined as a "very severe recession."

I have very little feel for how it was viewed elsewhere, but the Depression is still seen as an extremely important period of American history. Many of our greatest literary classics date from this time. It changed the face of the country, permanently putting a fork in the rural society in favor of the urban and leading to a sustained phase of western migration. It was the depression, not motion pictures, that really made Los Angeles what it is today. Old institutions collapsed and new ones sprung up. Medicare, Social Security, and the SEC were all direct results of the Depression. The legacy of the Depression was the defining issue in this country, in one way or another, for decades (in my opinion this was followed by the Vietnam-era cultural split, of which this election may serve as the death knell).

So you see that the question of whether that time is back isn't picked out of thin air. Mostly those in power have been reticent to say we're heading towards "another Great Depression." More common is the idea that what we're experiencing is the worst crisis since the Great Depression, which is probably safer. That language has been used (independently, but the whole idea of memes is that it's not really independently) by both President Bush and Sen. Obama, Bush in a prime-time televised address to the nation. But what does that mean?

For the everyday citizen, the best way to look at this (since, as I said, we're not about to lose our savings like they did in 1929) is in terms of unemployment, and how hard it is to get a loan. We're not close to that 25% figure yet, but it's not as far away as we might believe. The official unemployment rate here in Ohio is currently 7.4%. But that doesn't mean that 93% of the population has a job. The unemployment rate only takes into account those who are physically able and currently looking for work. It also doesn't take into account the "underemployed." A year ago, I was making minimum wage working 8 hours a week. I would not have been considered unemployed, though you obviously can't make a living long term doing that. So estimates indicate that the "real" unemployment in this state is much closer to 15%. It's also becoming extremely difficult to get a loan. One example: auto sales (where most customers need loans) are down as much as 75% in the Cleveland area.

So here's the thing: the question isn't out of line, but I'm not sure it's helpful to our understanding of this issue. This is Earth 2.0, and conditions are so different from 1929 that it's comparing apples and oranges. Could you end up reasonably saying this is "as bad as" the Great Depression? Maybe, though it would just be your opinion. But one way I think the two may compare is in their far-reaching effects. What will be the Social Security-like structural change in our country that comes out of this crisis? That will be how its legacy is measured in the end.