This is not the Crash of 1929, and we are not heading into a second Great Depression. No developed country this time around is going to face the 25 percent unemployment rate that the United States experienced in the 1930s.
“Capitalists can buy themselves out of any crisis, so long as they make the workers pay,” Lenin said, but it’s more complicated than that. The capitalists didn’t manage to buy themselves out of the Depression, mainly because they didn’t know how to use the government (i.e. the taxpayers) to restore credit and confidence. They know now, however, and they can still buy themselves out of this crisis – with a little help from the little folks.
“When the government asks you to pay for mistakes on Wall Street, it does not seem fair,” President George W. Bush said just after the crisis broke. “And if it were possible to let every irresponsible firm on Wall Street fail without affecting you and your family, I would do it. But that is not possible.” So we’re going to bail Wall Street out with $700 billion of your money. All right, it’s not “real money.” It is credit that the U.S. government will create by the electronic equivalent of printing money, and it doesn’t come out of current taxes. It is debt that will eventually come out of the next generation’s taxes. The boomer generation have spent their whole lives loading debt onto the following generation, so why stop now? But for a moment there the taxpayers thought it was real money, and they didn’t like that.
It was the deluge of e-mails, letters, and calls from outraged voters that caused the bail-out legislation to be thrown out the first time it went to the U.S. House. Some Republicans argued that they could not support “socialistic” measures like nationalizing banks and capping executive salaries, but what really drove the House’s rejection of the bill was the fact that all 435 members faced re-election in five weeks’ time, and those in marginal constituencies knew that they would be severely punished at the polls if they used “the taxpayers’ money” to bail out Wall Street.
But the Senate (only a third of whose members face re-election this year) passed the bill easily, once some crowd-pleasing sweeteners had been added. By the time the members of the House were herded back into the chamber to vote again on Oct. 3, the fix was in. A majority of Republicans, still hoping to cling to their seats in an anticipated Democratic landslide, still voted no, but enough Democrats had been persuaded to vote yes (by that same perception of an impending landslide) that the legislation slid through. The workers have been persuaded to save the capitalists (“because it’s not about Wall Street; it’s about Main Street”) once again.
It’s not over yet. There will probably be further bank failures and piecemeal government bail-outs in many countries, since the “toxic” financial instruments based on sub-prime mortgages are widely held by financial institutions around the world, but this does not add up to an economic Armageddon. The stock market can crash (as it did in 1987) without having much effect on the real economy. Bank failures are more serious, but they do not have to entail wider economic disaster either. The business cycle was overdue for a recession anyway, and there is certainly going to be one now – probably worse than the mild recession of the early 2000s, but almost certainly no worse than the recessions of the early 1980s and the early 1990s or the much worse economic stagnation and runaway inflation of the 1970s.
As for a rerun of the Dirty ’30s, that is not on the table even in the United States, where deregulation was most extreme and the creation of impenetrably complex financial “derivatives” of doubtful value was most enthusiastic. The Masters of the Universe have been revealed as naive speculators who believed that property values could only go up. The journalists who preached the blessings of unregulated free markets have been unveiled as blind ideologues or paid propagandists. The response of American politicians at all levels has been pathetic.
This mass folly will go largely unpunished, of course: These people are not going to lose their homes and end up poor. Most won’t even lose their jobs. An old pre-Commie summed it up. In 1852 Karl Marx wrote: “Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.”
Not the Great Depression, but the Reign of Folly.
Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.