Lifestyle changes post modern day 1929-style market crash?

January 8, 2008 10:16 AM

If the stock market were to completely crash this year, how would the effects differ from 1929?

I am not saying I think there will be one - or not. I am also not saying circumstances leading to it would be the same, or that there aren't different safeguards today versus 1929.

But if there were, how would daily life be affected for the years afterward?

posted by raikkohamilonso to society & culture (15 comments total)

One big difference would be that bank runs wouldn't be as big of a problem in the US. During the early years of the Great Depression, depositors would pull all of their money out of a bank at the same time, resulting in the collapse of the bank, and anyone who did not get their funds out in time would lose all of the money that the bank owed them. This is why a lot of people who lived through that time did not trust banks, even decades later.

Mostly due to the Great Depression, precautions have been put in place to prevent something like that from happening again. The vast majority of bank deposits are insured by the federal government up to $100,000. The Federal Reserve was created to ensure that banks can borrow funds in times of crisis. Also, new standards were put in place to prevent banks from lending out too much of the funds that have been deposited.
posted by burnmp3s at 10:31 AM on January 8

There are a lot more people nowadays and the majority of us get our food at supermarkets, so if those closed down it would be tough to get food. Cars would sit idle as we could not afford gas and the infrastructure to deliver the gas would have crumbled. The internet would be unavailable as the service providers would be down. Suburbia would probably be in the worst shape as they are kind of stuck in limbo between the city where help might be handed out more readily and the country where people can grow their own food and exist on their own. It's an interesting scenario, I would have to think that there would eventually be a mass exodus from the cities to rural countryside and the very wealthy would just move to Europe.
Of course this is just a complete guess and it would probably go differently.
posted by pwally at 10:32 AM on January 8

pwally, that sounds more like a total economic collapse. That's not necessarily the outcome of a stock market crash.
posted by Chrysostom at 10:41 AM on January 8 [1 favorite]

are you interested to know in the specific effects of a great crash in share prices or the overall financial circumstances that might be associated with that ?
one thing you can be almost certain of: such a crash would effectively accelerate the transfer of wealth mechanism already feverishly at work...
posted by dougiedd at 10:47 AM on January 8

Of course, today, far more people also have their money in investment products that don't carry any Federal insurance. I'd suspect this would not bode well in the event of a complete market crash.
posted by Thorzdad at 10:52 AM on January 8

Yeah Chrysostom but since our stock market is what drives our economy I would think if it collapsed so would the other... no?
posted by pwally at 10:56 AM on January 8

Go back and look at what happened following the 1987 crash and the collapse of the dot-coms in 2000-2001. In other words, impact on daily life is pretty minimal with the safeguards in place. Moreover, the market is significantly more globalized than in 1987, for example. The risk is spread around significantly. For the U.S. to suffer a 1930s collapse, the entire world would have to suffer a 1930s collapse at the same time. And that changes the nature of the question considerably.
posted by Cool Papa Bell at 10:56 AM on January 8

we've got a LOT more fixed capital goods -- washing machines, cars, etc -- ie. wealth now, so this will buffer a lot of economic damage. Life is a lot easier now than it was in the 1930s, and ebay will be a quite interesting conduit to redirect this wealth around the economy.

I disagree that a recessionary downturn won't have significant impact; I remember what life was like during the "Double Dip" recession of the early 1980s.

A fact to consider is that a substantial portion of our GDP, increasingly so since the mid-90s, has shifted to the funky tertiary sector of salespeople, white collar paper-pushing functionaries, and call center workers.

The central question is what's going to happen to the national income, how is "Joe Sixpack" going to be able to put food on his family. Manufacturing has been in terminal decline since the 1960s, but a weakening dollar is showing signs of reducing this decline somewhat.

Millions of workers have, directly and indirectly through pension plans etc, trillions of dollars of what they have considered "savings" in both the real estate and equity markets. These are, in fact, not savings but investments, and the difference between the two is that (at least with the FDIC) you can lose investment principal but not savings principal.

There's a lot of nastiness out there that we sidestepped with the face Bush economy 2003-2006. Real Estate speculation pumped FOUR TRILLION dollars of money into the economy 2002-2006, but not much capital formation, just risky investments. When we don't have anything to show for this debt load, other than square miles of "see through" subdivisions ready to be bulldozed, the capital destruction is going to be another drag on positivity.

I am not sanguine. I feel like the Sarah Connor scene at the very end of the first Terminator, looking at the storm clouds ahead.
posted by panamax at 2:13 PM on January 8 [1 favorite]

"face" economy above = farce/fake, take your pick.
posted by panamax at 2:14 PM on January 8 [1 favorite]

A lot of city-dwellers still had family on a farm in the 1930s. I remember hearing that this provided a safety net for some — they might not have a paying job, but they could still eat and find useful work back home. A lot fewer people have that option today.
posted by nebulawindphone at 2:43 PM on January 8

Libraries would become popular again.

Container farming would pick up in the cities. Expect a lot of tomatoes.

You may see a return to rail travel as air travel and gas become too expensive.

Don't expect too much problems with the internet, the backbone is not maintained by ISPs.
posted by Kioki-Silver at 4:17 PM on January 8

there'd be a lot of tomatoes? is that code for something?
seriously, i think no one can quite figure out what you asked. were you asking what would happen if we had a huge stock market crash or what happened if our ecomomy went into depression, actually retracting? These aren't the same things.
posted by alkupe at 7:27 PM on January 8

alkupe -- I'd argue that the lost paper wealth a la the 1929 crash would/will bum a lot of people out, and also decapitalize a lot of presently important economic actors.

Merrill Lynch says the AMEX + NASDAQ + NYSE was capitalized at $20T at the end of 2006 [1]. The market crashed ~40% in 1929, in 2006 terms that's 8 TRILLION of global paper wealth GONE. Add that to the FOUR TRILLION in speculative real estate borrowing 2002-2006 (of which AT LEAST 10% and perhaps 30% will be also unrecoverable, ie GONE), the NINE TRILLION dollar national debt that is being rolled over every month, and we're looking at some deadly serious macro-economic headwinds here.
posted by panamax at 8:32 PM on January 8

Galbraith's history of the 1929 crash is worth reading for some perspective on this.

My conclusion from reading it was that if you could take the major players in todays economy, and send them back in time to handle the 1929 crash, they could mitigate most of its broader economic effects. However, it's worth noting that the US is now constitutively a debtor nation, whereas I understand that back then, it was a creditor nation, even though personal debt played a huge role in the crash itself. I suspect the contemporary national debt would make the recovery much harder.
posted by Coventry at 8:48 PM on January 8

yeah, 80 years ago the middle class wasn't in debt up to its eyeballs, and actually had some money in the bank, or so they thought.
posted by panamax at 11:59 PM on January 8