Ninety years ago – in late August 1929 – most stock investors thought they’d never had it so good. By November, they thought they’d never had it so bad. They were pretty much right on both occasions, though things would get a lot worse before they got better. Amid today’s gyrating stock market and increasing talk of recession, let’s refresh ourselves on the momentous events of nine decades past.
The booming economy of the “Roaring ‘20s” resulted primarily from two things, one good and one bad. Tax cuts from the Harding and Coolidge administrations were the good side. They partially reversed the massive tax hikes under arguably America’s worst president, Woodrow Wilson. Government spending was restrained and the national debt reduced by almost a third.
The bad side of the decade was the Federal Reserve’s low-interest rates and easy money policy from 1924 to late 1928. That was unsustainable but while it lasted, it produced a bubble not unlike the one the Fed created again before the 2008 crash. By the start of 1929, the Fed reversed itself and started jacking rates up. The smartest investors bailed, sensing that a 180-degree shift in monetary policy might be the same as pricking an overblown balloon.
The Dow Jones Industrial Average reached a high of 381.17 on September 3, 1929. It bounced up and down for the next six weeks but generally drifted lower. In what Time magazine’s Jennifer Latson labeled, “The Worst Stock Tip in History,” famed economist Irving Fisher pronounced that “Stock prices have reached what looks like a permanently high plateau.”
Then to Fisher’s chagrin, the last week of October brought “Black Thursday” and one massive sell-off after another as ordinary investors joined the plunge. The Dow cratered at a mere 41 in July 1932, representing about 11 percent of the market value of less than three years before. The 1929 high would not be surpassed for a quarter-century.
The history of the Great Crash and subsequent Depression provides a sad litany of policy blunders in Washington. Altogether, they needlessly caused and prolonged the pain. Roller coaster monetary policy. Sky-high tariff hikes. Massive tax increases. Government-supervised destruction of foodstuffs. Gold seizures. Price-fixing regulations. Soaring deficits and debt. Special favors to organized labor that stifled investment and boosted unemployment.
For an accessible overview of all that, and more, I encourage readers to take a look at my essay, Great Myths of the Great Depression, available free in multiple formats at FEE.org. Caution: It’s not pretty, and some parts of the story will absolutely shock you.
As the 90th anniversary of the start of the Great Depression nears, it behooves us to dump as many myths about it as we can. Even a past chairman of the Federal Reserve, Ben Bernanke, admitted publicly that it was the government’s central bank that started it, not capitalism.
Then recovery was put off for more than decade because of further bad policies that included trade-crushing tariffs under Hoover and huge tax hikes and regulatory burdens under FDR — a story that’s still taught poorly in far too many schools.
If we get our past wrong, we shouldn’t expect to get the future right.
Lawrence W. Reed, a resident of Newnan, is president of the Foundation for Economic Education. He writes about exceptional people, including many from his book, “Real Heroes: Inspiring True Stories of Courage, Character and Conviction.” He can be reached at email@example.com .