The Great Depression: I Had No Idea

I’m not an economist, and I haven’t made an in-depth study of the Great Depression, but I’ve read a few books and plenty of other materials about it, plus I’ve heard stories from my parents. As I understood it, a bubble in the stock market burst, which led to a business recession that somehow became worse, either because of bad decisions (if you believe the right) or because it was just in the nature of capitalism for that to happen (if you believe the left). Since we had a stock market crash in 1987 that didn’t lead to another Great Depression, that tends to suggest the right is correct about the matter. Anyway, when I think of the Great Depression, I think of the stock market crash, of bank failures, and of large numbers of people who were unemployed.

But one thing I never heard about the Great Depression was that levels of debt had been rising to unprecedented levels. This essay begins with a chart showing debt levels in the U.S. going back to 1870, and a striking feature of this chart is that there have been two periods of high debt, the Great Depression and our own era. It never occurred to me that the high levels of indebtedness in the years leading up to this recession were becoming dangerous. It was perhaps ten years ago that we heard about a woman who had just finished grad school with $100,000 in student loans. It was hard to believe that anyone could ever pay off such a debt, and of course recently I’ve heard of people with much higher amounts. Then there are the people who have huge amounts of credit-card debt, plus the people who ended up with underwater mortgages.

In the years before things went sour, we would drive around the neighborhood where I grew up and marvel at the prices of homes for sale. My parents sold their home for $80,000 in 1993, but by 2006 it was worth nearly a quarter of a million. It was hard to believe. (And see what Peg Kaplan says about this situation here.)

I remember being uneasy at all this debt, but not particularly worried. It never occurred to me that we were on the brink of a huge recession, just because I had never associated the Great Depression with debt. If I had known, I would have spoken out about it. It almost certainly wouldn’t have done any good, but I would have felt better. We ourselves were not affected because we in fact were getting out of debt about the time that the downturn began. But obviously other people feel crushed by their levels of debt.

Incidentally, the first link also mentions an essay on government debt by one of my favorite philosophers, David Hume. Again, I have to say that I had no idea (that he had written such an essay).