1930s Parallels Keep Popping Up
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

REVIEWING THE 1930s.  The Principle of Knowing History.  Let me get down on paper a bit about President Hoover (1928 to 1932) and President Roosevelt and the 1930s after nearly finishing up THE FORGOTTEN MAN (2007) by Amity Shlaes.  Again, let me recommend you get yourself a copy as today’s happenings keep looking more & more like a redux.  I’m still thinking about taking this book to the beach over the Christmas holidays.  It’s entertaining reading.  One back cover reviewer compared Shlaes to Frederick Lewis Allen and his wonderful early 1900 histories (which I loved and heartily recommend; ‘Only Yesterday,’ ‘Since Yesterday,’ ‘The Big Change’).  Shlaes’ history of the Great Depression starts after President Coolidge, a hands off US president gave way to President Hoover, of the same party, who turned out to be much more hands on.  This flies in the face of the old belief that Hoover was hands off.

 

Late 1920s.  President Hoover was elected in 1928 and for his first year the economy and stock market was copasetic.  But after the October 1929 terrible market crash, it was up to Hoover to decide how to proceed.  To understand Hoover, we can go back to when he was Commerce Secretary and wrote a book entitled American Individualism although the name wasn’t appropriate, according to Shlaes:  “Hoover rejected the old brand of absolute individualism and distained laissez-faire economics as ‘theoretical and emotional’.”  So, when the crisis hit, President Hoover went right to work.  First, he made very clear he was for regulation.  Hoover believed in government help and loved standards, efficiency and organization and had done much in the middle 1920s to install such across America.  But now, upon President Hoover getting a confidential report from the Fed that the market “readjustment” was going to last, and after asking himself a question he later wrote down:  “The primary question at once arose as to whether the President and the federal government should undertake to mitigate and to remedy the evils,” Hoover concluded, yes, action was needed.  President Hoover from the crash until President Roosevelt took over in March 1933 pushed for “expanded public buildings programs, requested a national system of cooperation among the states on public works programs, proposed expansion of the merchant marine, regulation of the new inter-State electric power system, consolidation of the railroads, development of public health services and departmental reorganization.”    

 

In general terms, Hoover:  (1) intervened in business, starting by calling business leaders to Washington and told them to keep up business as usual and to keep wages up, not allowing any free market cleansing, (2) signed one of the largest tariff bills in US history, which caused less trade and thus further contraction and (3) publicly assailed the stock market.  All moves which backfired because they also caused a loss of confidence.  Retired President Coolidge, the hands off president, railed against Hoover’s moves, calling  them “socialistic notions of government.”  Right up until President Roosevelt replaced Hoover in early 1933, Hoover continued using the government to try to make things better.  In June 1931, for example, Hoover announced a moratorium on German debt repayment.  And then created the Reconstruction Finance Corporation to help banks and homeowners.  Finally Hoover signed a big tax increase, the Revenue Act of 1932, because of his fear an unbalanced budget would cause a run on the dollar.  During the interregnum between Roosevelt’s election in November 1932 and his inauguration in March 1933, Hoover even wrote to Roosevelt trying to get him to sign off on special war powers to handle the emergency, and a bank holiday.  Roosevelt said no, even though upon taking office, he followed many of Hoover’s beginnings.

 

March 1933.  Upon entering office, President Roosevelt showed he would try anything.  He knew people wanted action and that this was a rare opportunity for change.  Plus he just enjoyed activity, of any sort.  I can imagine how activity uplifted him, he wore these heavy metal leg things, for his polio.  He was inaugurated in March 1933 when their was prevalent despair and unemployment had soared to about 17%  Thus from March 1933 on he tried whatever struck his fancy.  Plus he had a group of advisors called the “brain trusters.”  Whatever they proposed, Roosevelt went with.  The Hundred Days this period was called as President Roosevelt legislated galore.  People hear that arts flourished during the Depression but now I know why.  President Roosevelt (FDR) spent big money on them.  He hired artists and had them paint murals--we have some in local post offices here near Roosevelt’s Hudson River home.  He hired movie people and had propaganda firms made, burnishing the image of his actions, action which became known as the New Deal.  Basically the New Deal was trying to help certain constituencies which Roosevelt chose.  Essentially, the middle class or “everyman” or common man.  And policies against the rich (even though Roosevelt was one of those).  FDR started passing law after law seeing what worked.  Lots of his laws were later thrown out, in the latter 1930s by the Supreme Court (which he then attacked by trying to “pack” the court, increasing the number of justices to decrease their vote importance).  But the people knew Roosevelt was using government to help them for once.  So he kept garnering support in spite of his arbitrary, sort of kingly behavior.  Maybe because he was also able to charm his way through most any siutation.

 

SCHWARTZ SUMMING UP.  Out of time this morning, so let me just summarize.  Both President Hoover and President Roosevelt put government to work to stimulate the economy after the 1929 stock market crash.  We still debate today whether that was the right move or not.  Today our US government is following a similar path after a similar crisis.  But the law of unintended consequences may again come into play; government may end up making things worse and thus cause a lackluster economy to last and last instead of allowing the natural process of the free market to clean out the old and bad and bring in the new.  Still, if you were US president, what would you do?  Be an ideologue?  Sit back and stay out of the way?  Doubtful since you’d be viciously attacked by the media and others to do something.  As very interested bystanders, all the individual investor can do is sit back and watch developments and place them in historic perspective.  Then plan out strategy.  As of now, please just stay hunkered down and out of harm’s way as much as possible.

 





Posted 11-20-2008 12:49 PM by Richard Schwartz