Weather forecasting stimulated people’s imagination as to what modern science could achieve. By the 1890s, newspapers routinely published weather forecasts daily. Such repetition ensures the strong epidemic potential of meteorology narratives. These narratives also suggest an analogy to economic forecasting: changes in public confidence seem analogous to shifting winds or air pressure. Indeed, people will say that recovery, pessimism, or some other inclination “is in the air.” It seems natural for people to think that if the meteorologists can forecast the winds, then economists should be able to forecast recessions.
To the extent that the public believes economic forecasts of booms or recessions, there may be an element of self-fulfilling prophecy in the economic forecasts. People hear economists’ pronouncements that a recession is imminent and thus postpone activities that might stimulate the economy. Conversely, because these scientists/economists note that past recessions have always ended, people may come to expect any given recession to end. Suppose, by analogy, that weather forecasters everywhere say that they have information to indicate that a certain region is in danger of bad storms, and that the danger from such storms typically lasts six months. People might therefore cancel many activities for six months, and economic activity might fall for six months. With economic forecasts of a recession, people might observe other people decrease their spending after the warning and take that as evidence of a storm of lost confidence.
The idea that economic fluctuations tend to repeat themselves follows an older scientific tradition that has had a prominent place in modern culture. For example, astronomer Edmund Halley noted in the year 1682 that comets sometimes appeared at intervals of 75.3 years. He hypothesized that the same comet was returning again and again, and he predicted it would be visible from Earth again in 1758. Halley was proven right, and to this day Halley’s comet returns every 75.3 years, though the comet has faded so much that in its latest arrival in 1985–86 it was almost invisible. The story of Halley’s comet is a great one that remains vivid in the popular memory. A constellation of narratives is now built around it, such as the story that Mark Twain, born in a Halley’s comet year, predicted his own death 75 years later when Halley’s comet returned again.
The earliest ProQuest News & Newspapers mention of the business cycle came during the depression of 1858, and it appeared alongside a reference to weather:
Some, claiming to be learned in meteorology, say the seasons ran in decades: it seems also that there is a sort of business cycle of the same length of time; and it happens very fortunately that the decimal panic comes at the same time with the mildest winter. Whether this is a coincidence or a providence, or whether it is a fact at all, I leave for others to decide.9
The idea that business fluctuations are a repetitive cyclical event with a wavelength of a decade, or any other identifiable fixed interval, has become less popular with economists, but the narrative that recessions and drops in confidence are somewhat periodic and forecastable remains entrenched in popular thinking.
Weather forecasting also inspired the idea that there ought to be statistically documented leading indicators of future economic fluctuations. Within a decade after the 1929 stock market crash that preceded the Great Depression, Wesley C. Mitchell and Arthur F. Burns in 1938 pioneered the leading indicators approach to economic forecasting, which encourages people to move into precautionary mode in their economic decision making after a decline in the stock market, thus possibly creating the very recession that was forecast.10 Leading indicators today include the Department of Commerce’s Business Conditions Developments (now melded into the Survey of Current Business), the Conference Board’s Composite Index of Leading Indicators, and the OECD’s Composite Leading Indicators. A ProQuest or Ngrams search for the term leading indicators shows that the idea has undergone a long slow epidemic starting around the 1930s and is still going strong.
Confidence as a Barometer for the Economy
Just as we can measure air pressure, we should be able to measure confidence. In addition, unlike air pressure, confidence might be subject to influence, in which case good patriots are morally obligated to support public confidence. Indeed, Calvin Coolidge, the president of the United States from 1923 to 1929, took it upon himself to boost public belief in the economy and in the stock market.
There was great controversy over Coolidge’s reassurances, sometimes called the “Coolidge-Mellon bull tips.” In a 1928 Atlantic article, Ralph Robey identified a pattern: practically every time the stock market declined significantly or the public decried speculators’ high level of borrowing to purchase stocks, either President Calvin Coolidge or Treasury Secretary Andrew Mellon made a very optimistic statement about the market or denied any problem with overspeculation.11 Robey doubted that there was any rational basis for Coolidge’s and Mellon’s optimism, which he interpreted as an effort to maintain public confidence in the stock market.
