Beyond chart porn: If history rhymed, would we hear it?

One of the most often indulged exercises in this economic crisis is to compare it to other, previous, crises – in particular, to the big daddy of all economic crises, The Great Depression.

It’s fun, educational, and a little like pornography: both a source of inspiration and a sort of how to manual.

As with porn, a detailed written description of the unfolding events can be a bit dry and clinical – but a picture? Well, that is stimulus operating on a number of levels simultaneously – not all of them appropriate for polite company.

See for instance this delectable piece of pornography constructed by economists Barry Eichengreen and Kevin H. O’Rourke:

World industrial production, now vs then

The elegance of the lines are tempting, are they not? She is so vulnerable, so intriguingly open to any interpretation the viewer cares to impose on her sultry undulations.

We are invited to infer from her saucy recumbency whatever fantasy, or dark desire, seems best suited to our mood of the moment: Are we plunging toward an abyss, or have we averted one just in time?

Here is another one you will find familiar – The Four Harlots of the Apocalypse:

Favorites of Wall Street bankers, these naughty beauties, cavorting with disaster, invite us in to play with them – but they are such real teases. The Grand Dame, circa 1930, caused man and beast to swoon, before passing them to her two strumpet sisters, Oyl (circa 1973) and the demur technophile, Siliconia. Having drunk of the nectar of these high priced Wall Street hookers, you might be tempted to taste the sweetness of their latest addition, the Lady Bush, but beware: if she is anything like her sisters, you will be disappointed.

The problem with chart porn

One of the problems with chart porn is exactly what makes them so appealing: a blank white surface with a bold engrossing squiggle holding your attention with its unpredictable wanderings. Where will it go next? Why did it take this particular path? It’s all a bit like staring at the apparently random movements of an ant. It is only when the path of that single ant is overlaid with the paths of all the other ants along the same trail does it become obvious there is a fairly precise goal in the behavior of the individual.

Which is why chart porn like the four bears above offer some (mistaken?) sense that the path of our own Great Recession has a reassuring logic to it.

We say mistaken only in part referring to Mark Twain’s injunction: History doesn’t repeat itself, but it rhymes. In a rhyme, the point is not what is the same, but what is different. But, in a more fundamental way, the four market crashes pictured above differ not merely in the particular path each found to its bottom, but also in the very economy against which they played out.

Although each is pictured against an otherwise blank canvas of the chart the economic landscape of each was markedly different. The differences can be so important, that it becomes something of a comparison between apples and oranges.

One notable difference between 1929 and 2009, for instance, is the radically smaller population living on farms and making their living through agriculture. In 1929, about 29 percent of the American work force lived on farms. By 1934, because of the vicious impact of the depression on the rest of the economy, their weight in the economy had actually risen to 33 percent as employment in other sectors fell wildly.

Agriculture employment in the United States, 1929-2002

Why did agriculture employment remain so stable during the early part of the Great Depression? One possible explanation is that most of these individuals were self-sufficient, and, to the extent they did not lose their farms in the downturn, were only indirectly affected by events. In this recession, such individuals are negligible in the economy, with the entire sector accounting for much less than one percent of the work force.

Is it significant that one of the sectors of the economy least affected at the beginning of the Great Depression has virtually ceased to exist as a form of employment? Who knows. But, it just seems important to note the change.

The Era of Big Government Begins

Another sector of the economy where employment did not fall significantly in 1929 was government; it actually registered an increase of about 100 thousand jobs between 1929 and 1934. And, as the chart below shows, unlike agriculture, it grown aggressively since the Great Depression:

Government employment in the United States 1929-2002

Like agriculture, government seemed initially resistant to the Great Depression, but, unlike agriculture, it proved to be actually resistant not only to the depression, but also the economic forces at work in the economy for decades after.  It is not until the late 1970s and early 1980s that we begin to see a leveling off in government employment.

Not so manufacturing employment: The Great Depression takes a withering toll on it from the very beginning:

Manufacturing in the United States 1929-2002

Of course, the American Bombs for Kids program during the 1940s revives manufacturing, but the effects wear off by 1979 when, from a peak of about 19 million workers, manufacturing employment begins collapsing to its present size of just over 11 million workers. Unlike government, but all too similar to agriculture, the Great Depression was the high water mark of manufacturing employment. By the time Reagan took office, manufacturing was in a long irreversible 30 year depression of its own losing about 50 percent of its work force.

With a 50 percent loss of jobs in this sector, and a further 93 percent loss of employment in agriculture, trying to make a comparison with the Great Depression is not as simple as capturing a handful of changes on a chart.

Which brings us to the services sector:

Service sector employment in the United States 1929-2002

At one point, the economy was neatly divided into three almost equal portions – agriculture, manufacturing and other non-farm goods producing industries, and services. Then something very weird happened: Services employment, after an initial fall of about 13 percent in the Great Depression, took off and began growing wildly, while the other two areas of employment atrophy.

So we end up with four different parts of the economy, each of which respond to the Great Depression in significantly different ways:

• Agriculture shrugs off the crisis, but virtually disappears as a form of employment
• Government shrugs off the crisis, and then goes on to triple its relative size in the economy
• Manufacturing is initially devastated by the depression, recovers, but only to enter its own depression from 1979 on.
• Service employment is also hit hard by the depression, but goes on to account for 83 percent of all employment

What does all of this mean?

It is hard to tell at this point, but we will point out an obvious connection: Any sector which results in the creation of a real good, which contributes real economic value, has disappeared, or is disappearing even as we write these words, as a means of employing people. What is left are those sectors of the economy that produce nothing of value.

Every crisis is an economic adjustment to changes in the way an economy is organized and this one is no different. Trying to extrapolate from the Great Depression to our present difficulties is ultimately misleading.

To make this point, we will leave you with one additional piece of chart porn.

Anyone attempting to compare the Great Depression with the Great Recession has to take into account that, in reality, there really is no such thing as a US economy anymore. It is a convenient fiction maintained by Washington to conceal how dependent the nation is on global economic forces.

Today, just the combined volume of real goods exports and imports moving out of or into the United States – which does not include the volume of services, income and profits flowing to or from the US – amounts to almost one out of every four dollars of GDP. By contrast, in 1929 international goods trade accounted for about 10 percent of GDP.

US foreign trade as a percentage of GDP, 1929 and 2008

The idea that there is a “US economy” the performance of which, in this depression, can be easily compared to the performance of the US economy during the Great Depression by means of some attractive chart porn is laughable. We are part of a global economic organism, and our fate is bound up with it.