It’s now almost convential wisdom that the media, especialy the new media and cable television channels, are contributing to our financial crisis and perhaps making our recession worse. Some folks have even called for reporters to be more responsible by balancing the bad news with the good. But our experiences in the Great Depression indicate that this risk is probably overstated. In fact, it’s far more dangerous for the media to remain too positive, too reassuring while the economy slips over the edge of the abyss.
Michael Powell takes some time this morning to remember John Kenneth Galbraith’s “The Great Crash, 1929.” We’ll leave aside the controversial economics and concentrate instead on the sociology, which is instructive.
Continuously in print, the well-respected if sometimes controversial history dealt with the consequences of high interest rates and lack of regulation, foolish adherence to gold standards and a maldistribution of income akin to today’s.
But the book is perhaps most intriguing for its depiction of the delusion that swept the culture, and the ways financiers and bankers, wishful academics and supine regulators wilfully ignored reality and in the process encouraged the epic collapse of the stock market.
No dreadful year is the same as another, particularly when that year is an epochal disaster. But similarities can be discerned and parallels drawn between the culture of that time and the modern day, when bubble followed bubble even as champions of the market insisted that all was fine…
What was foolish in the human condition never failed to amuse Mr. Galbraith, and tends to echo today, for example when he pokes at the financial experts and Fed bankers whose soft purrings about the “fundamental soundness” of the economy encouraged Americans toward the 1929 precipice:
“In the autumn of 1929, the mightiest of Americans were, for a brief time, revealed as human beings. Like most humans, most of the time, they did some very foolish things. On the whole, the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed.”
The academic urge to unearth new paradigms and forecast bounteous levels of stock wealth seems eternal. In 1999, a year before the tech bubble popped, two authors offered “Dow 36,000,” a book that forecast that the stock market could triple within five years. That did not happen.
…And in November 1929, the Harvard Economic Society offered this serene forecast: “A severe depression is outside the range of probability. We are not facing protracted liquidation.”
This view, Mr. Galbraith noted, “the Society reiterated until it was liquidated.”
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