The Coolidge-Mellon bull tips may have been part of the administration’s attempts to mollify the influentials who feared any disturbance of investor confidence. A 1928 article in the Wall Street Journal observed:
Chief executive of one of our leading industrial corporations was discussing the market with some friends not long ago. “I am bullish on our own stock for the immediate pull,” he remarked, “and I would like to take on a line of the stock. I do not speculate, so of course the stock would be put in my name. The trouble is selling it. I have all I want to carry for the future but if I sold any stock the employes would soon hear of it and they are in most instances shareholders and it might not only disturb them but actually give them a hint to get out of their investment holdings. Hence I leave what I know to be a good quick thing alone.”12
The market crashed in October 1929. Eight months earlier, in February 1929, the Federal Reserve Board had warned that the Federal Reserve would not support banks that loaned into a rising market. It qualified its statement by noting that it “neither assumes the right nor any disposition” to pass judgment on “the merits of a speculation,” but the investing public read between the lines and reacted intensely and immediately.13 The Washington Post reported on a “hectic battle between the Federal Reserve and Wall Street,” with Wall Street largely of the opinion that the Federal Reserve should mind its own business.14 On August 9, 1929, just two and a half months before the crash, the Federal Reserve Bank of New York raised its rediscount rate (the rate at which it lends to banks). Never before in the nation’s history had there been a government authority with a mission that could be interpreted as stabilizing the stock market. The narrative of the “battle” between Wall Street and the Fed probably added to the contagion of stories that attached great importance to the stock market crash of 1929 in the following months. It also led to a widespread impression that people in the know were sensing overspeculation.
After the crash, disillusionment with prognostications by public officials, businesspeople, and journalists intensified. In 1930, one observer said, “Unfortunately, there appears to be a strong tendency among writers on business subjects to put out nothing but optimistic statements and to avoid all discussion that might be construed as pessimism.”15 In 1931, Alexander Dana Noyes, the financial editor of the New York Times, noted, “Men of affairs, when they affix their names to New Year Day prophecies, will seek for a hopeful side and so exclude any disagreeable offsets.”16
At the same time, no one wanted to be accused of shouting fire in a crowded theater, worsening the public’s fears and possibly causing a stampede out of the markets. The original narrative of a fire in a crowded theater goes back to about a half century before the crash, to 1884, as reported in the New York Times:
The curtain rose in a crowded house at the performance of “Storm Beaten” in the Mount Morris Theatre, in Harlem, on Tuesday night. The fire scene was being enacted, when the cry of “Fire!” three times repeated rang through the building. Many blanched faces were visible in the audience but the continuance of the play gave r
eassurance and a panic, which was imminent, was averted.… A youth named Francis McCarron, residing at No. 2,446 Fourth-avenue, was pointed out by Louis Eisler as having caused the alarm, and the Roundsman and Policeman Edmiston took him into custody.… Justice Welde sent him to the Island for one month.17
The “fire in a crowded theater” narrative did not seem to catch on right away, however. Later, the narrative was mentioned in a 1919 Supreme Court opinion written by then Justice (later Chief Justice) Oliver Wendell Holmes, Jr. It thus became connected with a celebrity. The narrative started to pick up a little in the 1930s, and then went viral after that.
Throughout the 1930s, the idea took root that the Great Depression resulted from an epidemic of “reckless talk” by opinion leaders who were oblivious to its psychological impact.18 In reality, though, prominent people seem to have been very aware of the possible psychological effects of their talk, which led to the creation of another narrative: thought leaders were now so worried about their talk inciting fear that the public began to assume a general bias toward false optimism. In other words, John Q. Public believed that thought leaders were trying to sound optimistic and that the listener had to correct for that overconfidence. It is easy to see how expectations may have become much more volatile in such an environment.
In keeping with earlier narratives of panic, many people also saw the Great Depression as a stampede or panic. When people saw other people running from the Depression, their fears made them run too. This sense of fear took strong hold on the public imagination. Yale economics professor Irving Fisher wrote in 1930:
The chief danger, therefore, did not inhere in conditions at all. It was the danger of fear, panicky fear, which might be communicated from the stock market to business. “My only fear is the fear of fear” are the words of a courageous man.19
Thomas Mullen, assistant to Mayor James Curley of Boston, made a similar statement in 1931:
I believe the only thing we need to fear is fear itself.20
Later, in 1933, the worst year of the Great Depression, President Franklin Roosevelt said in his inaugural address,
So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.21
Thomas Mullen was not a celebrity, but President Roosevelt was. So Roosevelt went viral as the originator of the idea, taking credit for an idea that sounded right because it had already been repeated many times. This articulation of the fear of fear itself may today be Roosevelt’s most famous quote,22 and ProQuest News & Newspapers shows that it was used even more frequently in the first decade of the twenty-first century than it was in the 1930s.
But viral narratives are not easily controlled, and they may have unintended effects. Describing everyone as fearful and emphasizing the need for courage may create some patriotic resolve not to be fearful. At the same time, such exhortations make it doubtful that others will truly cast aside their fear. Thus identifying the problem as one of fear may only worsen the problem.
Other narratives of the 1930s focused on ending up in a poorhouse so overcrowded that one had to open a cot every night to sleep among many others in a common area and to fold up the cot every night to yield the floor space to other activities.23 There were also narratives of getting sick and having no money to pay a doctor.24 Even if these narratives were exaggerated, they reduced willingness to spend on anything but the barest necessities. As a result, people neglected routine dental work to conserve money, ultimately leading to painful dental emergencies.
