Economic Panics -- An American Tradition

Spring break has arrived at WRA; the third marking period has ended and students have departed until the end of the month. With a few moments to contemplate, I have been thinking, as have many Americans, of the unpleasant state of the national economy.

From an economic perspective, things are pretty bad. And, particularly dispiriting, they seem to be getting worse; the future, in the view of many, looks gloomy. As one wag put it, “things will get worse before they get worse.” The current bad news coincides with some recently studied material in my AP US History class.

Just before we headed out on break, we got Woodrow Wilson elected in 1912 and prepared to look at the country’s studied neutrality followed by active involvement in World War I. A couple of weeks earlier however, in studying the last decade of the 19th century, the class examined an unfortunate economic phenomenon known as the Panic of 1893. Here’s how the AP text describes the situation: “in early 1893 a severe panic swept the nation, bringing five full years of depression…the economy sank lower and lower. In the industrial regions, factories closed, and thousands of men were thrown out of work.” In past years of teaching this material, the collective student attitude, I must admit, was one of substantial indifference. Now, as a slight (very slight) silver lining associated with the present downturn, students can at least see, first-hand, that the trajectory of free-enterprise capitalism isn’t always one-way and upward. This may provide a helpful reality injection to students (and others) used to seemingly endless good times.

Which of course is what, if we pay attention, history teaches us. Just a list of the most notable panics – the word of choice before being replaced by “recession” – would give us the panic of 1819, followed by 1837, 1857, 1873, the previously mentioned 1893, 1907, and then the BIG one, the Great Depression. And, there have been any number of economic downturns or recessions since the end of the Second World War. What insights, if any, can we glean from all this? Maybe only two: it’s nearly impossible to predict, with exactitude, when the next financial downturn will occur or how long it will last and, second, the present major recession will, ultimately, end, the economy will improve and then, at some point, decline again. These observations may seem pretty obvious and I suppose they are. They do provide me, however, with more comfort and grounding than dwelling on the details of such exotic concepts as credit default swaps, collateralized debt obligations, the increasingly discussed “uptick” rule, or Byzantine mark to market requirements.

Revving up the Economy -- Then and Now

OK, I have one last Lincoln administration-Obama administration connection to offer. My AP US History students and I have finished up studying the Civil War and Reconstruction. We’re moving on to the last three decades of the 19th century – the transformative era when the United States changed from a primarily rural agricultural economy to an industrial powerhouse.

As I watched the inaugural events last week, much political talk focused on the dismal shape of the current US economy. President Obama is pushing for quick passage of his nearly one trillion (!) dollar stimulus package. This proposal, likely to be passed by Congress sometime next month, would, it is hoped, jumpstart the ailing economy. Much of the money would go to public works projects of one sort or another – for example, new roads, bridges, and schools. The idea is to put people back to work on activities that provide long-term benefit to the country and its citizens. The downside, of course, is that the billions of dollars needed to fund these efforts have to be borrowed – drastically increasing an already huge federal government debt.

This gets me back, briefly and wistfully, to the 1860s. As a result of the Southern states’ secession, the war-time Congress had a considerably freer hand in passing legislation benefiting the national economy. These laws, among other things, raised the protective tariff, opened up the west to settlers in the Homestead Act, and created land grant universities specializing in agriculture and engineering. Perhaps most significant from a long-term perspective, Congress enacted the Pacific Railroad Act of 1862. Completed seven years later, the Union Pacific (from Omaha) and Central Pacific (from Sacramento) linked the country together and set the stage for America’s industrial takeoff.

So, will the current proposed Obama infrastructure effort have the same beneficial results? Well, of course we’ll have to wait and see. But, here’s one important (and not helpful to the current situation) distinction. With the transcontinental railroad, the government paid the companies through sales of federal lands (over thirty million acres were sold). The “stimulus” for extensive private development – the land – was already possessed by the government. Because the government was the seller, rather than borrower, the economy could move ahead without the burden of increasing mountains of federal debt. That’s considerably different from where we as a nation are now.

What do you think about the current economic condition of the country? And, if you were an advisor to the one-week-old Obama administration, what would you suggest? Hit the “comment” button and we will post your advice. Who knows – Obama has lots of smart folks working for him -- maybe they will read and implement your thoughts!

The Better Angels of our Nature

With just a little more than a week to go before President-elect Obama’s inauguration, talk continues on the comparisons between March 4, 1861 and January 20, 2009. We have heard for quite some time about Obama following Lincoln’s “Team of Rivals” selection approach for his cabinet. Now comes word that Obama will be sworn in on the Bible used at Lincoln’s inauguration nearly 150 years ago.

But, of course, there’s more. Both Lincoln and Obama hail from Illinois; both served in Congress for only a brief period of time before winning the Presidency; both were relatively young when Click on image to enlarge

elected - Lincoln was 51, Obama is 47. And, less well known is this remarkable American history connection:

Obama takes over as the nation’s 44th President less than three weeks before the bicentennial anniversary of the Great Emancipator’s birth (February 12, 1809).

What will resonate from Obama’s Inaugural Address? His reputation for verbal eloquence and inspirational rhetoric already is well deserved. As he ponders theme, content, phraseology and presentation, the president-elect would do well to emulate his eminent predecessor. Lincoln addressed a divided country on that blustery Monday in March. Seven states had already seceded from the Union; the Civil War would begin with the attack on Fort Sumter the following month. Lincoln’s most memorable phrase from the First Inaugural fell on deaf ears, at least at the time. Pleading for reconciliation short of war, the President asserted: “the mystic chords of memory…will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.”

President-elect Obama will surely need the better (and smarter) angels of our nature from January 20th onward. But the United States has been blessed, repeatedly, by right leadership at the right time – think Washington, Lincoln, Franklin Roosevelt, Kennedy during the Cuban Missile Crisis, Reagan during the dying days of Communism in Eastern Europe. And, as we know, in the journey we call America, the government remains, as Lincoln himself noted, of the people, for the people, and by the people. The people have endorsed Obama at the polls -- now, looking forward, may our collective better angels prevail for him and for the nation.