Friday, May 19, 2006

What to Expect When the Dollar Collapses -- Part One of Two

Just as in 1929, we now live in an economy that is living wildly beyond its means, depending on greater and greater fools to keep bidding up governments', corporations' and citizens' paper wealth. Just as in 1929, everyone is borrowing to buy, either in the hope that they can sell later for a profit (because it is the only way they can hope to increase their net worth), or because it is the only way they can buy at all. And just as in 1929, it is unsustainable, and will lead to a sudden severe reversal followed by a decade (or more, this time) of ever-worsening conditions, except for upper-income (six-figure, this time) earners.

I've just finished reading Pierre Berton's The Great Depression, the definitive history of the 1929-1939 depression. In Part Two of this article tomorrow I'm going to map the behaviours of that era onto the realities of the early 21st century, and tell a story of what life in the next Depression could well be like. Berton's depiction of the last Depression is one of spectacular political blundering and pig-headedness, and a mean-spiritedness that permeates the whole society. So today I want to explore whether (and if so, how) the attitudes of people (elected, management and grassroots) to their fellow humans are significantly different from what they were seventy years ago. The human effect of a Depression is, after all, as much a matter of how we treat each other as the economic variables that conspire to convert seeming affluence to staggering and protracted misery.

In 1929, the class-conscious society that had existed more or less for millennia was still a reality. While slavery was no longer legal, racism was still very common and overt. Notwithstanding the message of the Statue of Liberty, new immigrants were treated suspiciously and as second-class citizens, when they were allowed citizenship at all. Anti-Semitism was rampant (and had been for decades), and hatred and distrust of other religions and cultures was considered quite 'normal' by most citizens. Segregation, at least until a group was assimilated, was the accepted and preferred reality. Women in the US and Canada had only just achieved full suffrage (in Quebec they would not achieve it until 1940). Economic class distinctions were sharp, and there was a general assumption by those in power that the 'lower classes' were lazy and needed to be supervised and bullied to perform. Opposition by management to organized labour was virulent, and the government and police forces had no qualms about putting down civil strife violently. Anti-Communist sentiment was uniformly high, had been for years, and organized religions, mainstream political parties and social organizations all preached the dangers of the 'red menace'. The affluence we attribute to the 'roaring twenties' was that of a minority elite only, but then that had been the norm since the start of the Industrial Revolution. Everyone else was deeply in debt, part of the deliberate process of keeping the middle and lower classes in line. The middle classes were the ones who tried to leverage their debts into wealth through the stock market, and were especially hard hit by its collapse. Economic Disparity between rich and poor was massive, with managers earning comfortable 5-figure incomes while many workers' annual incomes (there was no minimum wage, no unemployment insurance or labour protections) were only in the high 3-figures.

One could argue that most of this is still true today, except that the economic, religious, racial and cultural animosity is mostly tacit rather than overt, and, thanks to automation and other 'productivity' technologies that are taking resources from future generations to meet the needs and wants of people today, the economic prosperity of all social classes in affluent nations, adjusted for purchasing power, is proportionally better, though the disparity is as large as ever.

Culture is all about mastery -- domination, imperialism, control, and restrictions on behaviour. It can be argued that we humans have three masters, fighting for control of us:

Micro-masters: The organisms that make up our bodies and which evolved our minds as a "feature-detection system" for their collective benefit. Stewart and Cohen argue that our brains, and our minds (the processes that our neurons, senses and motility organs carry out collectively) are their (our bodies' organisms') information-processing system, not 'ours'. By the time 'we' have started to think what to do, our micro-masters have generally already made up 'our' minds.
Meta-masters: Our culture and society is constantly attempting to make us like everyone else, to conform to and believe what others believe, for the preservation of law and order of the society. In times of low stress, we tend to obey our micro-masters; as stress increases, these impulses are over-ruled by the rules of our meta-masters, in their perceived collective interest. Edward Hall, in his studies of experiments with rats, found that in periods of high stress, conflict, coercion and social hierarchy soar, as the group sacrifices the welfare of the whole for the survival of the elite. The alphas, with the complicity of the rest, hoard for themselves, so that at least a few can survive the crisis and perpetuate the species. It could be argued that modern civilization is a constant high-stress environment, which is why our human meta-masters now exert so much influence over us, and treat us so badly.
Macro-master: Gaia, the collective organism that is all life on Earth. If you buy the Gaia theory (as most scientists now do), there is a higher level of intelligence at work on our planet, a complex, adaptive, self-managed intelligence that recognizes the inter-dependence of all life on Earth and its ecosystems and therefore the need to balance our numbers and behaviours for the collective well-being of all. We were presumably once attuned to this intelligence and accepting of its wisdom, limiting our numbers and our destruction of other life accordingly. But other than a vague sense of biophilia, judging from our behaviour our awareness of this master has long vanished from human consciousness, or at least been effectively sublimated.
The argument about where 'free will' fits into this, if indeed we have any free will at all, is best left for another day.

