A Historian on the Lessons of the Depression

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There are no equivalents to those circumstances today. The "real" economies of most major nations remain robust. No major war has disrupted international trade in more than a half-century. On the contrary, the explosion of global commerce in the past several decades has underwritten prosperity not only for developed countries but for many other nations as well--notably China, India and Brazil--lending today's world economy degrees of diversity, dynamism and resilience that simply did not exist eight decades ago. The abandonment of the gold standard has opened space for countries to adjust their monetary and fiscal regimes without fear of deflation or devaluation. And a landscape populated by an array of multilateral institutions like the IMF, the World Bank and the WTO has nurtured habits of international economic cooperation in times of crisis, as witnessed by the recent round of consultation among the G-7 countries and the coordinated efforts of finance ministries and central banks around the world to restore confidence and liquidity in the credit markets.

At home, agricultural employment today, at less than 2% of the labor force, is markedly smaller than what it was, and though sectors like the car and financial-services industries have been hit hard by the current downturn, none is nearly as sick as agriculture was throughout the 1920s. And for all the current ills of megabanks like Washington Mutual and Wachovia, the national banking system still enjoys a measure of stability far greater than in the 1930s--or even the '20s. The kinds of "runs" on savings institutions that we watch Jimmy Stewart battle every Christmas season are all but unimaginable, thanks in large measure to the psychological reassurance provided by a landmark New Deal innovation, the Federal Deposit Insurance Corporation (FDIC), whose authority to guarantee bank deposits has recently been expanded. And today's federal outlays make up nearly 20% of GDP, with state- and local-government spending adding another 10%--weighty ballast in the face of economic bad weather.

The Great Depression may have been triggered by a financial crisis, but its lasting story is written in the miseries of massive unemployment. Some 25% of the labor force stood idle in 1933--a rate that never went below 14% for the remainder of the decade. No unemployment insurance backstopped laid-off workers or kept communities going when paychecks disappeared. Given the demography of a workforce in which scarcely any married women toiled for wages, a 25% unemployment rate effectively meant that nearly 1 in 4 households had no income in 1933.

A similar unemployment rate today, when a majority of women, both married and single, are in the workforce, is fearful to contemplate. But it would be unlikely to translate into equivalent hardship for individual families. And thanks to Social Security, a solid floor of support exists for elderly Americans--which guarantees a minimum level of consuming power for the economy as a whole.