THE UR GETS TO BE BILL CLINTON, NOT FDR:

Don't Get Depressed, It's Not 1929: Why all those Great Depression analogies are wrong. (Daniel Gross, Nov. 22, 2008, Slate)

So what's with all the speakeasy-era speak? Financial executives invoke distant history in part to make up for their own recent shortcomings. If a force as powerful as the Great Depression has been unleashed on the global economy, how can a mere mortal like Merrill's John Thain be held responsible? The specter of the 1930s has also been deployed by political leaders to create a sense of urgency. "We saw a lot of overblown analogies in the run-up to the passage of the bailout bill," notes Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. President Bush's Sept. 24 address to the nation warned that "the entire economy is in danger," and that "without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold."

It's understandable that we make comparisons to the Great Depression. Analogies help us place things in context. But very few of us actually lived through the Depression. Studs Terkel, the great chronicler of the voices of the Depression, died in October at 96. The historical distance from today to 1929 is as vast as the chasm separating 1929 from 1850. Dan Ariely, a behavioral economist at Duke University and author of Predictably Irrational, says, "The closer we are to something—an event, a person, an object—the more nuances we see." By contrast, the further away we are, the greater (and less accurate) the generalizations we make. And so when comparisons to the Great Depression are flashed on cable-news crawls, "it's all about the desire to fit everything into a snapshot," Ariely says.

Ironically, the differences between the two eras can be summed up in a few sound bites. The world of 1929-33 was one that lacked shock absorbers such as Social Security and deposit insurance to insulate people from economic disaster. In the 1930s, some of the world's largest economies—Germany, the Soviet Union, Japan, and Italy—were run by leaders hostile to the very notion of market capitalism. Today, U.S.-style market capitalism is under assault from self-inflicted wounds, and Germany, Italy, and Japan (Russia, not so much) are working with the United States to cope with a common problem. Back then, we were cursed with a feckless Federal Reserve, and a wealthy Treasury secretary, Paul Mellon, saw the downturn as a force for good. "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate," he said. "People will work harder, live more moral lives."

Oddly enough, that's now what the Left claims, that the crunch is payback for the immorality of capitalism and why they hope it is a Great Depression. They'll be distraught when it turns out to be just a correction that teaches us nothing.

Posted by Orrin Judd at November 22, 2008 9:26 AM