So what happens when an economic depression hits? Suddenly the stress level is increased by an order of magnitude, the poor begin to fear for their very survival, and there is no longer any assurance that there is 'enough to go around', so the rich and powerful begin to hoard and to repress the poor and weak to ensure they do not rise up so there is not enough for anyone. Indeed, Berton asserts that the Great Depression could equally be called the Great Repression, so great was the physical, social and cultural clampdown on the masses, and the steadfast refusal to invest tax dollars or incur deficits to relieve the human misery of the time. That refusal, Berton says, was not deliberate cruelty, but rather ideological -- the economists of the time (Keynes was not yet in vogue) believed that government intervention and government spending in economic turndowns would worsen the situation, and the political wisdom was that giving people anything for free would make them lazy and unmotivated to work and lead to communism. It was neocon ideology, and it was ubiquitous among the ruling classes (and the political parties in their thrall) at that time, except for the extraordinary administration of FDR.

In fact, there were at the time three competing ideologies, all of them idealistic, and all espoused, more and more loudly as the crisis worsened, as the solution for the society's ills, by men (women were not taken seriously in politics in those days) who were both arrogant and ambitious -- laissez-faire neoconservatism, communism, and fascism. This toxic combination of qualities -- fanatic idealism, arrogance and ambition -- produced some of the most despotic, extreme and dangerous 'leaders' the world had ever known, swept into power on populist platforms that preyed on the utter desperation and learned helplessness of the people. When moderation seems inadequate and ineffectual to deal with extreme suffering, extremism flourishes.

Could this happen today, or are we more reasoned, better equipped, more suspicious of simplistic idealism and ideology? Is it already happening? Will the collapse of the dollar, precipitated by the staggering incompetence and fanatic, dim-witted ideology of the Bush regime, inevitably bring about the Fourth Turning? Or will our 21st century ingenuity, pragmatism, connectedness, collective wisdom, resilience, lead us to a quick and radical correction of the excesses that produce the coming Depression, and hence a rapid and relatively painless end to it? And is this all complicated by the fact that this time, unlike 1929, we are facing permanent, absolute ends to the critical resources on which our society relies for its existence?

My answers to these questions in Part Two tomorrow.

What to Expect When the Dollar Collapses -- Part Two of Two

Yesterday I contrasted the attitudes of people in 1929 with their attitudes today, on the precipice of another Great Depression. I said that I believe racism, religious hatred and the distrust between economic classes was more pronounced and more overt in affluent nations in 1929 than it is today, and that while economic disparity is just as great, our use of technology and automation to gut future generations' share of resources to meet the needs of today's mass of humanity means that both rich and poor are relatively better off now than they were in 1929.

Here is the picture Pierre Berton, in his exhaustive study The Great Depression, painted of the way the Canadian people, their governments and corporate management behaved in response to the decade-long crisis seventy years ago:

