You Say Recession, I Say Depression
Source: The New Republic
Why the difference between those two words is so important to the future of our economy.
John B. Judis: September 7, 2010 | 12:00 am
The terms “recession” and “depression” were once used to suggest that a downturn was not as bad as a “panic” or
“crisis.” In fact, for the first years of his presidency, Herbert Hoover chose to refer to the downturn as a “depression” in
an effort to convey that what the country was experiencing was just a temporary indentation. Only in 1931 did Hoover
[3] begin to speak of a “Great Depression.”
Our current downturn has also been plagued by word games. Faced with the fear that the U.S. was about to suffer
another “great depression,” commentators and economists revived the term “great recession” that had been used to
describe the recession of 1982. The intent was to distinguish the current downturn from the graver one of the 1930s. At
an economists’ forum [4] in February 2009, Nariman Behravesh, chief economist and executive vice president for IHS
Global Insight, said, “This is the Great Recession, not the Great Depression 2.0, and not Japan in the last decade.”
There are, indeed, obvious differences between the current downturn and the Great Depression. The unemployment
rate, for one thing, was much higher in the Great Depression [5]. But for the purpose of deciding what to do next, the
term “Great Recession” is deeply misleading, and has led to a continued underestimation of the challenges facing the
United States and the world. In its basic contours, the current downturn is much more similar to the depressions of the
1890s and the 1930s than to the post-World War II recessions. Until our policymakers in the White House and on Capitol
Hill acknowledge this, and convey the depth of the crisis to the public, it is going to be very difficult to get out of the
economic hole in which we find ourselves.
The current downturn resembles the great depressions rather than the post-World War II recessions in three significant
ways:
1) The Financial Crisis: The downturns of 1893, 1929, and 2007-8 were precipitated, and deepened, by a financial crisis.
In 1893, gold outflows resulting from a downturn in Europe (in the 1890s, London was the center of world finance)
caused deflation and a spate of bank runs. In 1929, it was the stock market crash, and in 2007-8, the subprime mortgage
crisis.
2) Overcapacity in a Leading Industry: After the Civil War, railway construction had driven the development of capital
goods industries. In the years before 1893, it started to slack off, leading to a slowdown in private investment. Before
1929, the production of automobiles and streetcars tapered off, and before 2007, the growth of
computer/telecommunications/Internet industries began to slow, along with construction, housing, and auto sales.
3) The Global Dimension: During recessions, a downturn in one country has been eased by prosperity in another, but in
depressions, the downturns have been global. During the early 1890s, the downturn spread from Europe to the United
States; in the 1930s and late 2000s, it spread from the United States to Europe and Asia.
Each of these features contributes to the most salient feature of depressions: their sheer length and intractability.
Overcapacity in leading industries and the growth of indebtedness discourage consumption and investment; global
instability holds back trade. The recovery of the private sector is slow and tortuous, and an increase in employment
must be achieved primarily through public investment. During the Great Depression, new private investment in factories
and offices did not rise to the level of the 1920s until 1946. Until then, whatever growth in employment occurred was
largely the result of public investment.
Since World War II, policymakers have used the automatic stabilizers built into the federal budget (for instance,
unemployment insurance) and the Federal Reserve’s power over interest rates and the money supply to ease the
country out of recessions. The success of these efforts even led Fed and Treasury officials during the late 1990s to
believe that the United States had finally conquered the business cycle. But depressions have proven much more
difficult to counter with federal policies.
To get out of a depression, a country’s consumers and businesses must pay down the debts they have accrued. Only
then can demand for consumer and capital goods pick up. Government can, however, accelerate this process through
public subsidies to individuals, businesses, and banks, and through jobs programs. If government decides not to
stimulate spending and demand, as occurred in the United States in 1938 or in Japan in 1998, it can cause a regression in
the recovery and prolong the process over a decade.
Countries also get out of depressions by developing new leading industries and outlets for investment. After the
Depression of the 1890s, the U.S. enjoyed a boom in the production of cars, streetcars, and telephones and in the
development of electrical power. The U.S. got out of the Great Depression because of World War II and the subsequent
growth of an automobile/suburban/interstate highway industrial complex.
And as some countries have recovered earlier than others, they have given the impetus for a global recovery. The United
States did this after World War II. In addition, reforms to national and international financial systems have prevented
the re-emergence of instability and uncertainty. The Federal Reserve System came out of the Depression of the 1890s
and Bretton Woods out of the Great Depression.
