Recent economic woes prompt recollections of Depression

November 02, 2008 11:33 pm

— By Wally Kennedy
wkennedy@joplinglobe.com
The numbers are sobering.
In 1933, the nation was on a steep slide into the Great Depression. Unemployment had reached 25 percent, meaning one in four Americans were looking for jobs.
Before it was over, roughly 9,000 banks across the nation would shut their doors. The Dow Jones industrial average would lose 89 percent of its value. Credit would be impossible to get. Hundreds of factories were closed. Homes and farms were lost to foreclosure.
Some of the similarities between the Great Depression and the financial meltdown of 2008 are eerie. While most economists downplay the likelihood of another depression because of the banking safeguards that are in place, others are not so certain.
Federal legislators certainly believed that another Great Depression was possible when they recently argued for passage of the $700 billion bailout of Wall Street. They claimed that much taxpayer money was needed to push back the threat of another depression.
‘Dirt-poor’
Whatever happens in the months ahead, Terry James, of Webb City, and Olen Reding, of Joplin, hope they never experience a time like that again. Both were young when the Great Depression unfolded.
James, who was born in 1930, said: “The main thing I remember was that everybody was dirt-poor. We had absolutely nothing. There were five of us kids. We lived with my grandparents until I was 9 or 10 years old. My parents lived there, too. They were out of work, too.”
James said his grandfather was a dairy farmer who managed to maintain a source of income for the family.
“We had one cow in Carterville, a Jersey that we called the ‘pet’ cow that we pastured with the rest of the herd,” he said. “It was the cow that provided milk for the kids.
“I didn’t go to work for money until I was 11. I was the junior janitor at Webb City Junior High School. My Boy Scout master, Bob Joe Baker Sr., got me the job. I was paid $11 a month.”
James worked before classes and cleaned up the lunchroom. During his lunch break, he would work the lunch and candy counter at a small supermarket next to the school.
“After I worked the counter, I would get either two coneys or a hamburger for my lunch,” he said. “I would grab those and go back to the school, and eat those while I cleaned up the lunchroom. I saved as much of my money as I could.”
There was a reason why James was working so hard at such a young age.
“I hate to say this, but I had an alcoholic and absentee father for much of my young life,” he said. “I brought home the money to my mother, Madge T. James. They (school district officials) named the kindergarten center here after her.”
At the time, James said, he did not understand the pressure that his father was under.
“I have three children,” he said. “I know how important it was for me to provide for my children. When you are the breadwinner for your family and you can’t bring home money for your family, you try to escape how bad things are in your life. I have come to realize that, now.”
‘In the same boat’
Reding, 89, has a long connection to the area. His grandfather and great-grandfather constructed the mill that once stood along Shoal Creek at Redings Mill. The mill was destroyed by fire in 1936.
“Everybody was in the same boat then,” he said. “They lived the best they could. My dad worked at the Union Oyster Co. seven days a week, 12 hours a day, for $1 a day, and he was glad to get it.
“We didn’t have any money. Back then, neighbor helped neighbor.”
The company, which sold fish, oysters and fine cheeses, was at 514 S. Joplin Ave.
“I remember that there were a lot of bums,” Reding said. “They walked up and down the alleys. If you gave them some coffee or some food, they would put a mark on your garage so that other bums would come there. People would share even though they did not have a lot to share.
“Most were single men, trying to find work somewhere. They had no money, no nothing. They were sort of like the street people we have today.”
The food stores that exist today did not exist then.
“The food was homegrown on farms around here,” Reding said. “We had relatives down by Neosho who lived on a farm. They would give us fresh vegetables. When we had vegetables, we would take some to them. It was neighbors looking after neighbors, which is something we don’t have today.”
Reding’s family lost money in a bank that failed. In March 1933, four of Joplin’s banks closed for a 10-day “holiday” to regroup.
“I remember we were trying to buy a home, but we couldn’t pay anything more on it,” Reding said. “The bank told us to pay on it when we could. They said they were not in the real-estate business. They did that so we could stay in our home.”
His family ran Cunningham Park for eight years. Reding taught people to swim and worked as a lifeguard. He did not get paid.
“We got one pair of shoes a year,” he said. “So we bought sturdy shoes. Fashion did not enter into it much.”
Lessons learned?
Bienvenido Cortez, an economist at Pittsburg (Kan.) State University, said: “The Great Depression was an extreme situation, and there were a lot of factors that contributed to that. What is happening today is not that severe, comparatively.
“We have a lot of safeguards already in place that we learned with the Great Depression. We may have learned those lessons, but we have a short memory at times.”
Cortez said the Great Depression was made worse by inaction on the part of the Federal Reserve. Instead of putting money into the system, it took money out. A tight credit market became even more severe.
“It was a factor that contributed to people hoarding their money, including banks,” he said. “The opposite is true right now. The Federal Reserve is putting more money into the system.”
Cortez said local banks were not involved in “the game” that has caused so many larger investment institutions — Washington Mutual, Countrywide, Lehman Bros., Merrill Lynch and Bear Stearns — to fail. Those large investment banks, he said, were not fully regulated, and they failed when they “got a little bit greedy.” He said it is likely that regulation of the financial industry will be revisited in the days ahead.
The Great Depression led to investor protections for individual bank deposits up to $100,000. That safeguard is acting as a stabilizing factor in today’s volatile market.
“I am still worried about the tight credit conditions,” Cortez said. “My fear is that private lenders may still be very conservative to whom they lend their money. A regular customer who is doing great with a profitable and growing company might not have enough cash flow or liquidity to operate their business.
“If they should lose workers, we would have more people with no income. Consumption would decline and affect the economy as a whole. The impact on consumer demand is what will exacerbate things. If consumers hold back on spending, it will have quite an impact on the economy.”
Cortez said he does not know how long the current downturn will last.

By the numbers
Unemployment: Before the stock market crash in 1929, unemployment was about 6 percent. By 1933, the jobless rate had peaked at 25 percent. Today, the U.S. unemployment rate is hovering at 6.1 percent, after nine straight months of job losses.
Banking: Roughly 9,000 banks, including some Wall Street investment firms, failed during the 1930s. Today, about 200 banks nationwide are in trouble, according to some analysts. But the Federal Deposit Insurance Corp., which was founded in 1930, says it can handle any bank closure that happens today. Though Americans are unlikely to lose money held in banks, they have lost billions of dollars in retirement accounts managed by Wall Street investment firms via stock equities.
Stocks: Between 1929 and 1932, the Dow Jones industrial average lost 89 percent of its value. Today, when compared with this time last year, the Dow has lost about 40 percent of its value, falling from a record high of 14,280 in October of last year to a recent low of 8,200.

Sources: Federal Deposit Insurance Corp., U.S. Bureau of Labor Statistics

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