Economic downturns are inescapable

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With unemployment hovering at 9 percent and the economy just beginning to inch forward after four years, it can be helpful to remind ourselves that we've weathered these storms before.

And there have been a lot more thunderclouds than people may realize. In the past 120 years, the United States has been through 25 depressions and recessions.

One of the worst was a string of setbacks in the 1890s, which hurt many Americans just as badly as the Great Depression 40 years later.

The crisis began with the "Panic of 1893."

David Whitten, an emeritus economics professor at Auburn University, said it was triggered when cotton exports declined and the nation's gold reserves began to diminish.

That frightened thousands of Americans into rushing to withdraw their money from banks. The banks in turn called in loans they had made to businesses, forcing many to shut down.

Unemployment soared above 12 percent and didn't drop below 10 percent until 1899.

In their 2009 book "Animal Spirits," Yale University economist Robert Shiller and University of California at Berkeley Nobel Prize winner George Akerlof said the 1890s depression had the same psychological hallmarks as the Great Depression of the 1930s and the most recent recession.

There was a stock market bubble, followed by a collapse.

That was aggravated by three other ingredients: a lack of confidence (people remembered previous bank runs); stories of corruption (there was an upsurge in embezzlements); and a sense of unfairness (when businesses tried to reduce wages to compensate for falling prices, many workers forced shutdowns rather than take pay cuts).

The depression also transformed the nation's politics.

William Jennings Bryan campaigned on behalf of the Democrats in favor of the free coinage of silver, which would have caused inflation, allowing debt-ridden farmers and businessmen to repay their loans more easily.

The Republican party, which nominated William McKinley, just as staunchly advocated sticking to the gold standard so that bankers would not be repaid in inflated dollars.

Labor strife abounded, from the steelworkers' strike in Homestead in 1892 to the Pullman railroad workers' strike in Illinois in 1894, both of which led to armed conflict and deaths.

Economic crises also have spurred repeated populist uprisings, from the farmer-led People's Party of the late 1800s to today's tea party and Occupy Wall Street movements.

Michael Kazin, a Georgetown University authority on populist movements, said whether they are left-wing or right-wing, they tend to be driven by the idea that the heart of America is "the small business people and factory workers and sales clerks who are productive and do something useful for society."

The targets of populist outrage -- whether it is the government or Wall Street -- are depicted not only as overly powerful but as "not contributing anything to society."

While the Occupy Wall Street protests fit more with past populist campaigns that focused on corporate excesses, the tea party uprising can be seen as a natural culmination of steadily building discontent with the federal government, he said.

"The bias in public opinion for the last 40 years has been against government rather than against business. The government has made a lot of promises and is perceived as not having followed through on them," Mr. Kazin said.

Each time America suffers through a serious economic crisis, there is the fervent hope that we've finally learned our lesson.

But that doesn't mean the cycle won't repeat itself, Mr. Shiller and Mr. Akerlof wrote.

The economists said the depressions of the 1890s and the 1930s were "rooted in human nature, which remains as powerful a force as ever. People are still every bit as concerned about fairness, still vulnerable to the temptations of corruption, still repulsed when others are revealed in their evil deeds, still confused by inflation, still dominated in their thinking by empty stories rather than economic reasoning."

"Events like these," they warned, "cannot be counted as things of the past."

Mark Roth: or 412-263-1130


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