In each of these instances, government has played a major role in creating the conditions for reviving the economy. It
has reformed the financial sector, eased the burden of debt, fuelled private demand, subsidized new industries, and
negotiated needed changes in the global economic system. Without a huge and active governmental role from the
United States, much of the world economy could never have enjoyed the kind of prosperity it did after the Great
Depression and World War II.
The White House and Treasury have tried to address the causes of the current downturn, but their efforts seem to be
falling short. The administration’s stimulus bill and recent aid to states has created jobs, but not enough to stem the rise
in unemployment.
The administration has also attempted periodically to address the imbalances in the international economic system.
They have jawboned China, whose growth could pull the global economy out of its doldrums, to revalue its currency to
encourage imports. But the Obama administration has stopped short of declaring China a currency manipulator, and the
Chinese have largely ignored Washington’s tepid complaints. The Obama administration has also continued to pursue an
aggressive overseas military policy, which—whatever its geopolitical merits—has widened the country’s balance of
payments’ deficit.
The administration’s hesitancy to move forward in spurring domestic demand, subsidizing new industries, and reforming
the international financial system has had much to do with politics. The depressions of the 1890s and the 1930s
spawned left-wing movements that demanded stronger government action. This depression has fuelled a right-wing
populist movement that opposes government spending. The Democrats and the Obama administration have not been
able to counter this movement [8]. As a result, the country has been caught in a dangerous political-economic spiral, as
the failure of spending to halt the rise in unemployment has fueled right-wing arguments against any spending, which, if
heeded, will result in even sharper increases in unemployment.
To be sure, the United States will eventually extricate itself from this depression. But the question is on what terms. If
the Republicans are taken at their word, they will block further spending programs, which will delay the recovery and
hamper or altogether impede the transition to new industries. If they gain power—through winning one or both houses
of Congress and the presidency—they could be expected to gut financial reform and favor older extractive (and
environmentally disastrous) industries over new green ones. Unemployment would linger at seven or eight percent, and
the U.S. would find itself increasingly at the mercy of its Asian creditors. Yes, the United States would eventually enjoy
modest growth, but not the kind of buoyant and progressive prosperity its citizens once enjoyed.
The Great Depression — How Workers Fought Back
by Teddy Shibabaw, Minneapolis/OPEIU Local 12
The U.S. has entered into what many believe could be the worst crisis since the Great Depression. Although we’ve
already seen the loss of 250,000 jobs since the beginning of the year, the full effects of the financial crisis in the real
economy will continue to be felt as working people face further wage cuts, price increases, insecurity and job losses.
There has been some debate on what the government should do in the form of gas tax relief, tax rebates and other
measures that supposedly help working people deal with this economic tsunami. While there is no real aid forthcoming
for the millions of families that face the loss of their houses, Ben Bernanke’s Federal Reserve Bank has pumped
hundreds of billions in the financial markets in one form of another to assist the big banks and big business.
Workers and young people will have to fight back to defend themselves from the attempts of Big Business to make them
pay for the crisis of the capitalist system. Nothing short of massive struggles, strikes and demonstrations, new waves of
union organization on the scale of the 1930s and a challenge to the dictatorship of big business will lead to success.
Like the 1990s, the 1920s were a time of an unprecedented profit bonanza for Wall Street and the capitalist class. Then
as now, this wealth never made it to most workers, who faced state repression and corporate terrorism when they
fought for better wages and conditions. Millions of unskilled or semi-skilled workers in industry wanted to organize but
were blocked by the conservative and narrow craft-based unionism of the American Federation of Labor (AFL)
leadership. Nevertheless, those struggles produced an experienced core of radical workers that would lead the
victorious strikes and movements of the 1930s.
The Crash and Initial Shock
The 1929 crash of Wall Street and the ensuing economic crisis initially paralyzed the working class into inactivity. There
were a litany of bank and corporate bankruptcies, unemployment reached 25% and wages for workers by 1931 were
half of what they were in 1925-devestating working class families because there was no government safety net to speak
of at the time. This had a profoundly negative effect on the legitimacy of the capitalist system..
Four years into the crisis, government aid was still almost exclusively for big business while it offered a pittance to the
mass of American workers and poor. The rich continued to live lavishly while the mass of workers and farmers were
devastated, many suffering from starvation, malnutrition, displacement and foreclosures.
