All Depressions Are Not Created Equal
This article was written by Tom Chatham and originally published at Project Chesapeake
It has been said that history may not repeat but it sometimes rhymes. Just as the generals always seem to fight the last war people seem to prepare for the last depression. Times change and the mechanism that leads to misfortune changes with it. Looking at the past may not give us the clear answer to how to deal with the future but it can help us to determine what might happen and how to deal with it when the time comes.
We always look at the last incident because that is what we know. The problem is that social and economic conditions are always changing and they have a major impact on how things unfold. When people hear that they should prepare for another great depression they immediately think about how people survived the last one and how events unfolded. That is a good starting point but things will not be exactly the same the next time.
In the 1930’s people did not posses specialized skills, they had general knowledge that allowed them to take any job that was available. Today people are skilled in one area and loss of employment in that area requires them to obtain skills to work in a new area. The jack of all trades has been replaced by the specialist so when job loss comes they have a more difficult time finding a new one.
In the 1930’s we had a deflationary depression and anyone holding cash and bonds were able to hold on to their wealth and banks were allowed to fail. The farmers suffered from a drop in commodity prices but taxes were low and most people that had land owned it free and clear allowing them to stay in place. Today we are more likely to have an inflationary depression due to the mandate to save the banks at all costs. Anyone trying to save their wealth in cash and bonds will get slaughtered in the paper assets they hold due to massive money printing.
In the 1930’s most people lived in rural areas and people worked to help their neighbors in difficult times. Most people had the skills to take care of themselves and their families until things got better. Today most people live in urban and suburban areas and society has been fragmented into militant groups that cannot work together even in good times. Declining economic conditions will likely make society turn in on itself even more causing suffering and loss of life. Most people have no idea how to care for themselves if the system breaks down.
In the 1930’s people were forced to find new employment due to job loss because there were no social safety nets to provide for them. In difficult times they were forced to look to family, friends and the church for help but most people felt they had failed if they asked for help. Today people losing a job have unemployment, welfare, food stamps and dozens of other services to provide for them if they have no job. Many have come to rely on these services and expect the government to provide for them as long as necessary. If these services ever end it will trigger a violent response by certain segments of society.
In the 1930’s a man out of work could sell apples on the street corner for a nickel to make money to support himself. In a future depression environment anyone attempting to make some money may be selling apples for five dollars each and will likely be arrested for vending without a license. Another difference today is that most people do not want to get their hands dirty so they will opt for government assistance rather than hard work.
When people lost jobs in the 1930’s they could look for many different types of jobs they could do and they were able to negotiate pay with business owners to get the job. The large number of unemployed allowed businesses to negotiate lower wages that allowed them to stay in business. Today minimum wage laws prevent business owners from cutting wages to stay in business which will cause business closures in difficult times. The closing of businesses is a self reinforcing loop that puts more and more people out of work as time goes on.
In the 1930’s the monetary system not only survived but cash was worth even more. The next depression will likely see the monetary system collapse and cash become worthless. This will likely lead to the creation of local currencies and barter among individuals. The attempt by bankers and governments to create new fiat currencies will likely be rejected to a large degree.
In the 1930’s most properties were owned by people that utilized the land themselves. The investor mentality of today will see the mortgage market collapse and the investors buying properties to flip lose it all. Some experts expect to see a 75% to 90% drop in land prices in the coming years.
Many of the things that allowed people to get through the last great depression will not save them this time. Social and economic conditions have changed and different methods will be required to get through the depression we are now entering. Where once cash and bonds were a safe haven gold and silver will, be now. The ability to negotiate wages is gone and wage laws will insure massive closings of businesses forcing people to become self employed to avoid the wage laws. Overall the standard of living will drop dramatically and most people today will not be prepared to accept it.
There are some things that are likely to be the same as before. Those who need help will once again need to turn to family and friends for help. Those that own land free and clear will be able to keep a roof over their head. Those that can supply their own needs will make out better than those dependant on others. Those with multiple job skills will make out better than those with no job skills. Those that can produce a product to sell will make out better than those in the service industry.
In order to learn from the past you must look at current trends and extrapolate where we are headed from here. It is not an exact science but those that pay attention to details will likely fare better than those that go blindly along their daily lives expecting things to always be the same.