Something besides a coronavirus is quietly pushing us into the next Great Depression.
The Great Depression, 1929–1939
The Great Depression broke my great-grandfather. Then it killed him. As we may be approaching the second Great Depression in the United States, are we properly evaluating the causes contributing to the current free fall of the economy? Of course, the novel-coronavirus (nCoV) global pandemic has been the precipitating cause, but I think we may be overlooking an important factor that will quietly continue to get worse even after we’ve come up with an effective treatment for COVID-19.
By taking our eye off the ball that is rolling toward our global economy like a 14 pound sphere unleashed on the entire triangle of pins, we will be shocked and awed with what I believe will become the next Great Depression.
As the economists scramble with their mitigation advice, the US FED is working on our monetary policy, the US Congress is passing fiscal stimulus, and President Trump, by his own admission, is trying to be “a cheerleader” standing on the sidelines, woefully inadequate and epically incompetent. Maybe he should try a short skirt and some pom- pom’s?
“Those who cannot remember the past are condemned to repeat it.” ~George Santayana
The Great Depression, 1929–1939
I value treasures from some of my ancestors. My maternal grandmother left me a beautiful green depression (oh, the irony) glass bowl with worn gold filigree on the rim, now sitting on the kitchen table. I wear a gold ring from my great-great-uncle, on my father’s side. His name was Charlie Wylie and the ring is engraved with his initials.
Happenstance, I was the only relative with the same initials. I have the bowler hat, in its original box, that my paternal grandfather wore to my aunt’s wedding prominently displayed on my dresser.
I only recently gave my late father’s silver pilot wings to my son. My maternal great-grandfather’s name was Peter Straub. He was known to his friends and kin as “Old Pete”. He owned a restaurant called Straub’s Saloon (my mom explained that back then restaurants were often called “saloons”). Old Pete was also the Proprietor of the local hardware store.
His restaurant was considered a “high-class place” as my mom described it. At that time, all the stores kept a running tab for their regular customers. At the end of the month they would pay their bill, and thus start a new month.
When the depression hit, most people couldn’t afford to pay their bills any longer. Few could afford going to an expensive restaurant and so it closed. Old Pete gave his loyal hardware store customers extra time to pay their monthly tabs, but soon, even the extra time wouldn’t help. He had to close his hardware store, too. He died shortly thereafter in 1931.
Old Pete passed away at the age of 62. My mother never met her grandfather. Only a few items were salvaged from both of his businesses. One such item was an olive green, square ceramic teapot with a cream colored interior. It was not fancy, nor valuable. I have that teapot now.
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The causes of the Great Depression are attributed to several economic stressors. There was the US stock market crash of October 29, 1929, known as Black Tuesday.
The stock prices did not adequately reflect the value of the companies; income inequality — more than 60% of Americans were living below the poverty line and that was before the stock market crash; booming agricultural years that lead to the collapse of commodity prices (agriculture is the only industry where a banner productive year means that all the prices drop because it is so sensitive to supply); and the Dust Bowl which then decimated farming.
There was a trade tariff enacted, Smoot Hawley Tariff Act, because our government didn’t want people buying products from overseas. There was the run on the banks. And remember that Europe was still recovering from the Great War, now referred to as WWI, and even in a worse economic position than the United States.
We’ve enacted laws to help protect us from some of these disasters such as automatic shut offs of stock trading if the market falls below a certain point and FDIC insurance for bank accounts.
However, I believe that another contributing factor, often overlooked, is that the country was transitioning to a new age. We did nothing to protect ourselves from that, and I believe it is happening again.
How “Ages” Affect the Economy
For the past decade I’ve been taking a casual poll of friends and acquaintances at parties large and small (when we used to be able to go to parties) what they think the next “Age” will be. You know, we went from the Stone Age to the Bronze Age to the Iron Age. Age of Enlightenment. Dark Ages.
There was the Agricultural Age, then the Industrial Age and finally the Information Age. The Ages are getting closer together as a result of technology. The Stone Age which incorporated periods such as the Paleolithic, Mesolithic, Neolithic, and Chalcolithic (Copper Age), ranged from three million years ago to five thousand years ago.
