Wednesday, June 23, 2010

From Hope To Barely Holding On

Gary North -

The recession that began in December 2007 produced a change in Americans' perception of their economic future. They moved from the tradition of hope to one of just barely hanging on. I have never seen this before. Only someone born around 1910 can recall anything like it, assuming that he recalls anything at all.

My parents were born in 1917. They were teenagers in the 1930s. The did not experience the euphoria of the roaring twenties, when the stock market soared after 1924, and there was tremendous optimism based on the new technologies or radio and air travel. The sky was literally the limit. People believed that Europe's war debts were irrelevant, that the recession of 1921 had ended recessions, that America was the wave of the future.

By 1932, that euphoria was a thing of the distant past. Unemployment was at 20%. Prices were down at least 25%. Over 6,000 banks had failed. There was no sector of the economy that was flourishing except gold mining, which had the benefit of a price floor set by law. Then things got worse. Another 3,000 banks failed. Prices continued to decline. Unemployment rose.

That was the world in which my parents went to high school. My mother still talks about it. She remembers men in Portland, Oregon, begging for food, willing to do odd jobs just to eat. Those years scarred her. They scarred her generation, who never fully bought into the idea that prosperity is created by personal debt. They did not fully participate in the debt-driven post–World War II boom, which relied on an extension of consumer credit. Credit worked because people saved. The end of the wartime price controls, coupled with the return of the troops to civilian life, extended the opportunities for capital. Money went into new industries. It went into housing, which was revolutionized by new techniques of mass production.