The off-handed “How’s business?” has taken on urgency lately. Demand feels steady around here (knock on wood), but that only underscores a nagging realization: while we brace for economic calamity, nobody seems to know how hard it will hit, what it will feel like or how to soften the blow.
The Worst Hard Time, Timothy Egan’s 2005 farmers’-eye-view of the dust bowl catastrophe, captures the edgy mood at the unraveling of another boom era. By 1930, the price of grain in the U.S. had fallen by 1000% from ten years before, and farmers responded by tripling and quadrupling their output, deepening the crisis. Nobody knew when to cut their losses or how much worse things could get:
The world economy was a mess … A stiff American tariff on imports — a demand of industry in a time when the government rolled over for every whim of big business — sent the European economy further into a tailspin. On the giddy ride up, there had been no cop, no regulator to enforce basic rules of an American economy that had become the world’s biggest casino. Real estate in Florida, oil in Texas, wheat in Kansas and stocks on Wall Street — they all had their time when gravity was willed into oblivion.
With hindsight, the bad decisions of the 1920s and 30s seem glaring (Hoover rejected a proposal for the goverment to buy surplus wheat that could have propped up struggling farmers and fed the growing ranks of hungry Americans). But who’s feeling confident that today’s random acts of bailout and mad rate-cutting can avert disaster? In Paul Krugman’s “nightmare scenario”, even “swift action” may be too little too late:
It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.
History suggests we can’t.