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It's 1929 Again

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By WILLIAM H. CHAFE

The Tampa Tribune

Published: September 26, 2008

Sadly, history has a way of repeating itself. It is particularly alarming to note the parallels between the economic crisis that devastated America in the late 1920s and the implosion in the financial markets that is occurring today. What does history teach us about the ingredients common to these parallel crises? And how do our presidential candidates stack up in light of these similarities?

The "Twenties" are known in most history books as the "jazz age," a "roaring" decade where flappers in their bobbed hair danced the night away, half of all families went to the movies once a week, and millions of households benefited from the new age of mass consumption. A Ford in every garage and a Frigidaire in every kitchen had become a realistic possibility for many "middle-Americans."

Credit Instead Of Savings

Yet just beneath the surface, structural weaknesses flashed warning signals to anyone attentive enough to see them. Wage increases for average working people fell far short of the growth rate in the salaries of executives. Wall Street profits soared, but investors were buying stocks on "margin," paying in cash only 10 percent of the price. The consumer boom fueled economic growth, but like stocks, most goods were purchased on credit, with customers making a down payment, then completing their purchases through installments over time. Savings were minimal. "Possess today, pay tomorrow," was the motto.

The house of cards collapsed once these structural flaws became visible. Workers who strained to pay their latest installment could no longer buy new goods. As consumer demand ebbed, the construction and automobile industries spiraled downward. Eventually the Wall Street bubble burst. Once credit-buying became impossible because of plummeting employment, there was nowhere to go but down.

Clearly, there is a similarity between what happened then and what is happening now. For the past two decades, the income gap between the rich and middle class has steadily widened. The rich have gotten richer, the poor poorer, and the middle class has taken the biggest hit. Instead of a CEO earning on average only 48 times as much as an average worker, he or she now earns 480 times as much. As in the '20s, the prosperity that does exist is based only on credit, the savings rate among Americans is almost nonexistent, and the credit mechanisms that undergird the economy have again proven to be fundamentally flawed.

The Good Of The Country

The "subprime"' mortgage scandal is only the tip of the iceberg. Deregulation has removed most meaningful oversight of Wall Street and banking practices. There is little, if any, attention given to the "common wealth,"' the good of the whole as opposed to the good of selfish individuals.

How did political leaders in 1929 respond to the Depression? Herbert Hoover, president at the time, repeatedly insisted that "the fundamental business of this country . . . is on a sound and prosperous basis." In Hoover's view, the problem was primarily psychological, a crisis of morale and confidence. Franklin D. Roosevelt, who ran against Hoover in 1932, called for "bold, persistent experimentation" to find the right solution to the Depression.

Using the analogy of World War I, he asked all Americans to unite in putting the good of the whole country ahead of special interests, and he instituted a series of federal protections - minimum wages, maximum hours and Social Security - that helped protect those least able to help themselves.

•John McCain today sounds like Hoover, affirming, as late as Sept. 15, his view that the economy is fundamentally sound.

Most significantly, McCain has championed deregulation of Wall Street.

•Barack Obama, on the other hand, has called the current crisis structural in nature. He has called for regulations such as those McCain voted to repeal in 1999.

The real issue in the 2008 presidential campaign is who recognizes the historical parallels between 1929 and 2008, and which of our candidates is willing to address the structural flaws that have brought us to where we are.

William H. Chafe is the Alice Mary Baldwin professor of history at Duke University. He is the author of the forthcoming "The Rise and Fall of the American Century: The United States from 1890 to 2010." This article was originally published in The Miami He

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