How We Got Here (18)
June 5, 2014
The stories of people throwing themselves out skyscraper windows are apocryphal, and the full effects of the crash didn’t manifest all at once. At first, most people read of the crash as something of interest that had happened to other people. People who had had a lot of money now had less. Some, a lot less. Some, none at all. But the man in the street probably didn’t worry too much, not at first. How many people worry because somebody else lost money gambling?
(I remember in 1987 when the stock market underwent a similar, but, because of computers, much faster, crash. Stocks fell 20% in a day. I was working for the Norfolk newspaper at the time, and I was in the newsroom watching TV with the others, listening to reporters cracking jokes about the market crash because they thought that it didn’t affect them. They had no idea how thin the ice was that they were standing on.)
But events have consequences. People with less money to spend, spend less. They default on loans. They stiff their creditors. Cumulatively, a lot of people doing this begin to depress the economy. Businesses start to fail. Banks close. Credit tightens, which makes it harder for healthy businesses to function normally. They start to fail too. in America’s past, business contractions (often caused by sudden restriction of credit, for one reason or another) were called panics. The word sounded to – well, panicky – so this time President Hoover and his economic advisors called it a depression in the business cycle. It was depressing, all right, and for three years it kept getting worse.
By the time Hoover went out of office, the stock market was down 75 percent from 1929, exports were at their lowest level since 1904, the unemployment rate was 25%, an estimated 20% of the people were barely surviving on charity, and sharply falling crop prices led to farmers losing their land (having defaulted on bank loans,), tenant farmers being evicted, and farm laborers facing sharply reduced wages.
For decades, Democrats blamed Hoover for inactivity in the fact of an unprecedented crisis, but the charge isn’t fair. He did what he thought prudent. The trouble was, the world economy was in crisis, the domestic economy did not react the way it always had, and nothing that he tried did much good. Nor did he know how to connect with the people. Thinking that one main cause of the continuing depression was lack of confidence in America’s future, he took to proclaiming that the economy was “basically sound,” and that “prosperity is just around the corner.” When nothing improved, this jawboning naturally began to backfire. At one point he angrily claimed that Wall Street was in a conspiracy against him, because every time he announced that “the economy is basically sound,” stocks dropped some more. It evidently didn’t occur to him that announcing that the economy wasn’t broken amounted to announcing that he didn’t have any ideas about fixing it.