The Postmodern Age which includes the Industrial Age and the Information Age started sometime in the early 20th century and continues to this day — only about a hundred years.
Back to my poll: various answers have been offered as to what age we will experience next: artificial intelligence, medical, sustainability, consciousness, internet of things, new age of enlightenment. You don’t really know what age you’re in until you’re in it right? And there’s never a clean line of demarcation.
After ten years of asking this question and pondering it myself I think I’ve finally come to an answer. We are entering the Age of Automation. To be sure this overlaps with other ages such as artificial intelligence and information, but I think it is becoming its own time period worthy of examination in the broader context of our economy.
Photo by The New York Public Library on Unsplash
Transition from the Agricultural Age to the Industrial Age
Based on previous research, I found that one of the overlooked causes of the Great Depression was the transition from the Agriculture Age to the Industrial Age, spurred by technology like the gasoline powered engine. According to an article from the New York Times archive, in 1850 farmworkers made up 64% of the nation’s workforce.
By 1920 that figure had dropped to 30.2% and today it is less than 11%. Logical because in the 1800’s we needed people to do everything related to planting and harvesting our food. People had to guide horses or oxen that pulled plows to dig rows. Laborers had to plant seeds. People harvested the crops, with a hand tool called a sickle and threshed by using oxen to tread on the wheat.The grain seeds were then winnowed by hand and ground into flour using large stones.
Then, between 1886 and 1892, two revolutionary inventions were introduced. John Froelich invented and built the first gasoline powered tractor in Clayton County, Iowa. With attachments like the plow, mower, rake and spreader (seed planter), it replaced all the work previously done by scores of farmworkers to just one person driving the tractor. Another miraculous technology was the combine. It is a harvester that works for a variety of grain crops.
The name “combine” aptly describes what it does. It combines three separate harvesting operations: reaping, threshing and winnowing into a single process. Think about all the ag laborers who were displaced by these machines.
Millions of workers who were dislodged from agricultural jobs, moved to the cities to get jobs in factories. According to an article by Ali Waqas, Top 5 Causes of the Great Depression — Economic Domino Effect, during “The Roaring 20’s” the U.S. was overdependent on its production industries, including automobiles and ship building docks that could not accommodate all the people looking for work.
Over time, due to rapid advances in disruptive technology for industrial use, factory jobs increased to accommodate 30% of the labor force.
However, this false sense of prosperity led to a flooding of products that weren’t affordable to the masses, setting off a chain reaction that started with the closing of factories and sudden withdrawal of investments.
The middle class tried to save money by reducing spending even more. When spending was reduced, even more goods on the market went unsold. With profits falling, factories were shut and employees were laid off, increasing poverty and fueling a negative economic cycle.
The shift from the Agricultural Age into the Industrial Age caused labor demand gaps and timing errors which led to significant unemployment. This turned out to be a major economic stressor contributing to The Great Depression.
Photo Credit: Birmingham Museums Trust on Unsplash
From the Industrial Age to the Automation Age
It’s already here.
Other than sports and the evening news, I’m not a big television watcher. I prefer reading and writing. Since quarantine though, I’ve acquired a treadmill and transferred my cardio workouts from outdoors to indoors so I’ve had the opportunity to explore some TV programs.
One that I’ve been watching seems to be a blend of the past, present and future. It is an HBO series called Westworld, and is based on a 1973 film of the same name. If you haven’t seen it, the show is about a fake old western world (think Disneyland) inhabited by robots (called hosts) where real people (mostly sadistic) can visit and work out their issues (usually using their worst possible instincts). It is futuristic to be sure, but not really much of a leap of faith.
I think I know people who would sign up for Westworld at the drop of a cowboy hat.
The thing about Westworld that I find so fascinating is the hosts. They are intricately designed, 3-D printed, pumped full of blood (necessary to lend realism to frequent gun fights and killings) and programmed to look and generally act like real humans. Could they put together cars faster and more accurately than humans? I’m sure of it. In fact, robots already are putting together cars, sans the clothes, skin, and blood.
