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.