‘Exactly what happened in the 1930s’: Trump is repeating the mistakes that led to the Great Depression

Depression-era family photo

Flickr / State Library of New South Wales

President Trump continues to wax rosy about the “spectacular” economic recovery. Last month he predicted it will “take off like a rocket”.

The message from the White House on Monday was a rosy one: The economy is on a positive trajectory and the reopening of states is having the desired effect on the stock market, so we don’t need more federal economic stimulus like the $3 trillion plan the House Democrats passed.

But, one wonders, how this pollyannaish complacency sounds to the 36 million Americans made jobless by the COVID-19 pandemic?

Or how it sounds to the relatives and friends of the more than 90,000 people who have died from COVID-19 (at least 50,000 of which could have been avoided had Trump not botched our response).

Corporate health comes first

Trump has bet his election campaign on the promise of a strong economy. This takes priority over the lives of his electorate.

But many economists believe the economic success under Trump was put in place by former President Barack Obama. Trump is now desperate to return to the golden days of his predecessor — at any expense.

He has advocated the reopening of states (despite warnings the pandemic may worsen or there could be a second wave).

But economists have also warned that prematurely opening the economy could cause a depression. Trump has distracted the attention of the media through tirades against female journalists or claims he is taking the controversial antimalarial drug hydroxychloroquine.

The latest smokescreen is the gung-ho message from the White House that everything is rosy, and the economy will bounce back stronger than ever before by itself. As a result, Trump and key advisors—and key GOP Senators like Mitch McConnell—say we don’t need anymore stimulus, such as the $3 trillion package passed by the House.

But as Trump continues to Make America Poor Again, let us take a look at the lessons from history. There has been much talk of a return to the Great Depression of the 1930s.

Claudia Sahm, who served as an economist at the Council of Economic Advisers under the Obama administration, warns of the dangers in downplaying the economic impact of the coronavirus crisis.

“Complacency among policymakers is what made the ‘Great Depression’ a depression. If they do not do more, if they ‘wait and see,’ they will do exactly what happened in the 1930s,” Sahm said.

How we compare then and now—unemployment

Then: During the Great Depression, the unemployment rate was at its highest in 1933: at 25.6%. Just four years earlier, only 3.2% of Americans were unemployed.

Now: In February, the unemployment rate stood at 3.4%. With a staggering 36 million Americans now jobless, the unemployment rate is currently 14.7%, according to the Bureau of Labor Statistics. Others have pointed out the figure could be temporarily inflated as it includes temporary layoffs and employees that have been furloughed.

We may not yet have reached Depression-era unemployment rates but the rate of increase is historic. In just a few months we have reached the same as a year during the Depression.

Leading economists have warned this rate could increase to 30% before the economy picks up.

GDP 

Then: The value of the goods and services produced by the United States shrank throughout the Great Depression. In 1930, 1931 and 1932, the GDP shrank by 8.5%, 6.4% and 12.9% respectively.

Now: A senior Fed official, James Bullard, warned the GDP could plummet by 50% in the next quarter.

Among economists at big companies, 86% expect the U.S. economy will decline between March 2020 and March 2021, according to a survey of more than 100 economists last month who are part of the National Association of Business Economics.

Stock Market

Then: The stock market nosedived during the 1930s. In 1931, the Dow Jones fell by a spectacular 33.7%.

Now: After historic losses earlier in the year, recent optimism over a potential coronavirus vaccine has seen a rise in the U.S stock markets. The Dow Jones Industrial Average rose 3.85% on Monday. Economists have warned of complacency, however.

Loreen Gilbert, president of Wealthwise Financial Services said:

“We don’t have a vaccine yet, and there’s still a long road ahead to get Americans vaccinated. So I’m sticking to the fact that I think we’re going to see more volatility ahead in the markets.”

The gritty truth is that the economy will struggle to bounce back as swiftly as the White House predicts and the President would have you believe.

Restoration, Reflection and an Election – A Time for Change

African American protestors holding signs that say Resist and People Over Power

Flickr / Alisdare Hickson

On the plus side, some sectors are hiring such as health and e-commerce is booming through the pandemic. The digital revolution and tech sector will create jobs.

The Great Depression left Americans out in the cold in all senses of the word. Shantytowns or “Hoovervilles” sprouted up around the nation, and hungry Americans joined breadlines that stretched for miles.

Today we have a safety net of social security, unemployment insurance, and food stamps.

The New Deal that arose from the Great Depression was aimed at a fairer distribution of wealth around the country.

Some economists see the recovery from the COVID-19 pandemic as an opportunity for change. Billionaire Ray Dalio has spoken about a “new future” with more affordable health care and higher wages.

The great economist Milton Friedman believed the Great Depression could have been avoided if the Fed had not mismanaged its monetary policy.

Let’s hope the misinformation issuing from the White House does not create a dangerous complacency in the days ahead.

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