Lessons from history
HISTORY seldom repeats itself exactly, but it teaches many a lesson to those who look back at it thoughtfully. Looking back now at 1929 and its aftermath is appropriate. The story of the bull market crash of Oct. 24, 1929, and what followed tells that there are two kinds of consequences. Some are inevitable. Some are avoidable.
One of the inevitables is damage to the economic theory that was practiced in the period leading up to the crash. Another is damage to the politicians and the political party in office at the time.
Herbert Hoover was President when the market crashed in 1929. He had won 444 electoral votes in 1928 before the crash. He got six states with 59 electoral votes (Maine, New Hampshire, Vermont, Connecticut, Delaware, and Pennsylvania) after the crash in 1932. His Republican Party had been dominant from the Civil War to 1932. It took the Republicans 20 years to regain the White House after Hoover's defeat.
This does not prove that the Republicans will lose next year. It does indicate there is a change in the economic context of the 1988 election.
Until three weeks ago, politicians of both major United States parties were operating on the assumption that the market and the economy would hold steady through next election day. The odds, therefore, favored the Republicans to win. The odds have not yet swung decisively the other way, but let us say that the Democratic presidential nomination is more worth having today than it was before Oct. 6 (the first of four ``worst ever'' one-day drops in the market).
The second inevitable consequence is damage to the economic doctrines that prevailed before the fall.
Historian Samuel Eliot Morison, in ``The Oxford History of the American People,'' notes that 1933, when Hoover left office, ``marks the grave of the laissez faire 19th-century state, so far as America was concerned.'' ``It had already been buried,'' he continued, ``in every European country, and in Japan.''
What we have come to call Reaganomics has been discredited by the stock market fall. Those who still preach ``supply side'' economics are unlikely to go far politically in the months ahead. It will be interesting to see how the two leading Republican candidates dissociate themselves from Reagan economics.
Vice-President George Bush can point to the label of ``voodoo economics,'' which he applied to it during the 1980 nominating campaign. Senate Republican leader Robert Dole can, and undoubtedly will, make much of the fact that he has long favored and worked toward a balanced federal budget. Both have been openly unhappy about the economic policies of the administration. Both are likely to put even more distance between themselves and those policies.
Then there are the avoidable consequences. After the market fall of 1929, a Republican Congress voted the Smoot-Hawley tariff - the highest protective tariff in US history. It led to retaliation by major trading partners. It deepened the depression.
Unemployment began to climb after 1929. According to Admiral Morison it went ``from 4.3 million in 1930, to 12 million in 1932, figures which Hoover simply refused to believe.'' He took mild measures. Says Morison, ``He refused to do anything new or bold.''
The lessons are obvious. The first is to shun tariff protectionism. Another is to admit economic trouble, not deny it. Hoover insisted that ``prosperity is just around the corner.''
The tendency in such cases is to look the other way. The White House on Monday night of last week issued a statement saying that ``the underlying economy remains sound.'' That goes down as a classically expectable White House statement at such a moment. But it was accompanied by an acknowledgment that the President had watched the market that day ``with concern,'' and did issue orders for prompt ``consultation'' with top economic officials of the government.
Mr. Reagan could do one thing more, which would probably go as far as anything could to revive confidence in the soundness of the American economy. That would be to follow through on last week's promise to hold a budget summit and reach a final agreement on deficit reduction.