More comparisons to 1929-39

Posted by: Michael Mandel on February 20

Kartik asked to see the full comparison of the last ten years in the stock market versus 1929-39. Here is the chart. The top line is the S&P500 index, adjusted for inflation, from first quarter of 1999 to the first quarter of 2009 (through today). The bottom line is the S&P 500, adjusted for inflation, from third quarter of 1929 (September to be exact) to the third quarter of 1939. In both cases the initial data point is set up to 1.

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Reader Comments

Joe Cushing

February 21, 2009 10:27 PM

Wow, seeing it this way makes me understand why you wrote what you wrote before. That said, I don't think the two times compare in many other ways. We had low unemployment for most of the last 10 years for example. I think a lot of this is due to the run up in the 1990s. It was so extreme that the next run up didn't amount to much. It would be interesting to see the last 100 years adjusted for inflation. We always see the exponential growth chart but never an inflation adjusted chart. Can you make a chart like that? There is so much more information here that what I have ever seen before. Inflation adjusted charting should be the norm.

Jeff Brokaw

February 22, 2009 12:12 PM

First, thanks for this blog. I find it always interesting. I'm a relative "newbie" in the world of economics, more or less.

I have a very general question for you: can you imagine this crisis having unfolded the way it has without the bad mortgages? Everything I read points to an initial problem of creating bad debt and then "laundering" it into AA or higher quality debt. Without this initial dumping of bad debt into a system that would inevitably repackage it for resale, would we still be having serious economic issues with potential deflation, etc.? Really curious what you think. Thanks.

Bull Run

February 22, 2009 01:41 PM

The big difference in both stock crashes is that today just about everyone is invested in stocks, one way or another,so the effect is far more devastating. 2) The US government, (Federal,State, and City)today are all belly-up, while in the 29, this wasn't the case.3) America's citizens are also belly-up today v.s. 1929. 4) America's banks, and many of it's major corporations are belly-up today v.s. 1929.It's true that over 9000 banks went broke in the 1930's, but that wasn't because they were full of acid toxic assets, rural banks in 1929, collapsed because of their dependacy on rural agricultural America. The big difference is will the US dollar survive today, when America's citizens, it's banks. and it's comapnies are all bankrupt? How can it?

Kartik

February 22, 2009 06:39 PM

Thanks Michael.

Since the S&P500 peaked in March 2000, it seems that this chart will make the modern era look even worse a year from now, unless we get a 20% rally in the next 12 months.

But wait - did the S&P500 exist in 1929-39? I thought only the Dow existed then..

Kartik

February 22, 2009 06:41 PM

Are dividends reinvested in the chart?

Tom E.

February 22, 2009 07:44 PM

How about a look into the Kondratiev Wave. I used to think it was bunk, but it sure seems right on target.

Viking

February 23, 2009 02:08 PM

Very interesting comparison,but also scary.The 29-39 chart shows some improvement towards the end vs the 99-09 chart which is in freefall towards the end.The other thing we know is that what got us out of the great depressing was WWII.What will be the catalyst to get us out of the current mess?Nobody wants WWIII,but without some major event,like that,I don't see how you can create enough demand in the economy to counter the current and growing slack.As mentioned earlier,I don't believe we can invent our way out of it, as many, if not most of all new investment,will be productivity enhancments,further reducing demand for workers.Converting from fossile fuels to renewable fuels,while a good thing for the environment,is not necessarily going to add more net workers,as you essentially remove one oil or coal worker for every solar or wind worker you add.It is a problem that I believe will be with us for a long time and looking for the period after 29-39 as a guide for how we get out of the current downturn is not valid in my opinion.

Kartik

February 23, 2009 02:11 PM

Kondratieff Waves certainly do have merit. The key to remember that it is not merely a simple circular cycle, but rather a 'three steps forward, one step back, repeat' model.

Worst case, the 'winter' of the Kondratieff Wave lasts until 2020. More likely, it won't be that long.

Lord

February 23, 2009 06:07 PM

Removing one oil or coal worker for every solar or wind worker is not the right way to look at it. Renewables would require building a large new infrastructure that does not exist. This would take a much larger initial investment even if in the end the number of workers ended up the same or even less. It is this large scale, long term, up front investment that could do it, along with creating a myriad of related technologies.

Some of the technologies of the 30s were chemical such as nylon, but many were developed by the war such as microwave, radar, jets, and nuclear. No one wants to develop these unless they have to, we just have to, without war as the incentive.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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