“History doesn’t repeat itself but it often rhymes”
- Attributed to Mark Twain
The country was recovering from a worldwide pandemic. A war of many years had ended and tens of thousands of soldiers returned home, causing unemployment to rise from 5.2% to 8.7%. GDP declined an estimated 6.9%. Wholesale prices declined by over 36%. The country entered what can only be called a depression.
Everyone knows about the Great Depression which ran from 1929 to 1939. But few are aware of the Depression of 1920-1921.
The depression was severe, but fortunately, it was short. Here are a few reasons for and effects of the depression:
With the end of “The Great War” the U.S. military was cut in half and 1.6 million workers flooded the labor market.
Unemployment peaked at 11.7% in 1921.
The Dow Jones Industrial Average plunged 47%.
Business failures tripled.
The gold standard, which was still in effect, caused a contraction of the money supply and a period of deflation as gold reserves were depleted.
Mercifully, the 1921 depression was short. This is attributed to actions taken by the government that were often the opposite of those taken during the 1929-1939 Great Depression. In fact, the corrective steps taken seem 180° opposite of what we’d expect the government to do today:
Between December 1919 and June 1920, the Federal Reserve raised interest rates from 4.75% to 7%.
Federal debt was decreased by a third.
The top income tax rate was dropped from 77% to 50%. (In 1925 the rate was further decreased to 25%, helping to foster “the roaring 20s.”)
Between 1919 and 1920 the Federal government decreased spending 65% from $18.5 billion to $6.4 billion. This was back when a billion dollars was real money. Over the next two years the budget was slashed another 51%.
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Fast forward to today. Regardless whether we want to call our economic situation a recession or not, there are some serious structural issues in our economy:
A recent survey discovered that 35 percent of all small business owners “could not pay their rent in full or on time in June.”
45% of independent restaurants couldn't pay July rent (up 7%).
A survey found that 51 percent of all small businesses’ owners believe that rising prices could “force them to close their businesses within the next six months.”
The number of Americans applying for jobless benefits has risen to the highest level in eight months.
Inflation continues, seemingly out of control, as economic activity in the U.S. significantly slows down. Incredibly, the average price of a used vehicle in the United States has now risen to $33,341!
The recent Philadelphia Fed Manufacturing Index came in at -12.3. Any reading below zero indicates contraction, and this reading should flash red.
The Conference Board’s index of leading economic indicators has now fallen for four months in a row.
The personal savings rate has collapsed to 5.1%, its lowest since August 2008.
What we seem to be hearing is:
We may be at a tipping point. Inflation may continue to be a negative in the economy and consumers may curtail discretionary spending in order to afford food and gasoline. Covid may become more severe. Employees may continue to work from home, and decreasing demand for commercial office space. Workers who quit their jobs at the beginning of the pandemic and never returned to work may not reenter the workforce. Tax law changes may have unintended consequences.
We pray that our leaders have the wisdom to guide us through these economic challenges. I’m sure we each have our own opinions of their ability to do so.
Let’s just not return to 1921.
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“I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations.”
- James Madison
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I think this is the best line about love in the history of music:
“And I need you more than want you
And I want you for all time.”
- Wichita Lineman, written by Jimmy Webb
As performed by Glen Campbell on “The Smothers Brothers Comedy Hour”
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Interesting article. Lots of statistics ..