U.S. history full of lessons on how to cope with tragedy, economic turmoil
Yes, these are difficult times. Friends and colleagues have died. The already weakened economy has been thrown a shock. Markets are reeling. Insurance losses are projected into the tens of billions of dollars. Hotels are emptier. Boeing Co. is laying off thousands. Real estate transactions are falling through.
Time, in other words, to thank our lucky stars. Things could be a lot worse.
Just think how the markets would have reacted had the events of Sept. 11 occurred in 1907. Back then, there was no Federal Reserve to pump billions of dollars into the banking system. When depositors became frightened, as they did during the Panic of 1907, their withdrawals pushed banks and trusts to the brink of insolvency. Interest rates skyrocketed, stock prices swooned and a number of firms, including railroads, went bankrupt.
Only the efforts of J.P. Morgan, who famously and shrewdly, as it turned out organized a private bailout of weaker institutions, prevented a larger-scale meltdown of the financial system.
Things hadn’t improved much by 1930, when a passive Federal Reserve the central bank created in response to the events of 1907 allowed hundreds of banks to fail in the early days of the Great Depression.
“The Depression just took the spirit out of America,” said Joyce Appleby, a UCLA historian who was a child back then. “You couldn’t go anywhere without seeing long lines of people waiting for handouts. People would come to your back door and ask for food.”
Those experiences, as awful as they were, helped instill unity between rich and poor Americans, and eventually led to the establishment of government benefit programs such as Social Security and unemployment insurance.
Modern expectations
These days, we expect Fed Chairman Alan Greenspan and our elected leaders to keep the economy running smoothly through market disruptions, natural disasters, even war. Calamities like Hurricane Andrew or the 1994 Northridge earthquake have a profound local impact, but register only as blips on a national scale.
Some economists expect the same impact from the destruction of the World Trade Center.
“It will be important but not enough to change the course of the ship,” said Tracy Herrick, chief investment strategist at Jefferies & Co.
Even the oil shocks of the 1970s caused more disruption to the economy than the events of Sept. 11 are likely to, said Jim Doti, president of Chapman University. Oil shortages halted manufacturing activity and slowed interstate commerce. Today we only have pockets of problems.
“In terms of how much people were inconvenienced, the oil crisis was much worse,” Doti said. “In terms of emotional, psychological impact, I’m certain that this catastrophe was far worse, and more unsettling and long-term in nature.”
Contrast today with the San Francisco earthquake and fire of 1906. To pay off claims, British insurers liquidated 10 percent of London’s gold deposits, triggering defensive moves by European bankers that restricted further flows of gold to the United States. Economic historians Kerry Odell of Scripps College and Marc Weidenmier of Claremont College say this triggered the 1907 panic in the United States. “We think we’ve pretty well tied it,” Odell said.
Of course, there’s a difference between an earthquake and a suicide mission suspected to have been carried out by an elusive worldwide network of terrorists.
This time around, no one knows exactly who the enemy is, or what to expect next.
World War II parallels
After Pearl Harbor, to which the World Trade Center attacks bear some similarity, Americans at least understood the task at hand. World War II had already begun, and Germany had invaded France. “There was this sober awful sense of what we were going to be involved in,” Appleby said.
Steeled by the Depression, the nation came together during World War II to meet the challenge of the day: Young men enlisted, women worked in factories, and all who were able purchased savings bonds.
“We’re at a disadvantage as compared to the Second World War in not having the Depression precede it,” said Sandy Jacoby, a professor of management at the Anderson School at UCLA.
The heroic responses of rescue workers, steel workers and ordinary people to the events of Sept. 11 in New York have affected Americans’ attitudes toward one another, Jacoby said. “Some of that privacy breaks down, people see others less defensively, have more empathy and compassion. You hear stories about many little acts of kindness.”
On Wall Street, firms are sharing office space. Whether businesses and workers are prepared to go further hold down prices, forgo wage increases, accept more government interference, enlist in military campaigns “all of those sacrifices are going to be harder to pull off this time around than it was in the ’40s,” Jacoby said.
Yet in some ways, Americans are better prepared to deal with whatever adversity is yet to come. Economic times are still relatively good, and society is more diverse economically than it was in the 1940s, giving a broader swath of the population a bigger stake in the outcome.
Multicultural land
“I looked at the list of missing persons (in the World Trade Center). Every conceivable ethnic group was represented in those surnames,” Appleby said. “People of different races, including African Americans, are in high positions of authority. It was a WASP world in 1940.”
Indeed, the rounding up of Japanese-Americans at the outset of World War II had not only a moral impact. It wiped out the business infrastructure of an entire community in Los Angeles.
Toyosake Komai, then editor of the Japanese-American newspaper Rafu Shinpo, was picked up by authorities the night of Dec. 7, 1941, said his daughter, Happy Iino, now 90. She didn’t see her father until after the war, and he died a few years later. “We had to give up everything, you either sold it or you just left it,” Iino said.
Today, while there have been threats against Muslims and Middle Easterners, political leaders have made a point of showing solidarity, attending mosques and meeting with leaders of Muslim countries. “I hope they’ve learned their lesson,” Iino said. “I’m sure the government won’t do that again.”
And though the United States faces challenges in dealing with its new adversaries, there is more confidence about winning than during World War II.
“Today, most people believe and most investors believe that whatever the outcome is going to be, the U.S. will come out on top,” Herrick said. At the outset of World War II, “German subs were sitting outside the coast of Florida and sank every oil tanker (going from Texas to the East Coast) for five months.”
