COVID-19 is playing the same role as the collapse of 1929, writes Stewart Skinner
Sept. 3, 1929 to Nov. 23, 1954 – a passage of time spanning more than 25 years. That is how long it took for the Dow Jones Industrial Average (DJIA) to return to 381 points. It took 25 years to replace the wealth that was lost in just under three years in an economic collapse that, until now, has not been repeated.
Certain parallels between the 1920s and the last 10 years are stark; an overheated economy fueled by consumer spending and secured by inflated housing values. People all over the world enjoyed technologies that changed everything about how we live, what we buy, and how we move around. And there was a rush to urbanize, as rural populations emptied out of farm country in search of city amenities. Starkly similar indeed.
There is continued discourse in historical circles about the true impact that the Wall Street collapse in the fall of 1929 had on the severity of the Great Depression. It should be remembered that only an estimated 9-16 per cent of households had stockholdings at the time of the collapse. However, much of the rampant speculation taking place at the time was due to a seemingly insatiable appetite of all households to buy new stuff, stockholdings or not. In the 10 years leading up to the 1929 collapse, the DJIA increased by just over 70 per cent.
Over the past decade, that same index has grown by 60 per cent. We have repeated the mistakes made in the Roaring Twenties. As a collective society, we became drunk on prosperity and deluded ourselves into thinking that it would never end. But was it just a house of cards we built, waiting for an unpredictable, but impactful, event to bring it down?
The Crash of 1929 taught our policymakers how to blunt the impact of a stock collapse; in 2008, there were moments where it felt like we had seen another Black Monday, yet it took less than five years for the DIJA to recover. The Great Recession saw unprecedented levels of public stimulus used to backstop financial markets and it largely worked. Last week, governments around the world announced more public spending then was doled out during the entirety of the Great Recession, yet markets are skeptical that it will be enough.
While the Crash of 1929 gave a road map to navigating a stock crisis, it did not cure the result of a match hitting gas-soaked cards. COVID-19 is playing the same role as the collapse of 1929, an unexpected event no one was prepared for that wreaks havoc on normal life. It may be true that only one in 10 households owned stock in 1929, but everyone trusted that money saved in a bank was safe. Sadly by 1933, millions had discovered that was not always the case, as thousands of banks failed across North America. Adjusted for inflation, American households lost almost 2.8 trillion dollars during 1929-1933 due to bank failures because of an event that had never been seen before in living memory. People were not prepared.
Our society was not prepared for COVID-19; we were not ready for the music to stop and even still there are those that refuse to leave the dance floor. The decision of some to not take social distancing seriously is jeopardizing lives in the short term, while increasing the long-term economic pain. Our economy is shutting down and will remain under serious pressure for months. Unemployment is about to soar to heights that we have not seen in the life of most alive today. We are not ready.
The coming weeks are going to bring the pain of losing loved ones to many households across Canada. There are some who choose to dismiss COVID-19, citing low mortality rates, especially in young people. It is important to remind these selfish individuals that people across Europe are finding out that to save a young person, someone’s grandpa is being denied a ventilator, condemning the elder to death.
After the pandemic burns out we are still going to be left with an economy in tatters and only the lessons of our forebears on how to put it back together again. We need to look for answers based in cooperation and community if we want to avoid the anger and despair that boiled over into global conflict following the Great Depression.
Our society will not survive such an impasse again, and it is imperative that as we stand here at the precipice of sinking into an unknown economic crevice, we commit ourselves to a course of action for escape that does not see us throw others into the pit with disregard.
Stewart Skinner is a local business owner, former political candidate, and has worked at Queen’s Park as a Policy Advisor to the Minister of Agriculture, Food, and Rural Affairs. He can be reached at firstname.lastname@example.org or on Twitter: @modernfarmer.