"The historian of the future, when he writes about Canada and the Great Depression, will comment upon the remarkable ineptitude of public men when faced with this emergency. He will write of the obstinate refusal of governments to face realities; of their pitiful and tragic tactics of 'passing the buck'; and of their childish expectation that providence, or some external power, would come to their rescue and save them from the consequences of their refusal to look into the future, forsee events that loomed black in the sky, and take steps to mitigate the fury of the storm. The condemnation will be measured by the extent of the power that was not used and the responsibility that was denied." -- Winnipeg Free Press, 1933
The police (by brutality) and the press (by anti-communist fear-mongering) supported the corporatist establishment in suppressing any popular opposition or demonstration against the established order.
Any idea that the state had any responsibility for the welfare of citizens was anathema -- that was simply not the role of government.
Predictions of unprecedented prosperity were ubiquitous among politicians, economists and business leaders in 1929; throughout the 1930s, despite evidence to the contrary, they consistently insisted the Depression was just a minor adjustment, that it would not last, that worst was over and that the outlook for the next year was positive. The stock market collapse actually occurred in five stages over two months, in between which brokers claimed the 'adjustment' was over and encouraged people to borrow and buy more while prices were 'unnaturally low'.
The government had been spending and lowering taxes, and driving interest rates up.
Throughout the Depression, racism and anti-Semitism were rampant, while contraception and divorce were illegal. The Liberal Prime Minister (in power in 1929 and re-elected in 1935) was a big fan of Mussolini, and the Conservative Prime Minister (in power 1930-35) was a big fan of Hitler until 1939.
When the Depression hit, throwing millions into the streets, the 'problem' perceived by the politicians was not public misery and poverty but rather 'rabble' and 'rabble-rousing' -- their response was to strictly enforce vagrancy laws (which essentially made poverty a crime), villainize 'hobos and transients' jumping rail-cars to seek work, and pass laws making associations "deemed to be advocating violence" (including the Communist party) illegal. Prison populations soared, with many of the prisoners 'political'. Torture of prisoners on the rack was regularly employed to extract confessions and stifle dissent.
The Depression hit the West so hard that farmers had to walk (gas was prohibitively expensive) 20 miles to find brackish water to bring back for drinking and washing (wash-water was saved and recycled), and lived on nothing but stewed rabbit and boiled Russian thistle (the only plant still growing on the Prairies); cows were sold and horses set free due to lack of feed. Most farms had phone service cut off and many had their farms foreclosed and were evicted. Despite this, the government steadfastly refused to intervene, saying it was up to local governments.
Schools closed as money to pay teachers (and for coal for heating) ran out; the teachers tried to keep them going without wages but with no social assistance had to give up and seek other work. Many social service organizations, including the Red Cross, went bankrupt and ceased operating as private donations dried up (they received no government support) and demands on their resources soared.
Unemployment rates soared steadily from 2% in 1929 to about 36% in 1932. At the time, there was in most communities only one doctor per 16,000 people dealing with soaring malnutrition and other Depression illnesses.
As the Depression deepened, xenophobia set in and thousands of foreigners new to the country were deported at the sole discretion of officials.
In response to the rising civil unrest, the unemployed were sent to remote slave work camps run by the army, where they were paid 20 cents per day. If they tried to leave they were arrested as vagrants. Contingency plans were made to use the military to suppress riots. Surprisingly, few riots occurred and many of them were provoked by ideological government officials or overzealous police.
Marriage and birth rates both plummeted by 25%.
Fascist parties were legal and protected by the police. As early as 1933 the Swastika was seen at public events, public singing of anti-Semitic songs could be heard, and nationalist groups advocating abolition of local governments and a one-party national government were drawing large crowds.
Although socialist parties sprang up, especially in the hard-hit West, they achieved limited popularity. The people, brainwashed that socialism was just communism lite, instead preferred right-wing autocrats with populist or law and order platforms, electing governments that were essentially fascist in both Alberta and Quebec which stifled the press, effectively nationalized the banks, and seized property of 'suspected communists' (including, conveniently, many Jews).