A couple of months ago I was shopping at the grocery store when I nearly ran into a robot that was obviously taking inventory. The robot, standing taller than the average American citizen, skidded backwards in order to avoid me falling into its arms. Immediately I thought, that probably replaced two or more workers. No sick days. No payroll taxes. No benefits. No mistakes. Can work almost 24/7 with ease. Probably needing some time to charge and perhaps a little oil and basic maintenance much like the Tin Man in the classic motion picture, The Wizard of Oz.
A recent study by DMZ, the leading tech startup accelerator in Canada, discovered:
“… as technology advances, more businesses will likely adopt fast-paced robots that can maximize output and potentially replace human workers altogether. In fact, it’s already quietly happening right now at an alarming rate. Foxconn, a Chinese supplier that counts Apple and Samsung as its customers, replaced 60,000 of its factory workers with robots. While shocking, it’s just the beginning of what’s to come.
“A McKinsey & Company report found up to 800 million workers could lose their jobs due to automation by 2030.”
They also point out that robotic workers could contribute to mass unemployment, human catastrophes and waves of migration with upwards of 47% of total US employment being at risk, worse than The Great Depression, which saw a peak unemployment rate of 24.9%.
What will we do with our factory workers? What will we do with our employees, be they driving cars, serving food, cutting hair, or farming? And, if you think you are exempt from being replaced by robots because you are a manager, then think again. A February 2020 article in The Verge, “How Hard Will the Robots Make Us Work?” says the following:
“The robots are watching over hotel housekeepers, telling them which room to clean and tracking how quickly they do it. They’re managing software developers, monitoring their clicks and scrolls and docking their pay if they work too slowly. They’re listening to call center workers, telling them what to say, how to say it, and keeping them constantly, maximally busy. While we’ve been watching the horizon for the self-driving trucks, perpetually five years away, the robots arrived in the form of the supervisor, the foreman, the middle manager.”
Photo by Franck V. on Unsplash
How can we imagine a better future for ourselves?
It’s not all bad news. Automation will take on tedious tasks that humans, probably, were never meant to do. I used to own a manufacturing company and one of the most challenging tasks was keeping turnover low. Why did they want to leave? Because, admittedly, human beings were not meant to do the same task over and over and over, without mistakes for eight hours a day, 20 work days a month, twelve months a year, year after year after year. In my opinion, it’s part of the dystopian distortion that has suffocated modern society for a long time.
Let’s look at a comparative analysis between the Great Depression of the past and how it stacks up to our present day with some suggestions on troubleshooting. We need to start imagining a new world that is a complete paradigm shift from where we are. We need a real leader to help us get there. We need a Super Bowl winning quarterback like Tom Brady, not a cheerleader like Donald Trump.
- Income inequality — Although not nearly as high as the Roaring Twenties, income inequality is on the rise again since the 1970’s, after improving during the aftermath of the Great Depression. The top 10% own over 70% of the nation’s wealth. The story goes that Henry Ford paid his unskilled laborers a living wage so they could afford to buy the automobiles they were making. He is single-handedly credited by many for creating the middle class.
- Poverty levels — About 12% of Americans live below the poverty level. In 2018, 552,830 people were counted as homeless in the United States. Of those, 194,467, 35% were unsheltered, and 358,363, 65% were sheltered. The total percentage of Americans that don’t even have a bank account is 7%. In the US, many companies don’t pay a living wage, hence many workers need more than one job. It is also one of the reasons why the homeless population has gone up by 9% between 2017 and 2018 because people can’t find jobs that will pay them enough money to even afford rent.
- Stock market bubble — Are we in a stock market bubble? Part of the problem with having interest rates that are nearly zero is that people have fewer places to invest their money. This naturally leads to both a stock market and a housing bubble. Thanks to increased bank lending regulations enacted in 2009, the housing market has been kept somewhat in check. But the stock market, not so much. Are the companies we’re investing in really worth what their stock price reflects?
