Look to the Great Depression; Biden Must “Go Big” in Lifting the Economy
It’s still early but already two polls, the Morning Consult and Hill-Harris X, have President Joe Biden’s approval rating in his first weeks of office soaring at 56% and 63%, respectively, higher than former President Donald Trump ever had (52%) in his four years of office.
This is encouraging because Biden will need all the support he can get to undergo the massive work ahead to lift the nation from the COVID-19 crisis beating us down by the day.
Pulitzer prize winning historian Doris Kerns Goodwin and award-winning filmmaker and historian Ken Burns draw a striking parallel between the Great Depression years and our current state amidst the pandemic.
The US Great Depression started in 1929 and lasted close to 10 years. It was marked with mass unemployment, economic instability and sharp rates of poverty and homelessness.
Goodwin says we have similar levels of fear, anxiety and uncertainty. Unemployment is still at record-breaking highs. We have families starving, depending on food banks and federal assistance. There is a sense of panic in the air. There is a gap between the rich and poor. In other words, COVID-19 is experienced very differently from two socioeconomic classes. Democracy is fragile and could flounder.
Both historians, and other intellectuals say we are living in truly historic times; and to give an appropriate context of where we are and what’s at stake, we must look to the Great Depression years.
The Great Depression
The Great Depression was the longest and most severe economic downturn in modern history. What is still unique about the Great Depression (compared to today) is that even the banking system and financial sector collapsed. There was massive deflation (negative inflation) which means that all prices for goods and services dropped considerably. In some cases, goods were worth nothing. Businesses faced lower profitability, hired fewer workers that spelled disaster for both consumer and capital markets.
The two massive government stimulus of 2020 helped to stabilize the US economy. Economists say, both actually saved the economy. Anti-government Republicans and Libertarians can stop minimizing the importance of government from here on. These crucial bailouts are for the history books.
Without those stimulus packages, both the financial sector and deflation would have put the country in a far worse and precarious situation.
The banking sector and Wall Street (Wall Street crash is what started the 1929 depression) are at the moment holding steady.
But we’re not out of the woods just yet because unemployment is still soaring and Gross Domestic Product (GDP) still dangerously low. Should Wall Street take a crash, deflation could erupt and cause a downward spiral in prices. The US consumer price inflation is where we can look to see signs of deflation.
Go Big, Get Things Done
Back to Biden and what must be done.
When President Franklin Delano Roosevelt (FDR) took office three years after the fangs of the Great Depression, historians say that signaled a turning point. With FDR came a new sense of hope and optimism (which is why Biden’s latest polling numbers are encouraging).
History tells us that FDR went “big” – investing in people and investing in the country. In his first 100 days he got Congress to pass major reforms in the Emergency Banking Act. He formed the FDIC, which insured bank depositors from losses — a major achievement that instilled confidence. He pushed through the New Deal, a mix of public sector investments. He created Social Security, established a national minimum wage and a first Fair Labor Standards Act.
One of today’s brightest minds when it comes to the economy, Janet Yellen, a former Chair of the Federal Reserve and now Biden’s Treasury Secretary gave the best advice for Biden, and that is to pass aggressive economic relief. She said Congress also must “act big” to fight the financial fallout from the pandemic. She recommends a more responsible spending resume after the economic crisis.
There is a reason why the Federal Reserve and Wall Street backed all the massive stimulus packages, including this latest one Biden is pushing. Why? They know Americans need the help. But they also know that the economy is still very fragile and could take a tailspin.
A last characteristic of the Great Depression is that it created a worldwide deep recession. The coronavirus affected world markets, but again, not for such a long duration as in the 1930s. Interestingly, Vladimir Putin recently echoed the same sentiments of historians drawing today’s market comparisons to the 1930s. Putin said the coronavirus pandemic has exacerbated preexisting global problems and imbalances, and that these could deteriorate to a point where there is a fight of “all against all.” He added, “All of this cannot but impact international relations, making them less stable and predictable. In the 20th century, the failure and inability to centrally resolve such issues resulted in the catastrophic World War II.” Of course, Putin is not threatening a global conflict, but is warning of the dangers of what global instability can cause. Remember that WWII broke out shortly after the Great Depression.
Americans should know that it’s in everyone’s best interest that Biden “go big” and make the necessary changes to lift us from the economic crisis. He must also make a myriad of structural changes in addition to the COVID-19 stimulus package. Lawmakers must do the same, come together and “go big.” If dramatic measures are not taken, there’s the possibility that a depression lingers as what occurred in the entire decade of the 1930s. And this would be the worst scenario for Americans, and for the World.