Robert S. McElvaine: "Black Tuesday" plus 79 Years





[Historian Robert S. McElvaine is Elizabeth Chisholm Professor of Arts & Letters at Millsaps College and the author of The Great Depression: America, 1929-1941 (Random House). His latest book is Grand Theft Jesus: The Hijacking of Religion in America (Crown).]

"Is it happening again?" That is the very disturbing question that many Americans are nervously asking on this, the seventy-ninth anniversary of "Black Tuesday," the date of the Stock Market Crash, in October 1929.

We are beyond discussions of whether we are in a recession; the antecedent of "it" in the above question is "Depression," and there are enough parallels between then and now to induce sleeplessness in many of us.

In the popular imagination, the Stock Market Crash nearly eight decades ago caused, or at least started, the Great Depression.

In fact, though, the downward spiral of the Depression was already underway a few months before "Black Tuesday." The market crash reflected the economic problems; it did not cause them. The same is true today. Contrary to what Herbert Hoover said then, the economy was not "fundamentally sound"; contrary to what John McCain said at the beginning of the current crisis, the economy is not "fundamentally strong."

While people focus on a couple of terrible days in 1929, in fact the market collapse leading into the Depression was a long downward slide, punctuated by days of drastic drops and occasional gains--much like what has been going on for the last six weeks, including yesterday's huge gain.

As the Crash on this date in 1929 was a lagging indicator for a severe economic downturn that was already underway, the current Grizzly Bear Market is a lagging indicator for an economy that was already in serious decline before Wall Street noticed.

Some saw the Depression that began in 1929 as an "Act of God." In truth, it was the result of acts by worshippers of a false god. The same is the case with the current crisis. In the 1920s and the 2000s, those in power placed blind faith in the Market as God.

The economic collapse of 1929 and ensuing Great Depression discredited that faith in an Omnipotent and Beneficent Market God for several decades, but since about 1980, true believers in that false belief have been born again, and economic fundamentalists have been singing "Give Me That Old-Time Economic Religion."

Such evangelists as Amity Shlaes, in her 2007 social Darwinist / economic fundamentalist tract reinterpreting the Depression, The Forgotten Man, argued that Calvin Coolidge was right and Franklin Roosevelt was somehow responsible for the Depression. These evangelists found people on Wall Street and Pennsylvania Avenue who were eager to be "saved."

Last week, former Federal Reserve Chairman Alan Greenspan admitted that he was among those who had placed too much faith in the self-correcting power of the free market. In the terms used by Tennessee Williams, Greenspan and so many others failed their eyes. Now their fingers are being "pressed forcibly down on the fiery Braille alphabet of a dissolving economy."

So, unfortunately, are the fingers of us all.

The causes of the collapses of 1929 and 2008 parallel each other to a remarkable degree. In the 1920s and the 2000s. There was little regulation of markets or business practices; taxes on the very rich were slashed; labor unions were weak. As a result, income was concentrated at the very top.

Concentration of income at the top in both periods contributed to the economic debacle in two ways: so much money in the hands of a few simultaneously fueled speculation and denied fuel to the consumption needed to keep the economy going.

Republicans then continued to promote tax and other policies that concentrate wealth and income, as John McCain now calls for making the Bush tax cuts for the rich permanent and attacks Barack Obama for wanting to increase taxes on the highest income brackets. In fact, "spreading the wealth around" is a major part of the solution now, as it was in the Depression.

In both the 20s and the 00s, the economic effects of the maldistribution of income were masked and postponed by the extension of credit where credit wasn't due, although the credit bubble on the current decade was far larger than that of eight decades ago.

While in both cases the market collapsed after the economy was already sinking, the massive impact on the economy was yet to come at the time of the Crash. The slowdown in buying and rise in unemployment came in the months and years after October 1929, and the worst is yet to come for the economy as a whole today.

The market collapse in 1929 accelerated the downward spiral of the economy because it signaled to consumers that they needed to cut back on spending and to lenders that they needed to be much more cautious in extending credit. The current collapse is having similar effects.

But perhaps the most important point is that this date in 1929 can be seen in retrospect as the dividing line not only between economic eras, but also between two political eras, and 2008 is likely to be another such political dividing line. Realignments always begin with a negative impetus. People turn against a party that has held power when that party presides over a major failure:

Republican dominance lasted from a depression that began under the Democrats, the Panic of 1893, until the Republican Panic of 1929 discredited the party. Democratic dominance lasted from the Great Depression that began in 1929 until 1968, when a disastrous, unnecessary war discredited the party.

The Republican dominance that began in 1968 (with an interruption resulting from Watergate) appears likely to end next Tuesday because both a disastrous, unnecessary war and the Panic of 2008 have discredited the party.

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