Had the economy been fundamentally sound in 1929 the effect of the great stock market crash might have been small. Alternatively, the shock to confidence and the lost of spending by those who were caught in the market might soon have worn off. But business in 1929 was not sound; on the contrary it was exceedingly fragile. It was vulnerable to the kind of blow it received from Wall Street. Those who have emphasised this vulnerability are obviously on strong ground. Yet when a greenhouse succumbs to a hailstorm something more than a purely passive role is normally attributed to the storm. One must accord similar significance to the typhoon which blew out of lower Manhattan in October 1929.
As Galbraith also recounted in The Great Crash, “the worst continued to worsen”, a dynamic which was, he said, the “singular feature” of the collapse.
One reason for that being that after the initial ructions of 1929, market watchers were wilfully ignorant of the onset of collapse in the real economy. All eyes stayed on the stock market as the barometer, and refused to see it able to trend lower after such a shocking collapse. “The worst was reasonably recognisable as such.”
Drawing comparisons with the Great Depression is, we realise, getting a little trite, but it is perhaps valuable to keep a finger on the potential for further serious trouble. And in that sense, to look back to lessons of the past. Macroeconomic volatility is very much back on the agenda.
And much like in 1930, there is an unprecedented collapse in manufacturing occurring in the US – and across the world.
The benchmark US ISM manufacturing survey index is at its lowest reading since June 1980. Here’s Norbert Ore, ISM chairman:
New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948.
The below graphs, via Bred Setser, have been compiled by Paul Swartz at the CFR. For the full set click here – there are a host of interesting ones.
(NB, the latest ISM figures show the index at 32.4)
