The superlatives of the global economic meltdown of 2008 are, well, superlative. Professor Noriel Roubini of New York University says the current crisis is “the largest leveraged asset bubble and credit bubble in history.” The International Monetary Fund says, “In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period.”
The crisis of 2008 is frequently compared to past crises, and increasingly to the stock market crash of 1929 and the Great Depression of the 1930s. Merrill Lynch Chief Executive John Thain recently said he does not expect the global economy to recover quickly from the credit crisis and that the environment more closely resembles the advent of the Great Depression in 1929 than recent slowdowns. Long-forgotten images of breadlines and homeless families have sprouted in the media. 60 percent of US voters polled in October said another depression is likely within a year.
Such historical comparisons can help provide perspective on contemporary situations, but they can also be misleading if they don’t include the differences as well as the similarities. For labor and social movements, there is much to learn at this time of crisis from crises past. But there are also significant differences which we ignore at our peril – and which may allow us opportunities for action that did not exist in the past.
Character and extent of the current crisis
A few statistics give a flavor of the depth of the current crisis.
According to Reuters, between January and September, 2008, the stock market index for “emerging markets” lost nearly 55 percent of its value and the index for “developed markets” lost 42 percent. The S&P 500 of US stocks lost half its value from its October, 2007 peak, marking what the Financial Times calls "without question, the worst bear market since the 1930s." It adds that "the only historical precident for the kind of deflation predicted by the bond market came in the 1930s."
Ten million Americans are out of work, nearly 3 million more than a year ago. The official unemployment rate rose to 6.5 percent in October, its highest rate in 14 years. Goldman Sachs predicts it will reach 9 percent in 2009.
7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes. As of September 30, one-fifth of American homes with mortgages were “underwater” -- worth less than was owed on their mortgages.
National and global efforts to counter the crisis have included cuts in interest rates, support for money markets, and recapitalization of banks. Their total cost as of mid-November has been estimated at more than $4 trillion.
Economists predictions – for whatever they’re worth – have lost their once-unmitigated optimistic faith in the economic system. Martin Wolf of the Financial Times says that despite government efforts, “a long and deep global slowdown is still likely.” James Kwak of Baseline Scenario says “Wealth is likely to decline further. Under any scenario, we will see many personal, corporate and perhaps even national bankruptcies.” Kenneth S. Rogoff, a former chief economist at the IMF and now a Harvard professor adds, “We’re entering a really fierce global recession. . . . It’s a very dangerous situation. The danger is that instead of having a few bad years, we’ll have another lost decade.”
Capitalism has been the most dynamic economic system in history, but it has a peculiarity: No matter how great the need for houses, clothes, food, or other products, those who control the means of production won’t produce them unless they can make a profit doing so. As a result, the history of capitalism has been marked by periods of economic crisis and stagnation in which millions of people suffered unemployment and poverty while the resources that they could have used to produce the things they need lay idle.
These periods can be long or short, modest or severe. Capitalist economies have a regular business cycle in which every decade or so economic growth is punctuated by recession. These can be little more than periods of readjustment that allow a return to growth – part of what the economist Joseph Schumpeter called capitalism’s “creative destruction.” Some other contractions, however, also stabilize – but at levels that result in massive unemployment of material and human resources. Such a peculiar state of affairs is possible because markets are regulated only by the pursuit of private profit, not by a matching of resources and human needs. If production isn’t profitable, the wealthy individuals and institutions who own the means of production have no incentive to produce.
Since 1900, the US experienced depressions and recessions in 1903, 1907, 1911, 1914, 1921, the whole decade of the 1930s, 1949, 1954, 1957, 1961, 1970, 1982, 1990, and 2002.
The “gold standard” for economic downturns remains the Great Depression of the 1930s. From 1929 to 1933, manufacturing output in the US dropped 39 percent and unemployment reached 25 percent. In the 1982 recession, U.S. unemployment reached 10.8%, the highest since World War II. In the Asian crisis that started in 1998, 20 million people in Indonesia lost their jobs in a year as the unemployment rate rose from less than 5 percent to more than 13 percent, and the population living in absolute poverty quadrupled to a hundred million.