Business executives did very well during the Depression, as costs plummeted. Labourers who were paid 50 cents an hour in 1929 were now working 80 hour weeks in sweatshops for 5 cents an hour. Complaints about hours, wages or working conditions resulted in firing and blacklisting (corporations shared lists of names of 'uncooperative' workers). Big retailers exploited the situation to squeeze manufacturers that did not employ such tactics. Meanwhile the salaries of executives did not change at all.
In rural areas, with clothing too expensive, most children wore cloth grain and flour sacks for clothing, and, if their schools were still open, often took turns going to school and sharing clothing.
The situation in cities was only marginally better. When a Windsor steno-bookkeeper's employer folded in 1934 and she went to Hamilton seeking work, she wrote to the Prime Minister: "My clothing had become very shabby. Many prospective employers just glanced at my attire and shook their heads. I cut down my food and a poor but respectable room at $1/week. First I ate three very light meals per day, then two and then one. During the past two weeks I have eaten only toast and drunk a cup of tea every second day. As a result of this deprivation I am so very nervous and through this very nervousness I was ruled out of a class [of job applicants] yesterday. Today at an examination I was told 'you are so awfully shabby I could never have you in my office'. That almost broke my heart. I know no one here and the loneliness is hard to bear, but, oh, sir, the thought of starvation is driving me mad! The stamp that carries this letter will represent the last three cents I have in the world yet before I will stoop down to dishonour my family, my character or my God, I will drown myself in the Lake." Prime Minister Bennett apparently did not bother to reply.
By 1935 the situation was so desperate that a large group of unemployed Western Canadian men decided to make the trek to the capital, Ottawa, to try to meet with Bennett personally. The picture above shows how they made the trek, helped by citizens and low-level railway workers in the towns they passed through. The railway was blockaded by government order in Regina, and a rally to decide on next action was brutally disrupted by the RCMP, using truncheons and tear gas, leading to what was called the Regina Riot.
By this time a massive migration of Western farmers North from the drought- and locust-stricken areas was underway. Farms were left unlocked to allow other farmers to use them overnight on their journey.
By 1937, when a second stock market crash occurred, a pro-fascist government had been elected in Ontario, supported by the Toronto Globe & Mail which asserted that "most communists are Jews". It failed to bring about a one-party provincial government "united against communism" (two years later the Globe would launch a fascist Leadership League, calling for the abolition of provincial governments and creation of a one-party national government -- it's growth would be interrupted by the start of WW2).
1937 was the eighth consecutive year of Western drought, and the year of the "black blizzards" when what was left of the soil was whipped up and carried away by a long cycle of gales, and much of the remaining machinery was rendered useless by sandstorms.
By 1938, the government was finally realizing that their inaction was prolonging the Depression. The slave camps had been replaced by equally repressive farm camps, leading to a sit-in in Vancouver by half-starved farm camp workers, isolated from families and all contact with women. It was brutally put down, resulting in what is now called Bloody Sunday.
Also in 1938, Toronto's largest theatre, Massey Hall, hosted a hugely-popular national convention of fascist organizations, guarded by a massive police presence.
On September 8, 1939, the Canadian government entered WW2, and immediately created millions of jobs in the war effort. The pay for soldiers was six and a half times what the same men were paid a year earlier in the farm camps. Munitions factories paid twenty times as much to labourers as nearby sweatshops. The grim irony -- that it had taken a world war to make the government realize that it could 'spend its way' out of the Depression by creating employment on public works projects (as FDR had done in the US) -- was completely lost on the governments and media of the day.
The authors of The Fourth Turning expect that the next fourth turning -- the next cycle of stark authoritarianism -- to begin between 2010 and 2020, about eighty to ninety years after the last. The economic fragility of massive US debt and trade deficits, the End of Oil, ideological wars and terrorism, threats of pandemics and the spectre of eco-collapse precipitated by global warming all add fuel to their argument that the fourth turning is imminent, as such turnings are generally sparked by a crisis. We certainly have plenty of candidates to choose from for such a crisis.