At first workers tended to blame themselves for failing to provide for their families. But as they saw more and more
friends and former workmates also without jobs, they saw clearly the social nature of the attacks – how they were
rooted in class. A capitalist class that was not only well-protected but making even more profits while the mass of
workers were being forced to the edge of survival. There was a tremendous growth of anger at big business and the
government.
By 1930, there were already protests of workers, farmers and unemployed against a fate they knew they had no part in
creating. There were big marches and protests in nearly every large city, in many instances there were riots of those
desperately demanding food and relief.
People organized protests and rallies to demand relief and jobs under the slogan “Fight Don’t Starve!” Veterans, along
with the unemployed and displaced camped in Washington D.C. in what came to be known as the “Bonus March.” Their
camps were attacked by federal troops with bayonets and tanks. Carrying signs that said “Be a Picket or a Peasant,”
Unemployed workers councils were organized in many cities across the country. In New York and other cities tenant
organizations that challenged renters evictions and house repossessions were organized, directly challenging the
landlords and police.
By the beginning of 1933, the initial shock of the Depression had receded and the anger and restlessness among the
mass of workers and unemployed exploded to the surface. A massive strike wave erupted in the unorganized industries
of rubber, steel, packinghouses and in auto plants. A.J. Muste, a radical leader noted in 1935: “Strike followed strike with
bewildering rapidity. The long-exploited, too-patient auto slaves were getting tired of the game.”
Three Strikes
While there was a tremendous upsurge in struggle that began in 1933, the tide didn’t really begin to turn in favor of the
workers until the end of 1934. The watershed events were the three successful strikes in 1934: Toledo Auto-Lite
workers, Minneapolis coal truck drivers and warehouse workers and San Francisco dockworkers. Each was led by
determined radicals who were able to mobilize a broad section of the working class into what became citywide general
strikes.
In each of these cases, the leadership emphasized the need for the workers to rely only on their own strength and
solidarity and to place no trust in the government, courts or capitalist politicians. The rank and file of the unions was
involved in planning the strikes and protests, and were able to face down the company goons, police and National Guard
troops who were deployed to break the strikes. These strikes won union recognition and wage increases. These victories
paved the way for a colossal movement that saw millions join the new industrial unions, and the labor movement,
across the country.
The Rise of the CIO
When the craft-based AFL refused to give real resources to organizing the mass of unskilled yet militant industrial
workers, breakaway locals in auto, mining, rubber and packinghouses formed the Congress for Industrial Organization.
This ushered in a massive movement of militant strikes using tactics like mass picket lines and sit-downs (effectively
factory occupations where workers sat down on the assembly line and did nothing). The picket lines were defended by
mobilizing the whole community of workers and their families. In his book Prisoners of the American Dream, historian
Mike Davis remarks about the “epidemic of sit-down strikes beginning in rubber in 1936, then taken up by the
autoworkers in their epic GM strike of winter 1937, and finally exploding in the spring fever of the 1937 as some 400,000
workers staged 477 sit-downs. Mighty corporations seemed to fall like dominoes…”
The effect of these actions on the consciousness of the workers themselves was immense. They began to be aware of
their own collective power and their respect for capitalist propaganda began to wane. Through these actions, workers
and the unemployed were able to win massive reforms from big business and the Roosevelt administration - including
increased wages, benefits, pensions, the right to organize, the Social Security Act and unemployment benefits.
Roosevelt’s New Deal
None of these gains were handed down to the workers from business or from the Roosevelt Administration. The reforms
introduced were a concession from the capitalists to the massive workers struggles that threatened the legitimacy and
rule of big business. The attitude was that it’s better to give them some milk lest they take over the farm. Neither
Roosevelt nor the Democratic Party was a real friend of the workers - over a dozen Democrat governors sent the
National Guard to break strikes in the mid-30s.
The struggles fought during the Great Depression show us the best way to defend against attacks by big business
through a bold strategy of mass protests, militant strikes and mass direct action to challenge the capitalist system. Over
the past three decades, much of what was gained since the 1930s has been rolled back. What the capitalists concede
one day, they will take away when they don’t feel threatened. Only a complete transformation that places democratic
control of society’s resources in the hands of workers and oppressed will solve the problem once and for all.