As noted yesterday, various media talking heads, pundits, political and economic commentators (though, not necessarily economists) are trying to compare the current economic condition of the United States with the economic conditions of the Great Depression.

Here’s an Independent article from April I located:

USA 2008: The Great Depression

Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world’s richest country faces economic crisis.

Blogs such the Political Gateway are also making the comparison in order to push their sensationalist ideology on an impressionable reader. The Bob Hoffman concludes his post Great Depression II, are the signs there? thusly,

And in closing, looking at the way and the thoughts of Wall Street, the White House, and Congress, I see it repeating itself. All of their so called ‘efforts’ are about ‘restoring consumer confidence.’ This is the same thing they tried back then, it did not work. No matter how confident investors are, it is not going to pay off bad debt.

Clearly Hoffman’s answer is, yes, the signs are there (although he seems a bit looney).

Moving on to Salon’s The Great Depression: The sequel:

we’re not there yet. And maybe we’ll never get there. Who knows — maybe those economic stimulus checks due to arrive in another month or so will sufficiently juice the economy so that the great housing bust and credit crunch of 2007-08 suddenly fade away like a bad dream. But we could get there. In fact, it would be all too easy. All we have to do is ignore what the markets and other economic indicators are telling us right now and continue down the disastrous path we’ve been merrily skipping along for the last 25 or so years.

As far as I can tell, the above Salon article is using the “Great Depression” to scare people away from McCain and to propagate the socialist, redistribution of wealth ideology of the far-left.

According to the AP, in a recent CBS interview GOP VP candidate Sarah Palin was

Asked whether there’s a risk of another Great Depression if Congress doesn’t approve a $700 billion bailout package, Palin said, “Unfortunately, that is the road that America may find itself on.”

There’s no question that people are worried about another Great Depression. The Depression era is arguably one of the worst eras in U.S. history and as many opportunists know, if people think they are headed for a disaster they are more willing to make impulsive decisions.

Yesterday, I read a repulsive analysis of the situation at HNN in which the author states:

Americans are now asking how the sub-prime mortgage debacle got so far out of hand during the years when various market analysts told the public that the American economy was fundamentally sound.

This complaint is also said to have been made during the stock market crash(es) of 1929. But are American’s justified in making this complaint.

In 1929 if people had listened to the Austrians then perhaps they would not have been taken off guard by the crash:

Friedrich von Hayek, 1974 Nobel Laureate, was the only academic economist who wrote prior to the Great Depression that a crisis and downturn in America were imminent. Interest rates in the world would not fall, he wrote, until the American boom collapsed. And “the boom will collapse within the next few months”. This prediction, printed in the Austrian Institute of Economic Research Report, February, 1929, generated interest in Austrian economics and Hayek was offered a Professorship at the London School of Economics in the early 1930s.

Ludwig von Mises, also an Austrian, anticipated a worldwide depression in the 1930s, as reported by Fritz Machlup, Mises’ assistant at the time. Mises’ wife Margit wrote, in her husband’s biography, that in the summer of 1929 he had rejected a high position in Kredit Anstalt, one of the largest banks in Europe at the time. His explanation was “a great crash is coming and I do not want my name in any way connected with it”. Less than two years later, Kredit Anstalt was bankrupt.

But, hey, not everyone was reading Austrian economic reports in 1920s’ America. What about today’s America? It seems some American economists have made the same folly. They have ignored the Austrian School’s successors (namely the Chicago School and the George Mason School). Perhaps if they would invest some time into studying real liberalism, folks wouldn’t be so disillusioned with liberal ideals such as capitalism and freedom. Anyway, here’s a report from GMU’s Mercatus Center dated November 15, 2001:

Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) have certainly attracted their share of controversy during the past few years. On the one hand, there is little doubt that Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System (the third housing GSE) have contributed to one of the most dynamic mortgage markets in the world. At the end of June 2001, 67.7 percent of the U.S. population owned their own homes.1 These homeownership rates are as high as they have ever been in the United States, and they are among the highest in the world.

On the other hand, critics point with alarm to the rapid growth of these government sponsored enterprises, both in terms of their total assets and in terms of their outstanding debt. To put their expansion into perspective, from 1995 to 2000, growth of the U.S. mortgage market averaged just 8.2 percent per year. Meanwhile, growth of the GSEs was at least double, if not triple, that amount.

(H/T – Cafe Hayek)

Here’s the abstract:

This paper provides an overview of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks-the “Big Three” government-sponsored enterprises, or GSEs-in the U.S. housing finance markets. We begin with the history and evolution of these enterprises. Then we discuss how the GSEs’ congressional charters confer privileges on their operations and what those privileges might be worth. We conservatively estimate that the GSEs have tended to confer net benefits to U.S. housing markets generally, but that such benefits are uneven over time (and might prove be illusory with more detailed estimates). Moreover, since the GSEs are not fully responsive to market forces or to government control, such social benefits as they have conferred in the past can be erased in the future if their business plans and practices-including their willingness to accept more risk-do not pan out as the GSEs expect.

Link to the full paper: PDF

The Mercatus paper does not suggest we are heading into another Great Depression, it merely shows that the failure of government sponsored enterprises such as Fannie and Freddie were on thin-ice in 2001. So, if I tried to seriously argue that this Mercatus paper was as important as F.A. Hayek’s prediction of the Depression, I’d be misrepresenting the context and situation of both circumstances. Note that the similarities are superficial, as is the case with the rest of the hyperbolic comparisons to the Great Depression.