These are the notes I used for this week’s podcast episode titled “If this is a Depression”. I’ve included some more articles that counteract some of the articles I mentioned in the podcast. You can listen to the podcast and see the full show notes here.
A common saying is, “A recession is when your neighbour loses his job, a depression is when you lose yours.”
So, as of right now, it’s a recession. But that might change pretty quickly.
If this is a Depression, what would it look like and how can we solve it?
Recessions, defined as two negative quarters of GDP numbers, a depression, however, doesn’t have the same defined measure, but it’s known to go on longer and have deeper lasting effects.
Things are pretty bad in Canada, there is a layoff tracker on Macleans’s website. (https://www.macleans.ca/economy/covid-19-canada-layoff-tracker/)
Got me thinking about the Great Depression: Was it like this before? In the 1930s?
I’ve been reading a few books lately in addition to the general background given by Wikipedia. The Wikipedia article, as far as I’ve seen, owes a large part to Ben Bernanke’s Essays on the Depression, in which the former Fed chair evaluates the causes and effects of the Great Depression. That’s one of the things I’d like to share with you today, but the other is what to do about it.
Where should we be looking for work? What skills should we be taking up? Can we re-train ourselves to adapt to the circumstances?
Causes of the Depression
There are various reasons for the cause of the Depressions.
- -some blame the Fed for letting banks fail, which led to bank runs. You’ll remember that in 2008 a lot of banks were bailed out, probably because of this very reason.
- -the Fed should have loaned out more money by buying treasury notes and bonds, which would help keep cash moving
- -the reason behind this argument is that the Federal Reserve didn’t make enough money available at low enough rates. One of the things central banks are responsible for is the overnight borrow rate on money, which is essentially the money charged (as interest) on what banks give to each other to cover their accounts after each work day.
- -raising this rate discourages borrowing
- -lowering encourages borrowing
- -a lot of people blame the Smoot-Hawley Act that put tariffs on import goods, which meant that international trade couldn’t flow as it once did
- -(***This Act is a form of nationalism and it became much more prominent in the world at that time, it’s this same protectionism that led to the rise of Hitler and then, years later, World War 2.*** I did not pursue this in the podcast but the thought did come up when I was researching this week’s episode. The connection runs deeper than I was willing to commit to in this discussion.)
But why?
- -gold standard – countries were tied to backing their currencies with physical gold, meaning if someone came to the bank and wanted to exchange cash for gold, they had to have the gold to pay out
- -some people say it was the stock market crash of 1929, but the stock market doesn’t lead the economy the way people think, it instead reflects expectations of how the economy will be in the future. The reason people buy shares in a company isn’t because things are great right now, they buy them because they think the company will earn money on their products or services and then pay out a dividend in the future.
Buy low, sell high? Are you familiar with this saying? But who’s to say what is high and what is low. This underlies future expectations.
- -The other big problem that hit during The Depression was a drought in the middle of the US, this, again, not only led to unemployment among the people who depended on agriculture for their livelihood, but also the support staff.
- -already we’re hearing that there will be problems finding enough people to work the farms in Eastern and Western Canada. (“Labour shortage at highest level ever recorded in Canada” – https://www.bnnbloomberg.ca/economics/video/labour-shortage-at-highest-level-ever-recorded-in-canada~1282628)
- (***But, it’s not like workers from the city can directly move to the country to work. There have been issues and quite a few farmers have told reporters that the immigrants they used to hire worked far better and more efficiently than the local labourers. I didn’t cover this in the podcast because, in my experience, given some training, people can be taught to work on farms safely and efficiently.
- Two articles include https://www.nationalobserver.com/2020/04/15/news/bc-fruit-growers-skeptical-out-work-canadians-will-want-labour-intensive-farm-jobs and https://business.financialpost.com/commodities/agriculture/why-we-cant-send-unemployed-canadians-to-work-on-labour-strapped-farms)
- -And somewhere along line, because of all of this, there was something called debt-deflation, which is when people who are in debt need to sell stuff to pay bills or what not; though the loans are paid off, there is now less money circulating (because people can’t secure any new loans), leading to the fall of asset prices which leads to a fall in profits, less people needed, less work, less money, and, ultimately, people save what they have and don’t spend it which further restricts the money supply.
Overall, the Depression was a culmination of events,, both human and natural, that caused the world as we now it, to stop. That is, work stopped, there was little food in places, no jobs, and if no jobs, no money.
