Pundits are starting to warn that the US (and the world) could be headed for a repeat of twentieth century history, maybe even (gasp!) another Great Depression, as if that’s the absolute worst-case scenario.
A Great Depression is not the worst-case scenario. We’d be lucky if that’s what we could manage!
During the Great Depression:
• Debtors lost.
• Banks failed when debtors couldn’t pay, so depositors lost.
• Gold holders lost, due to government confiscation.
• Government interference reduced available jobs.
But some things went right:
• Even though some argue that the taxation from government spending was a drain on the economy, at least spending was toward employment and infrastructure.
• The country had a large industrial base run by competent individuals.
• The country had much private capital.
• Savers won.
Now consider the post-World War I German Weimar Republic:
- Savers lost when their money eroded away with massive inflation.
- Government cultivated resentment toward the Jews.
- Germany provided employment through military service.
- Germany enriched itself by gobbling up territory around it.
- Millions died, deemed enemies of the state.
But could things get even worse? Consider the Union of Soviet Social Republics:
- Distrust toward “the rich,” justified confiscating their wealth.
- Industrial and farming productivity fell sharply as they were nationalized and collectivized, and run by central planners chosen for their party loyalty, and not necessarily competence.
- The government promised ‘entitlements’ to all, irrespective of productivity.
- Tens of millions of Soviet citizens starved to death when the government deemed them enemies of the state.
- Tens of millions of Soviet citizens died in prisons or were executed, deemed enemies of the state.
- Pollution and spent resources were rampant in a land without private ownership.
- The USSR massively built up its military and gobbled up territories, vowing to take over the world.
- The eventual collapse has resulted in nearly universal poverty and rampant crime that continues to this day, 30 years later.
Looking at these examples as well as Argentina, Greece and others, there are a few ways in which a depression becomes truly depressing:
- Confiscation of private wealth
- Debtor nations plundering other countries (IMF anyone?)
- Massive inflation
- A dependent culture
The Great Depression in the US was hard, but millions didn’t die from it. If our government insists on taking over and providing everything for us, not only will we lose the ability to provide for ourselves, but many will die when that same government assesses our individual worth.
What does this have to do with frugality? Quite a bit. By studying the past, a clearer picture forms of the future. And by being able to predict the future, the frugal can take steps to thrive in the hard times.
TOMORROW: Steps to take now to prepare for the coming economic crisis.
Elise Cooke is the author of the nationally award-winning book, The Miserly Mind, 12.5 Secrets of the Freakishly Frugal. Subscribe to her free monthly newsletter for more frugal tips and tricks.