Roosevelt also offered moral reasons to spend. Days after his inauguration in 1933, he took the unusual step of addressing the nation by radio during a massive national bank run that had necessitated shutting down all the banks. In this “fireside chat,” he explained the banking crisis and asked people not to continue their demands on banks. He spoke to the nation as a military commander would speak to his troops before a battle, asking for their courage and selflessness. Roosevelt asserted, “You people must have faith. You must not be stampeded by rumors or guesses. Let us unite in banishing fear.”25 The public honored Roosevelt’s personal request. The bank run ended, and money flowed into, not out of, the banks when they reopened.
We are still influenced by this narrative constellation. Although the overall narrative has not been powerful enough, or not used well enough, to prevent recessions, it remains in our consciousness and may reassert itself if conditions change. Meanwhile, we are now in the habit of listening to the stock market’s closing price at the end of every business day, often interpreting it as an indicator of public confidence. We also follow the various monthly confidence indexes, not because economists urge us to, but because we are still subject to the old narratives suggesting that public confidence can break as suddenly as a shout of fire in a crowded theater.
Narratives Focused on Mass Unemployment
We can look for lists of the causes of the Great Depression created during the Great Depression. These stated or speculated causes tend to correspond to events whose confluence brought on the Depression. For example, Willard Monroe Kiplinger, the founder of today’s Kiplinger publications, offered the following list of causes in 1930, early in the Depression:
The causes of unemployment are loosely stated as follows:
The development of machines which do the work of many men under the direction of a few men; this is the technological aspect.
The overloading of industrial centres with men attracted or driven by circumstances from farms to cities.
The entrance of women into jobs formerly held by men.
Immigration, which is now less of a factor in unemployment than years ago.
Business depression, which is such a broad subject as to include both causes and effects of unemployment.
These are pretty theories, and there is a large element of truth in each of them, particularly the first, relating to the development of labor-saving machinery. The point needing emphasis is, however, that no one of them supplies an answer, nor even all five, for all have ramifications that have never been studied or explored by qualified authorities.26
Only one of Kiplinger’s five causes would come to mind today in our current popular narrative of the Great Depression: the business depression, which today most would say is related to loss of confidence. But Kiplinger published his list in 1930, and as the Great Depression wore on, more and more people began to think of it as driven by a loss of confidence.
Kiplinger’s list refers to facts, not to narratives, but we can suppose that each of the five causes corresponds to a popular narrative of 1930 and thus is connected to other narrative constellations that are difficult to study. It is worth noting that some or many of these narratives probably had a long-term orientation, implying that the Great Depression would go on forever.
As the 1930s wore on, the Great Depression narrative began to be infected with stories of the environmentally catastrophic Dust Bowl in the central United States, the sequence of storms from 1934 to 1940 that hit Oklahoma, Kansas, Colorado, and Texas, blowing off improperly managed dried topsoil and destroying farms. John Steinbeck’s 1939 novel The Grapes of Wrath, which chronicled the travails of a family of migrant farm workers, helped to cement the association between the Great Depression and the Dust Bowl. The Grapes of Wrath was a best seller, later made into a 1940 movie starring Henry Fonda. The book won the Pulitzer Prize, the National Book Award, and the Nobel Prize in Literature, and it has been assigned to US high school and college students ever since. It is part of the constellation that has driven the Great Depression narrative.
In her photographic record of the Great Depression, Dorothea Lange gave us memorable photos of poverty-stricken people in the Dust Bowl. Along with Lange’s stark portraits, photos of drab despondent men standing in a breadline; a man selling five-cent apples, stacked neatly on a small wooden box or table on a city street; people lining up outside ban
ks; and life in a Hooverville (shantytown) provide us with a visual memory of the Depression today.
The 1930s represented a turning point in economic measurement. Until then, no statistics reliably measured unemployment. The national census of the United States had provided numbers of people working and not working, but those not working included the elderly, the sick, those pursuing an education, stay-at-home mothers, and vacationers. By the 1930s, the statistics began to focus on the unemployment rate, which measures employment based on the size of the labor force, not on the size of the population. Since the end of the Great Depression, the monthly announcement of the unemployment rate may have encouraged thinking that we may be at risk for a repeat of that event. We can see the rise of the term unemployment rate sharply in Google Ngrams, though a significant increase did not occur until after 1960.
It may seem odd that the term unemployment rate did not receive more coverage in the 1930s, but the lack of coverage may reflect the public’s lack of familiarity with its quantitative representation. They did not yet clearly differentiate between involuntary unemployment and laziness and pauperism. In contrast, today’s narratives focus on blameless unemployment, the unemployment of those sincerely trying to find a job.
A Different Narrative of the Great Depression Develops
The narrative of the Great Depression as it stands today would likely mention few of the causes that Kiplinger and others enumerated as it was happening. Instead, people today tend to identify the causes of the Great Depression as fear and a loss of confidence related to bank failures. Bank failures (and shadow-bank failures) were key narratives in the “Great Recession” of 2007–9. In his 1930 list, Kiplinger did not even mention bank failures, most of which happened after 1930.
Narrative Economics Page 15