Lessons from the Great Depression

The global coronavirus pandemic this year has overnight transformed record-low unemployment rates in both the US and Israel to historic highs, around 11%. What can we learn from the past?

Lizabeth Cohen (photo credit: DIANA LEVINE)
Lizabeth Cohen
(photo credit: DIANA LEVINE)

Ninety years ago, on October 29, 1929, the Black Tuesday stock market crash heralded the onset of the Great Depression in the US. It quickly spread to the rest of the world and lasted for a decade, with unemployment soaring to 23%. International trade fell by half. Poverty and hunger were widespread. Only the massive defense spending caused by the outbreak of World War II brought an end to the crisis.

Fast forward. The global coronavirus pandemic this year has overnight transformed record-low unemployment rates in both the US and Israel to historic highs, around 11%.

Israel’s gross domestic product shrank at an annual rate of 7%. Bankruptcies soar and hunger spreads. Bank of Israel data show that a third of the lower middle class (fourth and fifth income deciles) are out of work and half of the unemployed in general have college degrees. According to many economists, the recovery will be slow and painful.

What lessons can Israel learn from the Great Depression of the 1930s and the policies implemented to combat it? The world has vastly changed in the past 90 years – but still, there may be much we can learn.

I posed this question and others by email to distinguished Harvard historian Prof. Lizabeth Cohen, whose May 17 article in The Atlantic claimed that “in the 1930’s Americans responded to economic calamity by creating a richer and more equitable society... we can do it gain.” Her most recent books, Making a New Deal: Industrial Workers in Chicago, 1919-39, and Saving American Cities: Ed logue and the Struggle to Renew Urban America in the Suburban Age, provide deep historical wisdom for our modern dilemmas.

But first, some background. In the 1932 US presidential election, Franklin Delano Roosevelt, a Democrat, defeated Republican president Herbert Hoover in a landslide. During the first 100 days of his administration, Roosevelt spearheaded vast new federal legislation and issued dozens of executive orders that comprised the New Deal — a variety of programs to produce relief, recovery, and reform.

Cohen writes: “The success of the New Deal was built on more than all the agencies it spawned, or the specific programs it established – it rested on the spirit of those who brought it into being. The New Dealers learned to embrace experimentation, accepting failures along the path to success. They turned aside the ferocious opposition their bold proposals provoked. They organized supporters, and learned not just to lead, but to listen. And, perhaps above all, they pushed for unity and cultivated empathy.” “Learned to listen.” “Embraced experimentation.” “Accepted failures.” “Pushed for unity.” Among today’s political leaders, I perceive a terrible shortage of those key qualities, worldwide. And as I write this, there are 175 days until January 20, 2021, when the US president will be sworn in, and 475 days until November 17, 2021, when the coalition deal in Israel makes Blue and White leader Benny Gantz prime minister – though few political observers believe Prime Minister Benjamin Netanyahu will actually let this happen. Can you, as a historian, surmise what might have resulted, had Herbert Hoover been elected in 1932? Are we headed for a similar fate?

Cohen: “Historians don’t generally engage in counterfactuals; we focus on what actually DID happen. But just to indulge you: There was such a landslide for FDR in November 1932, and Hoover had failed so significantly in his efforts to turn around the economy, that there was little chance he would have been reelected. One might come to the same conclusion for Trump today, except that I have never been so aware of efforts to undermine democratic voting as today. Of course, for almost a century, African Americans were barred from voting in the American South by Jim Crow laws and pernicious efforts. So my fear now is that [US President Donald] Trump won’t be reelected and he will challenge the results as “rigged,” to use his favorite language. Or if he does somehow sneak through it will be because many votes were thrown out and voters were kept from voting.

“This is, of course, an outrage in a democratic society. During the 1930s, the focus was on getting first - and second-generation immigrants (who were numerous) to become citizens and to participate in elections. But in my research I never saw concerns expressed that their votes would not be counted, if they were registered.”

“The First Hundred Days” has become a presidential mantra – and it originates with FDR in 1933. He coined the term. The first 100 days of Roosevelt’s presidency began on March 4, 1933. He presented a large package of legislation to the US Congress to battle the impact of the Great Depression. By the 100th day of his presidency, on June 11, 1933, 13 major laws had been passed. Can you as a historian surmise – if FDR alive today and inaugurated on January 20, 2021, what would do and say in his first 100 days?

