1929: from boom bust: the lessons of the great depression are helping the nation deal with the current recession--and avoid another economic calamity.

• Author: Berger, Joseph
• Position: TIMES PAST

The recession gripping the nation today has made life hard for many Americans, with an unemployment rate of more than 9 percent, millions of people losing their homes due to foreclosure, and the auto and banking industries trying to recover with the help of an $800 billion bailout by the federal government.

As bad as the economy is, however, it doesn't begin to compare with the misery of the Great Depression, at least not so far.

At the height of the Depression, which began after the stock market crashed in October 1929--80 years ago next month-unemployment topped 25 percent. More than 9,000 banks failed, wiping out the life savings of millions of Americans. Tens of thousands of farms and other businesses went bankrupt.

Beyond the grim statistics was the untold number of people who lost their dignity waiting on breadlines, clawing through garbage for scraps of food, selling apples on street corners, or living in makeshift shacks, as the nation sank into a decade of profound despair.

But out of that suffering came a sea change in the philosophy of the federal government. Washington's role in the economy--and in the daily lives of all Americans, in good times and bad--increased exponentially, with a host of social and economic programs that are still in place today, and helping to blunt the effects of the Great Recession in 2009.

What made the Depression such an exquisite insult was that it came after a prolonged period of prosperity. Recoiling after the slaughter of World War I, Americans moved into the Roaring Twenties with a devil-may-care indulgence fueled by the promise of new technologies like the. automobile and radio and by a firm--and, it turned out, naive--belief in the stock market as a perpetual wealth-generating machine.

THE STOCK MARKET CRASH

America's leaders reassured them that prosperity would last indefinitely, with Herbert Hoover telling the nation just before he was elected President in 1928 that unemployment was disappearing and that the United States was "nearer to the final triumph over poverty than ever before."

He made that remark about a year before the stock market crashed on October 28th and 29th of 1929, now known as Black Monday and Black Tuesday. Millions of middle-class investors were wiped out, many of whom had been buying stocks on margin--with borrowed money--in companies that were worth far less than their inflated share prices made them seem.

For several years before the market collapse, there were warning signs of economic trouble. As Europe recovered from World War I, it no longer needed to import as much American food, so U.S. farms--which employed 21 percent of the nation's workforce, compared with 2 percent today--began to suffer huge losses as demand for their products fell and prices plunged.

When farmers couldn't pay back their loans, banks began to collapse or just stopped making loans--the lifeblood of their business. Nervous depositors began lining up to withdraw their money, and these "bank runs" contributed to an epidemic of bank failures in the early 1930s (see chart).

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It soon became a dizzying, self-sustaining downward spiral, as businesses devastated by the Wall Street crash were unable to borrow money from troubled banks and began laying off workers. As more Americans lost their jobs, they spent less and less, which led to more failed businesses and layoffs.

For those who lived through the Depression--when "Brother, Can You Spare a Dime?" became a national anthem of sorts--memories of grim times are indelible.

Sy Shulman, 83, recalls his mother throwing coins wrapped in newspaper down from the window of their apartment in Brooklyn, N.Y., to a man going building to building and playing the violin...