- Free Fall of consumer purchases — Thanks to the novel-coronavirus pandemic, consumer purchases have been in a free fall similar to the Great Depression. Currently, people cannot just go out to shop like they used to. And there is a good chance that when that can resume, with the mass closings of so many retail stores, shopping will not recover for some time.
- Climate change — Is climate change our Dust Bowl? In some areas of drought, most certainly yes. But almost worse are fires related to drought in the West. Floods, rising sea levels and frequent powerful hurricanes and tornadoes made infinitely worse due to climate change.
- Tariffs — President Trump imposed tariffs on goods coming in from China which was arguably one of the dumbest things he has done while being President and that’s choosing one from a lot of stupid decisions. The worst part is that he tried to sell it by saying China was paying for the tariffs which was one of his biggest lies. As with any tariffs the businesses importing goods, or component parts, end up paying for them. They pass along the price increase to their customers — if they can. Or they go out of business.
- That doesn’t even count retaliatory tariffs that the Chinese imposed on the US. This, of course, drove many American farmers to declare bankruptcy because when the Chinese government imposed tariffs, the prices of American imports went up and Chinese importers just bought soy beans somewhere else, predominantly Brazil. These are exactly the same effects that the Smoot Hawley Tariff Act had during the Great Depression.
- Education reform — Americans have been educating students based on the Age we are in and the type of labor force we need for that Age. At the turn of the last century, people were working on farms and a lot of school kids dropped out of school after learning the basics. That’s all they needed to farm. Our current public school education system was developed to train the majority of students to become factory workers or middle managers. As we moved into the Information Age, employment options shifted to low level service employees like cashiers and warehouse workers or middle managers. And in the age of the Coronavirus pandemic, almost all education has been moved online. We have to find a sweet spot in education where children are taught different things in a different method.
- Transportation methods — When the automobile was invented, everything changed. Nationwide transportation was feasible. Highway systems were built to facilitate that. Gas stations popped up on every corner. Car factories employed thousands of workers. Now, online shopping accounts for so much of what we purchase and all of that has to be delivered. We need to be thinking about drone delivery with American employees designing and manufacturing those very drones.
- We need to think about electric vehicles and implement charging stations across the country. We need to evolve and reconstruct our transportation infrastructure. We should use light rail to connect major cities instead of driving or flying. Transportation is going to become more and more important. It is shifting just like it did from horse and buggy days to automobiles.
- We are transitioning to a new Age — We’re not going to need factory workers any longer. Most of those positions will be replaced by automation. We should build our own robots on a mass scale. We need to improve our education. We should allow US educated, college degreed, immigrants the ability to easily and legally stay in this country. We need to focus more on design. Let’s create our own robots and the automated assembly lines to produce them. Let’s sell those robots to other countries. For starters, let’s teach all our kids how to code.
We’ve got to be completely prepared for the Automation Age. We must think beyond the box and develop jobs for our citizens that incorporate robotics, artificial intelligence, computer science, alternative energy, industrial, UX and product design, including all paths towards unique new methods of transportation.
We need to pay a living wage so people can afford afford to live and pay their bills. We need to expand subsidized housing and health care. Perhaps we need to consider a Freedom Dividend, similar to what tech entrepreneur and Presidential candidate Andrew Yang recently spoke about. We have to imagine, plan and build a New Society. One for the future.
And if we don’t, our transition to the Automation Age will most likely push us into another Great Depression, one much worse than its original namesake.
This journey will be outside our comfort zone to be sure, but that is where the magic happens, “outside of our comfort zone,” right?
Let me know your thoughts and an item from your ancestors that you treasure? What do you plan on leaving to your children, or grandchildren? I would like to know.
This article was originally published by Cynthia wylie on medium.
Children's book author with Random House. Writer on Medium about entrepreneurship and economic @cynthiawylie. Believer in the power of stories. Writer for hire for children's brands, dolls and toys. www.cynthiawylie.com