Cohen: “I think he would take much the same approach as he did in March 1933: aim to restore Americans’ confidence in the leaders of their country, demonstrate competence and capacity in the federal government to address the twin pandemic and economic crises, create relief programs to help people weather their current difficulties, and then, in time, once things were more stable, to implement some much needed reforms in the United States. He would surely have recognized how damaging to the well-being of the nation is the growing inequality of wealth and income.

“I would hope that were he president in the 21st century he would handle the racial challenges of the United States differently than he did in the 1930s. At that time he was very dependent on a Democratic Party Coalition that included the Southern states and their representatives in Congress. So he went along with racial discrimination in benefit programs (unemployment insurance, social security, fair labor standards, etc.) and in stopping the passage of important legislation like anti-lynching laws. Southerners feared that their economy, built as it was on the cheap labor of African Americans, and the suppression of blacks’ political rights, would be undermined by the New Deal. After the Civil Rights Movement and the progress the nation has made (as inequitable as the racial situation still is), FDR would hopefully have used the Black Lives Matter movement to move the nation forward, not to drag it backwards, as President Trump has been doing.” FDR focused on what he saw as the number one essential problem: The collapse of banks, as people pulled their money out in panic and many banks failed, destroying family savings. My old friend, New York University economist William Silber, once wrote that within two weeks of FDR’s bank rescue, which included deposit insurance, people redeposited half the cash they had pulled out of the banks and financial collapse was averted. On Sunday night, March 9, Roosevelt spoke to more than 60 million people on the radio, to tell them in clear language, why, what and how: “What has been done in the last few days, why it was done, and what the next steps are going to be.” This was the first of 30 evening radio addresses that came to be called the Fireside Chats.

For leaders in the US and Israel next year – facing a laundry list of enormous challenges in employment, public health, social services, etc. – what can they learn and emulate, from FDR in 1933, if they (implausibly) became students of history and, for instance, read your books and articles?

Cohen: “I hope that both the United States and Israel get new leaders next year. I can’t speak to the problems in Israel, but in the United States the most important thing that a new president can do would be to work to restore more confidence in the federal government.

“For all my huge admiration for FDR and the New Deal – you note in your article that in 1930-36 neither economists nor political leaders truly understood that when people cease to spend money, governments must step up to fill the gap with public spending. As governments spend and borrow almost without limit, they now face mountains of debt; voices are now heard demanding to rein in emergency relief programs. Shades of 1936-37? Do you want to comment?

Cohen: “A pull-back too soon is indeed a real danger. The Republicans in Congress and the White House are already working to curb national spending. Given that this pandemic is not fading any time soon, we will not be able to get back to a normal economy and people will continue to face unemployment, evictions, hunger, ill health, and much more. Many mayors and governors have been exemplary in their efforts to put people before budgets, but only the federal government can take on debt. These lower levels of government will soon need to balance their budgets. Many policy makers and economists, in fact, feel that had the federal government spent more in response to the 2008 financial crisis the nation’s recovery would have been quicker. Will that lesson be learned? I hope so, but a lot will depend on the November election.” You write, “Roosevelt responded to these challenges from the right and the left by justifying the New Deal in uncontroversial, almost nonpartisan terms... Roosevelt became a master himself of the radio, brilliantly using his many fireside chats to establish an intimate relationship with the American people.” In the age of Twitter and a Biblical flood of tweets and 180-character pearls of wisdom by both Trump and Netanyahu – if our leaders were to read your article and mend their flawed communication styles – what key lessons would they learn from FDR?

Cohen: “Many Americans despair of President Trump’s obsessive tweeting, but in fact FDR used the radio to reach out to ordinary Americans and create some intimacy between the people and their president. That was particularly important at a time when the Roosevelt administration was expanding the power of Washington and moving authority further away from Americans’ more familiar governance by cities and states. So I would say that the problem is less that Trump uses social media so often – though I do wish he would focus more on doing his job as President of the United States – as the content of what he tweets. He is insulting, divisive, racist, and so many other despicable things. It is baffling that even as his poll numbers drop he makes little effort to recruit support from doubting and disenchanted voters. Most politicians would be tacking to the center right now. We are left to conclude that these reprehensible views are the real Donald Trump, which he makes no effort to hide.

“FDR took a very different approach and searched for ways of bringing as many Americans as possible under a big tent. Doing so meant he disappointed some potential supporters (such as those more conservative and more progressive), but he built an enormous coalition that gave him landslide victories in 1932 and 1936 and comfortable margins in 1940 and 1944, when he was breaking the longstanding norm that a president would only serve two terms. He judged that he had more to gain than lose by appealing to broadly-held American civic values.” 
The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com