I am hearing the word “Hooverville” bantered about by the talking heads on TV lately. Now, am I the only one laughing?
Are things perfect currently? No. But can we get just a little perspective here? Let’s look at what the conditions were actually like when the term “Hooverville” was coined.
Robert J. Samuelson, at The Library of Economics and Liberty says:
“It is hard for those who did not live through it to grasp the full force of the worldwide depression. Between 1930 and 1939 U.S. unemployment averaged 18.2 percent. The economy’s output of goods and services (gross national product) declined 30 percent between 1929 and 1933 and recovered to the 1929 level only in 1939. Prices of almost everything (farm products, raw materials, industrial goods, stocks) fell dramatically. Farm prices, for instance, dropped 51 percent from 1929 to 1933. World trade shriveled: between 1929 and 1933 it shrank 65 percent in dollar value and 25 percent in unit volume. Most nations suffered. In 1932 Britain’s unemployment was 17.6 percent”
So where are we at today? Unemployment sits at 4.8%. Lets also note here that this is a full 33% BELOW the 1991-92 unemployment rate of 7.1%, the period of the last actual US recession.
Now, when we look at the “Hooverville” period, we also see a 30% contraction in US GDP. That means we would see a current GDP number of -30.0%!! But, today we see a number calling for an expansion of .6%. Anemic? Yes. Catastrophic? Laughable…
There are several reasons the US will avoid a recession and not remotely approach the “Hooverville” period.
1- The world’s economies as far too intertwined today to allow industrialized nation’s economies to deteriorate that far. Other nations have too much invested in each other to essentially allow another to fail for an extended period. US economic pain is felt in China and vice versa.
2- Demand from developing nations places a floor on production.
3- Money flow: The ease in which investors are able to profit from the economic activities all over the world ensures wealth creation even with deteriorating conditions in their home country. This was not the case in the 1930’s.
4- International businesses: An extended recession in the US would hurt but not cripple profits in virtually all US businesses in the S&P 500. Currently over 50% of the S&P profits are from international operations. While profits as a whole would be damaged in a severe scenario, the evisceration of them we saw during the depression would not happen.
Now, of course a major catastrophic event (nuclear terror, China / Russia military conflict) could cause major disruptions. But, barring that, do not look for them.
Now, will it be all smooth sailing? No.
It does mean that we need a heavy heaping of perspective as to where we sit currently. We have historically low unemployment, an expanding economy and moderate inflation. A far cry from “Hooverville”
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