We are not on the verge of a Great Depression, we are nowhere near it. Mainstream media however, would love to have us thinking this way – after all, selling a dramatic story like that helps drive advertising sales and get eyeballs so people can start planning their trip to the soup lines…Brother can you spare a quarter accounting for inflation?
Perspective – Snapshots:
We are comparing our current crisis to the Great Depression because the media is looking for a way to “compare” and that’s human nature; just as we’ve compared the Iraq war to Vietnam, yet they are not comparable. This is our human need for perspective.
Watching traditional broadcast media and comparing it to reality, one can clearly see that broadcast, so called “professional” media is over-hyping the situation and arguably contributing to unnecessary panic in the market.
So What’s Different:
Many facts today are different from the time that triggered the great depression, so lets look at some of the facts;
1. No Jobs: The Depression saw 25% unemployment in the US, 28% in Canada. At worst the estimates are 7.6% in the USA and 7.2% in Canada. Also, Canada may see a slow-down, but not a recession.
2. Money: There is more wealth today, by far, than there was in the Depression. Private Equity firms’ investments have made a RETURN this year, not a loss. Private Equity may in fact be key element to coming out the recession.
3. Protectionism: The worst thing America, Britain, France, Canada and other countries did was to close their borders to trade. Protectionism drastically slowed trade ad Tariffs went through the roof. This made things worse.
4. Massive Drought: Unlike the dustbowl droughts of the 1930’s, we are not facing a similar environmental disaster – global warming aside; and even then, all those why say our forests are being cut down? We’ve cut down less than 0.1% of our global forests. And the air in London today is cleaner than it was in the 1700’s.
5. Shock Absorbers: There was no FDIC or CDIC (Canada) in existence then. There was no Social Security or welfare either.
6. The Liquidator: The man running the Treasury back then (Andrew Mellon) was a wealthy nutcase who remains famous for saying “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate”, OK well real estate is another matter today.
7. President: As the Slate article says “this time America doesn’t have to wait 3 years for an ineffective President to leave, we only have to wait 2 months…”
Concluding: In the Great Depression Russia, Italy, Germany and Japan were very anti-capitalism and did nothing to help, whereas today, 20 countries got together to fight this battle. Unemployment is NOT going through the roof.
What is changing is some of the industries. If the Big 3 car makers want to succeed, they have to build and design better cars, not the junk that falls apart after two years; this is why the Japanese, Germans and South Koreans are doing so well – quality and good design. We are transitioning more and more to a knowledge economy, this means some traditional manufacturing jobs will disappear, propping them up falsely to satisfy bloated union agreements only delays the inevitable.
I might add that we also have this thing called the Social Web or Web 2.0; this is changing things from democracy to business. We don’t know the impact yet, but it will be a transformational shift. More on that another time.
And as Guy Kawasaki said “don’t listen to the guys in the financial industry about what’s going on, they’re the guys that put us here in the first place.” Too true.
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