The Crisis: A Canadian's Perspective

The scariest precedent of them all

Toronto Star, Oct 29, 2008 04:30 AM

Thomas Walkom

Nineteen twenty-nine is the year no one wants to mention. We compare what is going on now in world stock markets to 1987′s so-called “Black Monday,” or perhaps to the Asian crisis of the late ’90s.

We desperately don’t want to draw comparisons to the granddaddy of them all, the stock market collapse that occurred 79 years ago this month. The implications are too grave.

The crash of ’29 wasn’t just a stock market bust. It was the trigger for 16 years of misery. In North America, it led to mass unemployment. In Europe and Asia, the depression it sparked laid the foundation for world war.

The lives of an entire generation were scarred.

Yet there are real points of comparison between the events of 1929 and those roiling world markets today. The two are not identical. Indeed, optimists can take heart at the fact that stock declines to date have not yet matched those of the 1930s depression.

Still, there are eerie and unsettling similarities.

Then, as now, the world economy was beset by fundamental imbalances. In the ’20s, the world’s premier imperial power, Britain, was politically strong but economically hobbled. Today, the U.S. plays the role of the weakened imperial lion.

Militarily, America remains ferocious. But in economic terms, it suffers from a multiplicity of weaknesses – a trade deficit that has sent middle-class jobs abroad; a fiscal deficit that relies for financing on the good will and confidence of foreigners; a savings deficit that has encouraged ordinary citizens to borrow beyond their means.

In 1929, like today, the self-regulating markets that were supposed to keep the economy in equilibrium only accentuated the crisis. Then too credit markets froze and commodity prices tanked. In 1929, prices of commodities such as wheat and minerals were already low (a singular difference from today). But as Charles Kindleberger writes in his masterful history of the period, The World in Depression: 1929-1939, the crash of ’29 accentuated this trend, driving down, among other things, the value of the Canadian dollar.

Then, as now, attention focused on the markets. Politicians railed against the greed of speculators and vowed tough new regulations.

But then too, there was too little heed paid to the real economy of wages and work. Political leaders, while acknowledging that the crisis was forcing government finances into deficit, kept trying to balance the fiscal books, thereby making matters worse.

No leader, including then U.S. president Franklin Roosevelt, was immune. Indeed, most historians reckon that it was not Roosevelt’s flawed New Deal recipe of public works that pulled America from depression but World War II.

“Often, no one in authority had any positive idea of what to do and responded to the disaster in … policy clichés,” writes Kindleberger.

And so it seems today. In the U.S., both presidential candidates propose populist non-solutions: Barack Obama wants to save the middle class in some unspecified way; John McCain promises to get tough with greed.

In Canada, the federal government focuses on the country’s financial sector rather than the economy at large, arguing on the one hand that the banks are strong and on the other that they need massive government aid.

Internationally, there are meetings. The great economic powers – Europe, Japan, China and the U.S. – are not yet at odds with one another. Yet neither are they pulling together to mitigate the recessionary forces now careering around the globe.

That too is eerily familiar.

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