So suppose we map the behaviours and events of 1929-39 on the situation we find ourselves in at the dawn of the 21st century. How might we expect people, governments and corporate management to behave if the crash of the dollar brings about another Great Depression? Will our 21st century ingenuity, pragmatism, connectedness, collective wisdom, resilience, and more tolerant, democratic outlook lead us to a quick and radical correction of the excesses that produce the coming Depression, a rapid and relatively painless end to it, and a more humane response to the suffering it does produce? And is this all complicated by the fact that this time, unlike 1929, we are facing permanent, absolute ends to the critical resources on which our society relies for its existence? Here are my guesses on these questions:

I think Europe, and Canada if it ousts its ideological neocon minority government, will have both the will and financial room to invest heavily in public infrastructure projects, and hence keep enough money and work flowing to the vast majority of citizens to minimize the misery of the Depression. I am much less optimistic about the willingness of the US and UK to do this, and about the ability of the US to do so when it has already bankrupted its treasury, so I believe the poor and middle class in those countries are likely to suffer much more, and for longer. Canada unfortunately has allowed its economy to become utterly dependent on US and Asian purchases of our raw materials, and hence is likely to face a much more severe economic Depression than Euro-currency countries.
Middle Eastern and Asian economies that currently depend on US purchases and the strength of the US dollar will fare worst of all, as they have nothing at all to fall back on, and many of them are already living in ecological disaster zones comparable to the Dust Bowls of the West in the 1930s. I think it would be unrealistic to expect anything less than violent uprisings, equally violent repression of the masses, fascist totalitarianism and the extreme suffering that we have historically seen in struggling nations that have no mechanisms to cope with economic collapse: civil war, attacks on neighbouring states conveniently blamed for the disaster (this time with nuclear weapons), genocide, famine, and cannibalism. These will spill over into other countries taking sides with the combatants and lead to global repression, militarism, and authoritarianism, exactly as the Fourth Turning predicts.
Corporatists have already shown their stripes during the current boom: They are unlikely to do anything that will further worsen the situation of their 'shareholders' (i.e. controlling shareholders and senior management) beyond the collapse in share values, and will lay off workers and write off pension plans and other bankrupt employee benefit funds without a second thought. Just as they did in Argentina, they will liquidate and pocket what they can, chain the doors, and walk away from all responsibilities to others. People without the ability to make a living for themselves will therefore be as badly off as the 'transients' of the 1930s -- at the mercy of opportunistic employers, reduced to virtual slavery.
With stock and real estate values plummeting, and (as interest rates spike) bond markets doing almost as badly, most people, especially those with their money tied up in US dollar denominated investments, will see their net worth wiped out. Those with debts will see them called by financial institutions and will probably become bankrupt, forced to cede any assets they have. However, those who can continue to pay mortgage debts at least for the first part of the Depression will probably keep their homes, as banks realize they cannot get blood from a stone, and that it's better to have people looking after these assets even if they are not paying mortgage debts, than evicting them and leaving them to squatters. Only those who default on mortgages early in the Depression should expect to get foreclosed and evicted.
The US New Deal experiment of FDR, loathed as it is by neocons, will be the model for the next Depression in all affluent nations that can afford it (ironically, the US will not be able to afford it). It will be embraced relatively quickly (probably two years into the Depression) because of the broad global consensus that it worked last time. So I think much of the inhumanity that was exhibited even in affluent nations during the last Depression can be avoided this time around; I also believe that on the whole we have become more tolerant of others in the last 70 years.
I am very concerned that, just as phone lines for most citizens were cut off for non-payment in the last Depression, the Internet, with its social networking, sharing, open source developments and collective organizing capabilities, will be rendered largely inaccessible by its sheer unaffordability when the US currency becomes essentially worthless. The infrastructure supporting the Internet is hugely complex and expensive to maintain, and in most countries privately owned, so if no one can afford to pay for it, it will simply cease to operate. And with gasoline becoming, as in the 1930s, prohibitively expensive, the situation in the suburbs will be dire indeed, as most social activity will revert to face-to-face, enabled by bicycles, roller blades and shoe leather.
Hard-copy media will have a resurgence, and we will find ways to keep radio and television media operating. Local, community-based media that are not IP-dependent will explode in importance, and centralized national media will stumble -- as faraway governments show themselves impotent to deal with local crises (remember FEMA and New Orleans), all attention will be focused on media that communicate local relief, organization and facilitation efforts.
While it would be easy to look at the response to the New Orleans disaster and despair, the difference we will have in the Depression is that it will occur much more gradually, allowing a lot of peer-to-peer activity to occur, as we realize we cannot rely on government. I am optimistic that our learned helplessness and distrust of neighbours will gradually give way to an awareness that there is a lot we can do together to make the Depression less cruel. This collective energy was evident in the recent economic collapse in Argentina, and I think we will emulate it.
And also on a positive note, while I think entrepreneurial skills are in terribly short supply, I think we will learn how to be entrepreneurial by looking at entrepreneurs as local role models, and establish local enterprises to produce and share food, water, energy, and other essentials collectively. In the process, many of us who are currently 'helpless' because we cannot, without money from an employer, provide for ourselves, will learn essential survival skills that will put us in good stead to deal with the End of Oil, disease pandemics, and disasters precipitated by global warming.
I have no sense of what kind of economy we will build to replace the one that the coming Depression will shatter. I would like to believe it will be more local, using local currency, a Gift Economy with essentials provided at little or no cost and surpluses distributed through disintermediated networks, and highly resilient. But the existing oligopolistic quasi-market economy is so well established as the 'only economy that works' I think it is just as likely we will try to rebuild that failed model. Likewise, it is hard to say whether national governments will emerge stronger (if they have successfully invested in infrastructure for the benefit of most citizens) or weaker (if they cling to laissez-faire ideology and actually make the situation worse by bungling and/or neglect).
Another issue I am undecided upon is the degree to which the majority have a proclivity to cede authority and responsibility to 'leaders' in a time of crisis. History suggests that in crisis we are much better working collectively and locally, but it also suggests that we also tend to look for heroic leaders, grant them enormous control over our lives and expect surprisingly little in return. We don't need to look far to see that that is still the case. I mentioned yesterday the idea of culture as our meta-master, the one we turn to especially in time of great stress. Is it just human nature to defer to authority in bad times, even when it is not in our best interest to do so? Or have we just been so brainwashed by our culture that we lack the self-confidence to take matters into our own hands?
I welcome your comments on any of these questions and forecasts. We may never be ready for such crises (it is our human nature to be reactive, and not to do anything until we have no choice), but at least we can know what to expect. And our response to an economic crash may help us cope better with the additional crises that almost inevitably await our children and grandchildren as this century progresses.
© Copyright 2006 Dave Pollard.