Tag Archives: Great Depression

The Great Depression – The Real School Of Hard Knocks

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Downturn is nothing like Great Depression as the Vancouver Sun reminds us.  Canadians are ‘light years’ away from the misery of the 1930s according to many observers.

H. Blair Neatby, Professor Emeritus in the History Department at Carleton University, knows what hardship is. He grew up during the Great Depression in Saskatchewan.  He acknowledges the current recession is hurting many Canadians. But he also says today’s economic troubles are nothing compared to the severe insecurity and adversity faced by Canadians during the Great Depression.

That is an opinion shared by McGill University economist William Watson, writing in the February issue of Policy Options magazine. He says likening our current woes to the Dirty Thirties trivializes the hardships of our parents and grandparents who lived through both it and the war.  “Nothing awaiting us in 2009 is likely to rival either the 1930s when the unemployment rate rose to I in 3 or [the] blitzkrieg,” he said.  (Link to PDF version of article)

Even though the current recession may deliver knocks of somewhat lesser impact than the Great Depression, it can still be a school for useful lessons.  Blair Neatby hopes that the recession may teach younger Canadians growing up in an age of debt and leverage, a simple lesson about the value of saving.

As he said, “People like me came home from the war and became a generation of savers.  And we looked with some concern at our children and grandchildren who didn’t seem to be as concerned with the importance of saving. They hadn’t lived, as we had, through a time of great insecurity.”

Saving so as to have reserves and choices during hard times is timeless advice that is always right.  Hopefully these lessons on saving from the past will not be lost on all as they now struggle during these difficult times.

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The G-20 Must Restore Credit And Resist Protectionism

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The eyes of the world will be on the Group of Twenty (G-20) major nations, accounting for 90% of the world’s gross domestic product, 80% of its trade and two-thirds of its population, when they meet in London beginning April 2, 2009. They plan to discuss the cooperative steps necessary to bring the current economic crisis to a speedy end.

According to Arvind Panagariya in a Forbes article, they must Restore Credit And Resist Protectionism as a high priority.

He points out that:

The G20 recognize that international trade today accounts for a much larger proportion of the GDP than at the beginning of the Great Depression in virtually all nations. The likely damage to their economies from a trade war aimed at securing domestic markets exclusively for domestic producers is many times what it would have been in the 1930s. Unsurprisingly, despite shrinking demand across the board, no trade war has broken out and few observers suggest that it is likely to break out in the future.

Clearly international trade will only function if buyers and sellers can find the working capital to support the goods in process and in transit for such trade.

A key factor behind the spectacular decline in trade flows has been the breakdown of trade credit. Once a firm has an export order, it needs credit to finance the production and sale until it receives payment from the buyer. The bank that offers such credit may require the firm to obtain insurance cover for the loan in case of nonpayment. The importer faces the risk of nondelivery.

In all likelihood, the general breakdown of credit markets has asymmetrically impacted international trade transactions. With the exporter and importer located in two different countries, information asymmetries and the resulting distrust are deeper.

The likelihood of such concerted action seems high, given that in a statement at the end of a meeting in Horsham, England, today the G20 Finance officials have pledged to take ‘whatever action is necessary’ to revive economies.  They will maintain expansionary monetary policies as long as is needed.  In the statement, the leaders also called for stronger financial regulation, which seems most necessary given the banking debacles in the UK and the USA.

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Recession Perspective

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A CNN article reveals that in a recent poll most Americans are fearful about the state of the country.  The story highlights run as follows:

  • Nearly eight in 10 say things are going badly in the country
  • Three of four Americans are angry about the way things are going in the country
  • But three out of four questioned say that things are going well for them personally

Those sentiments are in stark contrast to some of the moving stories described in the Delaware County Daily Times weekend article. It’s entitled, ‘LENDING PERSPECTIVE: Seniors who lived through tougher times advise those struggling today to be patient’.  The article reminds us that

Economists have referred to the current economic downturn as the worst financial crisis Americans have seen since the Great Depression.  By 1933, four years after the Black Tuesday crash of the stock market, the banking system had collapsed and nearly 25 percent of the labor force was unemployed.  Presently, the national unemployment rate is around 7.5 percent — a far cry from the depths reached in the 1930s, but still the highest in a quarter century.

The article includes a number of accounts of how people coped in the years following the Great Depression.  Thankfully such pictures are unlikely to be repeated in the present situation.

The final piece of advice from someone who struggled through those difficult years is worth repeating:

Whatever comes, you can’t complain too much because things are so bad. It’s happening to everybody, not just one person. It’s happening to the whole world.  It’s going to take a long time to get better … but they’ll have to accept it and hope it gets better. I’m sure it will, but it will take time. It won’t get better overnight.

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