Tuesday, July 18, 2017

The Great Depression

Not many people are still alive that remember The Great Depression of the 1930’s. I remember it through stories my parents and grandparents told. It was very vivid to them.

The Great Depression was a perfect storm of two man-made disasters. The first was a financial crisis brought about by unregulated banking and financial markets run amok. The whole thing collapsed on October 29, 1929. The solution was to shut everything down, banks and everything, and start with a new system of regulations, a strong central bank and regulated markets. The federal government then had to step in with massive spending to basically jump start the economy again.

The second man-made disaster which happened about the same time has been called the “dust-bowl.” This was a massive erosion of topsoil caused by poor farming methods. The solution here was a huge soil conservation program which led eventually to the Environmental Protection Agency and the environmental movement in general.

We have not had similar disasters since then because of government regulations led by agencies such as the SEC, EPA, Department of Agriculture and so forth. We came close to the financial part of the disaster in 2009 when banking regulations were backed off. Because of the lessons learned during the Roosevelt administration in the 30’s, the Obama administration was able to jump in and save the economy from a more serious collapse.

Hopefully we have learned our lessons about lack of regulations from this experience that started 88 years ago.