1929 Versus 2020: History is Our Lesson Book

By Arhon Strauss

In 1929, the American stock market crashed to record lows, dragging the whole economy down with it. The full effects were not felt immediately; over the course of three years, unemployment gradually crept up, reaching a record high of 25%. Gross Domestic Product also fell by a staggering 30%, sparking what is now called the Great Depression.

Today, the same thing is happening—only now, the effects have been amplified. The spread of COVID-19 has led to massive drops in the stock market and major disruptions of production. Yet, the worst of all for the economy are the necessary but restrictive public health measures that have been implemented. Social distancing, essentially, dooms economies. If nothing is done to cover for damage created by this, the situation will only worsen.

Layoffs are bound to happen as entire sectors of business are basically shut down. Airlines, hotels, restaurants and retail will suffer severely as people follow the social distancing mandates. Furthermore, people will reduce their purchases and get only what they need, which will decrease demand for many products and subsequently cause drops in overall production. Again, that the stock market is in shambles only magnifies what is already bad.

So what can we do to hinder or even reverse this economic decline? Well, the most important thing we can do right now is act fast and drastically. 

Unfortunately, the government has not been doing either of those things. Instead, the Trump administration has resorted to half-baked relief efforts like a “universal basic income” (which falls far short), extended paid time off and more unemployment benefits, which have not even been implemented yet. These types of relief packages have already been tried—and they failed. They were used by the Hoover Administration in 1929, when they did little to improve the economic issues of the time. Though the two situations are not completely alike, these methods would likely not work today either.

The past can be a lesson book for the present, so, in order to find the solution for the current economic crisis, we must first look at what stopped the Great Depression. Obviously, this cannot be attributed to just one factor, but I think that it can be narrowed down to two main contributors: The New Deal and World War II. 

The biggest and most important facet of each was job creation. Both the New Deal and World War II called for the government to intervene heavily into almost every business sector. The New Deal involved a lot of public service projects like infrastructure improvement, while World War II led to the government making a lot of Government Owned, Contractor Operated (GOCO) projects in order to produce for the war effort. 

But these two factors did not contribute equally. Without question, the more effective of these two factors in helping relieve the economy was World War II. While the New Deal did decrease unemployment by 11% over 10 years, World War II slashed unemployment by 12% in less than 3 years. So how can we replicate such a manufacturing boom without a war itself?

First off, we should not be bailing out big companies, because even if we give them the money, there is no guarantee that they will actually hire new people or avoid laying off current employees. Rather, the government should make a conscious effort to bring manufacturing chains back into domestic territory. They could do this by investing into projects similar to the GOCOs of the 1940’s. This would allow them to ensure that jobs are being made while still allowing the contractors (businesses) to benefit. 

For the current situation, they would probably start off by making manufacturers build and convert factories in the U.S. to produce medical supplies like N-95 face masks and ventilators. The people employed at these plants would be deemed essential personnel because they would be working to stop COVID-19. This would kill two birds with one stone; it would provide jobs and needed medical equipment that has been in short supply.

After the threat of COVID-19 eventually fades, more intensive plans would be initiated. These plans would primarily consist of the government taking the new factories that had been made for medical equipment and converting them into producers for other business sectors. The transition would be relatively easy because the infrastructure would already be there. By doing this, jobs that had been created from the medical production increase could still be retained, while also creating regular domestic production. This is also similar to how the production lines from the GOCOs of World War II were eventually transferred back into regular society. 

Another large portion of these post COVID-19 plans would be rooted in a more New Deal ideology. This, as mentioned before, would consist primarily of public work projects and the like. 

In short, there’s lots that we could do.

In the end, there is no instantaneous solution to the current economic crisis, but there are strategies that we can enact now to quell it efficiently. By avoiding bailouts reminiscent of the 2008 financial crisis and focusing instead on utilizing direct government action in the creation of jobs, we can diminish the damage that this crisis may cause. In fact, it’s possible we may come out of it with an even better economy.