No, The Coming Recession Won’t Be As Bad As The Depression
Five Reasons This Time Is Different
History books are filled with the humanitarian crisis that unfolded following the 1929 crash. From shanty towns to the dust bowl, the era defined a generation and showed the horrors that can result when fiscal, monetary, and questionable business tactics collide.
Here we are again, almost a century later, and like everything in the modern world; it’s happening at an accelerated rate. From the 2020 pandemic to the stimulus boom of 2021, and now the economic slowdown of 2022. Despite all the negative media, persistently high inflation, and an enumerable list of reasons why things are bad; the probability of events that transpired during the depths of the depression unfolding today is close to zero.
Here are five reasons why the next recession won’t be as bad as the Great Depression:
- Infrastructure — While the New Deal’s response may be debated, what’s not debatable are the remarkable projects completed and their downstream benefits.
These include engineering marvels such as the Hoover Dam, the Bay Bridge, the Lincoln Tunnel and so much more many of us use daily. Flash forward to post WWII, and we added to this infrastructure portfolio with the interstate highway system, public utilities (gas, electric, sewer, water, etc.), and expanded our ports for the global economy.
Our constant investment in infrastructure since 1929 has created a world previous generations could never have dreamed of. These tangible assets, which continue to function even in an economic slowdown, will dampen the negative affects by enabling commerce, logistics, and human talent to aggregate more seamlessly than ever before.
2. Technology — Since WWII, scientists and engineers have created the most revolutionary inventions in human history.
From jet engines to microprocessors, these advancements, much like our infrastructure, do not simply evaporate the moment we fall on hard times. Human ingenuity solved these problems and now we have them as added tools at our disposal during economic slowdowns.
A prime example of this occurred during the pandemic when many transitioned to remote working. An otherwise impossible solution if an event like that had unfolded in prior times. Furthermore, we’ve developed a hive-mind society with the onset of the internet, Google, telecommunications, and social media. We are now able to rapidly iterate, scale, and disseminate everything from information to goods and services at a moment’s notice for a fraction of the cost.
3. Standard of Living — Healthcare as we know it today, was almost non-existent during the depression regardless of your socioeconomic status.
Furthermore, the negative health effects from smoking, working conditions (coal mines, etc.), and leaded gasoline were still unknown leading to an average life expectancy of 60 years old. This is simply no longer the case. We have an antibiotic portfolio to treat and cure diseases like something out of a science fiction movie.
We’ve effectively cured polio among others through the widespread accessibility of vaccines. We can even transplant organs, and provide prosthetic limbs to keep people alive and active for decades longer than previously thought humanly possible. All of this empowers our workforce to stay healthy and productive, contributing to the eventual economic comeback.
4. Wealth — The middle class, while shrinking, was a fraction of the size it is today during the Depression.
Our explosion in the middle class is not just a catchy political campaign slogan, our economy is comprised of 70% consumer spending. Yes, there are billionaires, but there are also millions of 401k, pension, and real estate millionaires that simply were not at the scale they are today.
After all, Social Security was created because there wasn’t an efficient mechanism for the average joe to financially plan. Fast forward to today, and the ubiquity of retirement accounts, ETFs, and mobile phones have enabled anyone with an internet connection in the world to financially plan with the click of a button.
All this wealth locked away will surely take a hit but it will not go to zero. At the end of the day, there are underlying cash-flowing assets that have and will continue to produce valuable goods and services for our economy. This is an important distinction many may have forgotten in capital allocation but will soon be remembered.
5. Economic Sectors — The primary modes of economic output for most of human history have been comprised of four sectors: agriculture, manufacturing, construction, and war.
The Depression was no exception however, the first three aforementioned sectors were impaired in one way or another. While these industries certainly make up a major component to this day, each one is more diverse than it was before. To top it off, we have the emergence of new sectors such as telecommunications, healthcare, crypto, travel/hospitality, energy, utilities and so many more that produce a higher base effect in terms of how low employment can go before everyday functions stop working.
This diverse economic base creates a safety net for the impending and any future economic slowdowns for unemployment levels to stall and begin to rebound.
Conclusion: So yes, the central banks, massive global debt, and failing fiat reserve currencies are concerning problems; however, we are better prepared now than during the depression and a slowdown cannot erase nearly 100 years of human ingenuity. While there will certainly be pain and financial hardship, the countless posts calling for the end I feel are simply out of touch with reality. Barring a black swan event of some kind (asteroid, nuclear, etc.), humans will do what we always do and adapt; only this time, we have much better tools at our disposal to overcome.
Wit beyond measure is man’s greatest treasure.