It’s been said that “those who cannot remember the past are doomed to repeat it.” Given the issues we’re dealing with right now, what economic lessons from American history can we recall that might help us today?
1. Depressions, recessions, and financial meltdowns are common.
In recent years we seem to have had more than our share of national economic problems. When each hits, we think of it as unique and maybe even life-changing. But whether we call them depressions, recessions or something else, the reality is that economic downturns have been extremely common since the nation began.
Each downturn varies in severity, with the Great Depression (1929-1941) being the worst to date. The overall economic decline reached almost 27% and unemployment peaked at nearly 25%. The roughly 8% unemployment we have right now would have been a breath of fresh air for the people of the 1930s.
There were at least ten depressions or “panics” before the Great Depression. And though we haven’t had a depression since — or maybe we avoid that word — we have had 11 recessions since World War II. During that time we’ve also had three stock market crashes (1987, 2000-2002, 2007-2009), and two major banking crises (the S&L Crisis of the late 1980s, and the financial meltdown of the past few years).
The economic lessons for us: When times are good, never assume they’ll last forever — history proves they won’t. Be prepared. Keep expenses low, save money, stay out of debt, and never put all or most of your money into a single investment.
2. Technology has a profound effect on the economy.
Economics isn’t all about stock prices, interest rates, or depressions. Some of the biggest economic events in US history have been technology related.
The Industrial Revolution
In my opinion — and I’m sure I’m not alone — this was the single biggest economic force in US history. Not only did it industrialize the economy (via mass production) but it also brought fundamental change to how people made a living, where they lived, what they consumed, and even changed family and community structures and patterns.
Relentless Technological Advance
Though technology really took off during the Industrial Revolution, it’s followed a pattern all its own and even survived the end of the industrial era. During and since that time, we’ve seen railroads replace covered wagons, cars replace horses, steamships replace sailing vessels, as well as the advent of mass communication. The list is endless. There’s virtually no aspect of American life and the economy that hasn’t been radically transformed by technology.
Computers and the Internet
More recently we’ve seen the advance of computer technology and the Internet. These are gradually making radical changes in how we communicate (email, social media, Skype, etc.), how we shop (online, e-commerce) and especially how we work. Computers and the Internet are freeing millions of people from corporate offices, allowing them to be home-based and much more independent. They’re also increasing the prospects for self-employment by putting resources at the would-be entrepreneur’s finger tips.
The economic lessons for us: It would be a gross over-generalization to think that all technology is good. But what we do know is that it’s relentless. That fact alone has substantial implications for our occupations. As technology advances, jobs and entire careers will gradually disappear, and brand new ones will grow in their place. Recognize the signs of change and be ready to adjust. You may need to get training and/or take a chance on a new career or business.
3. Wars happen and have economic consequences.
There are wars that might better be termed conflicts, and others that have far greater implications. In US history, there are three that stand out. And from an economic standpoint we seldom appreciate the wholesale changes they brought about.
The Revolutionary War
The Revolutionary War was the first such war. We usually think of it as the war of independence — which it was — but it caused massive changes in the economic landscape of the country. We went from foreign economic and political control to domestic. Wealth shifted depending on which side the owner supported during the war. Lives were lost and, since it was a domestic war, personal property was destroyed.
The Civil War
The Civil War had an even bigger impact, but in two very different directions. If you were in the North, you experienced an economic surge — the War advanced the Industrial Revolution and made the North even more prosperous. If you were in the South, the impact was completely different. You may have lost your farm or your shop, and your home or entire community may have been destroyed. The war was fought almost entirely in the South and had many of the same characteristics — and outcomes — as a foreign invasion.
World War II
The economic impact of World War II was that it ended the Great Depression, ramped up industrial production, and left the US as the dominant world economy by a wide margin. That combination of factors caused a period of economic growth and stability that we still long for today.
In all three wars, the conflict took resources out of the economy causing inflation and cronic shortages.
The economic lessons for us: Will we have another war of such magnitude? We have to hope not, but the fact that we’ve had three in our relatively short history means the possibility can’t be discounted either. How do we prepare? That isn’t clear since wars contain imponderable variables. We should start with centering on our eternal salvation — the most basic characteristic of war is loss of human life. Beyond that, we should prepare economically in much the same way as we would for a major economic calamity.
4. Prosperity comes from the ashes of disaster.
Though history is often measured by wars and human calamity, it’s a fact that disasters usually plant the seeds of future growth and prosperity. Perhaps it’s that, much like a forest fire, disasters clear away old inefficiencies to make room for new growth.
We’ve already discussed how this played out in the aftermath of World War II and the Civil War (at least in the North). If we look closely, we can see this in other calamities as well. For example, when the stock market crashed in 1987, losing 40% of its value in just a few days, few would have imagined that 13 years later the Dow average would be four times higher than the pre-crash high.
Could that be the case with the financial meltdown of 2008 that we can’t seem to shake? We should prepare for the worst, but I wouldn’t bet against a turn for the better. It’s often impossible to see the seeds of growth that are planted in the wake of a disaster, but they seem to show up pretty reliably. Every economic disaster in US history was eventually followed by a period of extended prosperity.
The economic lessons for us: No matter how bad conditions are on the surface, we need to think past the moment. Part of the reason for preparing for bad times during the good ones is so that we can take advantage of the opportunities that will come as a result of the downturn. No matter how bad things get, look for opportunities in new business ventures, stocks, and even in real estate. The best time to buy is when everyone else is selling.
5. Always trust in God.
In writing this post I’m reminded of the uncertainty that accompanies us every day of our lives. It isn’t just in economics either. There’s an up and down quality to life that affects every aspect of it — our health, our families, our communities (think Hurricane Katrina or the Tsunami in Japan). No matter how much we try to insulate ourselves, change lurks right around the corner, and not all of it is good.
We’ve been told as much in the Bible. In John 16:33, Jesus tells us “In this world you will have trouble. But take heart! I have overcome the world.”
While we’re making our plans for our finances and our careers, we need to keep a big space in our hearts and minds for our walk with our Savior. Crisis and prosperity will come and go, but Jesus Christ is eternal. We need to learn to trust in God! He’s our ultimate security — even if our best laid plans don’t fit comfortably with the future course of economic events.
What economic lessons have you learned from history? Leave a comment and let us know!