So, that lead us to more modern times and you might have heard of a guy named Ben Bernanke who was the chair of the US Fed for a while. He once upon a time commented on how things turned out in the Depression:
“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”
— Ben S. Bernanke
- -This is directed at Milton Friedman and Anna Schwartz, two critics of the actions of the US Federal Reserve during what would become the Great Depression. This also means, when Bernanke made this comment back in the 1980s, he and other Fed officials in the US, would make sure there was money to go around.
- -that is to say, that interest rates would be low and the central bank of the US (and others around the world would follow suit) would buy government bonds and treasury notes to keep money moving.
So, how do we solve it?
First, where did all of the money go? This is the current problem. Where did that money go?
One place it went was that companies started buying back their shares over the years, financing it with the cheap money made available by the central banks. This has been going on around the world and there are vocal critics of this practice. Why would they do this? Because it helps boost their balance sheets by supporting the price of the company while keeping the amount of money they have on the books the same.
(The following was not pursued in the podcast, but is an idea to consider. )
***But where else? Let’s not just blame the companies.
***Where did people spend their money? Did they buy assets, things that add value over time or did they buy liabilities, things that go down in value over time? Any thing can be an asset if it’s used in a certain way.
***For example, a cell phone can be a tool to call people for work or for personal reasons. Likewise, today, to surf the internet for memes or for trading stocks.
But, that leads to one of the problems that you’ll hear talked about: growth
How will companies continue to grow and how will people continue to pay for their products and services?
One popular metric is the GDP number which represents all of the products and services of a country (and the world). It’s however around 2% for the last decade or so. This number is why many people say we’re been in a Depression for years already but we just haven’t known it.
But is that accurate?
There are critics of GDP: it doesn’t account for all facets of products and services, it doesn’t qualify what is being produced, just that something is produced.
From the article in Maclean’s: The end of economic growth (https://www.macleans.ca/economy/the-end-of-economic-growth/amp/)
The GDP number we know these days was borne out of the Depression, by economist Simon Kuznets in 1932 then asked to develop a metric by the National Bureau of Economic Research (NBER) that would measure what they needed at that time: goods and services produced by a country.
- -“He was frank about what Gross Domestic Product left out: domestic work, unpaid work, anything that wasn’t a measurable financial transaction. John Maynard Keynes’s finessing of GDP eight years later added government spending to the mix, but didn’t tackle its other blind spots.”
GDP doesn’t account for the changing nature of labour, that is, how jobs and work have themselves changed over time. We are producing more in less time than ever before.
A simple example of a TV: the TV you bought last year was far better than the TV you bought a decade ago. Both cost $800 and both only added that number to GDP, yet no one would argue that the older TV is better.
- -Isn’t it the same with cell phones?
GDP gives the total amount, not what exactly is being calculated, which is why it has its detractors
- -it also ignores the environmental cost, which is what climate change advocates go on about
But this topic of technology will save us is something to look at
George Friedman, head of Geopolitical Futures, said we haven’t seen real innovation in the microchip technology in years, since 1995 or before. He says there isn’t any new tech to invest in but what is robotics? AI? The hardware may be similar to what we’ve had for decades, but it might be that software is coming into its own period of a golden age. Is this how companies (big and small) will be able to streamline their production and costs?
He also says the university has to change, since degrees cost so much but the knowledge imparted isn’t showing it’s worth it.
- Podcast link: https://geopoliticalfutures.com/george-friedman-on-deep-dish-the-2020s-and-the-rebuilding-of-america
I can’t say I disagree. But I also see that online learning has really taken off. It’s now cheaper and easier than ever before to get the necessary certificate, to focus your studies and finish them very quickly. So why would anyone pay to go to university when they can go through an online course in their own time and then pay the extra fee of $59 or whatever for a certificate of completion?
Then let the real world knock them around!
Where else can we look for work?
Another article on Maclean’s (https://www.macleans.ca/economy/what-to-do-if-youre-laid-off-because-of-the-coronavirus/):
- “human resources, IT, finance and accounting and administrative support”
- “Grocery stores, heath companies and the many businesses that support in-demand operations are also hiring, says Speirs.”
- -this is tantamount to my Dad saying “go work for the gas station”
- -you may not want to, but you may not have a choice
Some other trends to consider:
The move to work online (programming, web design, networking)
- -teaching – making videos, podcasts, content for learners
Are you a software or hardware producer in the most general sense of the terms? Do you make the physical product or do you make something that helps the product do its job?
This is where we all are going to have to decide where we fit in and how we can fit in.
Start browsing those online courses, see what attracts you
YouTube, even if it means you have to watch a six second video!
To listen to the full episode, follow the SSP Episode 3 – If this is a Depression link.