How is the current economic crisis comparable to the stock market crash of 1929 and the ensuing Great Depression?

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hi1954 eNotes educator| Certified Educator

Deflation, inflation and mass unemployment, with all the attendant social dislocation, and the whole thing spreading from country to country and affecting the entire world-  yeah, it sure looks familiar.  There are a great many similarities, most notably the general philosophy which led to these two crises.

An unbridled capitalist philosophy centered on the ideas that profit is the most important thing and that any business practice that makes money is okay is what has led us into the current problem.  Overinflated corporate stock values, bank and stock fraud, protectionist legislation aimed at protecting specific companies rather than industries as a whole, and the whole "get-rich-at-any-cost" mentality were and are the problems.  The lack of scruples by government and business (including the massive war profiteering by American and multi-national corporations) simply encourages irresponsible behavior by companies large and small, and by individuals who would ordinarily work and save instead of invest in the stock market.  The idea that stocks are not gambles is untrue.  The "playing" of the futures market by large financial companies drives up prices.  The same methods criminals use to launder illegal money are the same used by many of the world's wealthy to hide their income from the tax authorities, resulting in capital flight, shell companies, inflated prices paid for worthless companies, kickbacks, and all the scams developed over the last hundred years.  All these things lead to deflation, inflation and mass unemployment.  These were the problems of the Great Depression, and they're just worse now.

Will this turn out to be as bad or worse than the Depression?  Maybe not, the financial systems of many countries are better equipped to handle these stresses today.  In some respects the modern world economy is stronger, through banking regulations and the interconnectedness of national economies.  On the other hand, the world's economy is still led largely by America, and ours is not as able to stand the strain it once was.  What eventually pulled us out of the Great Depression was the industrial capability of the US, and that industrial capability largely no longer exists.  The jobs upon which American workers depend have gone overseas.  What manufacturing jobs remain here are ineptly run, like the auto industry.  Information and financial jobs simply won't take up the slack of employing the mass of Americans.

The US government has mostly tried to repair problems with the credit system.  This will not fix the economy.  We may prop up the financial institutions enought to get people even deeper in debt, but without jobs to pay those debts back Americans will still be in economic trouble, and without the American economy being fixed the world's economy will not be fixed, either.

There are differences between now and 1929, and some of them are in our favor.  But if the debt crisis of American citizens is not dealt with, nothing else is going to work.  Even if the world economy settles down and things get "back to normal," the global debt crisis of every country on earth being in massive debt to international banks will cripple the world's economy in the near future without major changes in the way things are run.  Capital flight and all the attendant illegal (and borderline legal but dishonest) banking and business practices have to be somehow brought under control.