I’ve noticed a few things as I’ve rummaged through news articles, blogs and economic data that has made me think the outcome of 1930s is not upon us, but that we are susceptible to something completely different:
1. We had a 3% increase in GDP in 2007 and 2% in 2008 vs -8% in 1930 (and worse in the years following)
2. We are a white collar society.
3. The government is willing to spend its way out of this mess.
4. Media coverage has significantly increased since 1930 proving much more information

What does this mean? Well, the story goes like this.

The housing bubble broke from 2 things…creditor default and lending mal-practice. However, this did not affect the output of America as seen in the GDP increase for 2007 and 2008. The reason? In 1930, we were mainly an industrious, blue-collar country that had a wage determined completely with supply and demand. Unemployment was at 3.2% (not the bogus unemployment number we get now that does not account for people out of work for more than a year), and workers’ salaries were strictly governed by supply and demand until 1938 with the Fair Labor Standards Act. Therefore, most people were paid just enough to live plus a little and that extra little was stuck into the bank. After interest rates declined and with the negative GDP, cash in hand was completely necessary for people to purchase goods and savings were cleaned out.

Now if we compare that to the white collar society, most of these people invest in equities, corporate bonds, treasuries, options & derivatives, etc. There’s a wide array of avenues that people can diversify and not be pidgeon-holed by currency and interest rates. Also, the growth of the world economy has significantly improved the stature of our economic environment and the pricing of goods even in severely recession-like economies.

Furthermore, 28% of US citizens have college degrees, 85% have high school degrees and most of the “blue collar work” is either outsourced to immigrants or paid at a premium (like construction workers or sanitation engineers). Minimum wage is useless except for one thing…it presents a price floor. Since we live in our white collar world with high paid jobs, a company can’t pay for a bum off the street at minimum wage so they default for the immigrant worker. Thus, the unemployment rates increase and the inefficiencies in the economy loom because the way to get around this floor is to hire illegals thus widening the gap of workers supplied vs demanded (increasing unemployment).

Anyway, with so many Americans out of work but GDP sustained (which basically means these American workers are useless and that America is really this much more efficient), the government is prompted to spend more money. In 1930, the government decided to go with the “New Deal” which re-vamped the way of life for Americans adding more work, life and regulatory standards. This deal promoted our blue collar background at the time. In contrast, the stimulus packages and rescue packages of today are primered at “saving the white collar” solely on the government dollar. However, what the government lacks to understand is that the only decreases to our value in main street and wall street at this time are exchange traded derivatives (down about 35% as of last year) and mortgages (down about 20-25%). We have merely popped the bubbles and “standards” that we were so used to and reverted back to our means. But I digress.

Media has increased the visibility by which we can see these government packages being sent through and enacted. Thus, there is less fear in the public’s eyes that we are doomed to re-live the period of the 1930s. This has surprisingly helped to increase the continued spending by the American public, albeit at decreased prices and volume, but it has kept us growing at a strong rate. (Here’s a riddle…if goods prices and sales volume go down and unemployment goes up yet GDP increases, how does this happen? hint: US$ value…which won’t be for long due to frivolous government spending…)

The conclusion? I guess there really isn’t one. The situation right now is bad and I believe that we have more to drop as far as the wall street, main street, housing and currency goes. But I believe that the innate characteristics of a depression are not there. Our economy is simply made up of too many white-collar workers who don’t do anything of real GDP value (as shown with our GDP growth in the past few years despite an unemployment rate that will soon hit 10%). They trade paper upon paper which inevitably brings little added value to the whole economic growth. I guess it’s about time some people realize that this country’s just built on fluff…

The coming of the new age of the US will be significantly less growth and an increase distributed wealth. If the government was hoping to get re-paid quickly…think again.

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