During the depths of the Great Depression in 1932 an Ohio lawyer named Benjamin Roth wrote in his diary:
People think if more money were printed business would be better. This is a false and vicious theory … I am personally very much concerned with the question of inflation and it seems to me there is a grave possibility it will come unless the government at once balances its budget. With an election coming this seems out of the question.
A few months later, he wrote:
There is also considerable discussion about the new science of “technography” which holds that new machinery has replaced many men in industry who will never find a job again.
When I first read those a decade ago I couldn’t believe how similar they were to what people said after the 2008 recession. Now they’re relevant again today. You can copy and paste those paragraphs into any current newspaper and they’d fit right in. Some things never change.
Roth felt similarly.
When writing his Great Depression diary he was struck by how similar the 1930s were to previous big recessions. “I have done considerable reading about the depressions of 1837 and 1873,” he wrote, “and I am amazed at the similarity to conditions today.”
A year later he researched the Depression of 1893 and wrote, “I am again struck by the similarity.”
The way people responded to decline and how politicians behaved and how greed and fear controlled investment decisions seemed identical. Some things never change.
Anthropologist Franz Boas says, “Every culture has its own genius and should be judged in its own terms.”
Sure, but every culture and era also share universal characteristics that repeat again and again. The same attitudes, the same flaws, the same stories that show up all over the place. They’re reflections of how people’s heads work no matter where they live or when they were born.
Social sciences get a bad rap because so many insights are hard or impossible to reproduce. I think the only solution is paying special attention to the few behaviors that have repeated themselves throughout history.
A few that stick out from economics:
1. No one knows how they’ll respond to risk and setback until they’re in the moment of terror.
Varlam Shalamov was a poet who spent 15 years imprisoned in the Gulag. He once wrote how quickly normal people can crack under stress and uncertainty. Take a good, honest, loving person and strip them of basic necessities and you’ll soon get an unrecognizable monster who’ll do anything to survive.
Under high stress, “A man becomes a beast in three weeks,” Shalamov wrote.
That, he said, is why history is full of so many unspeakable acts. It doesn’t take much stress for people to abandon their beliefs and say, “Fine, let’s go this other way now.” So you never know what people are capable of believing or doing until they’re backed in a corner.
The stakes are lower and outcomes far different, but a similar thing happens when people find themselves trapped in economic stress and uncertainty. There’s a long history of countries embracing policies they would have found unthinkable until they’re hit with an economic shock, when fringe ideas are quickly embraced.
Social Security was roundly rejected for decades, with straggling supporters arrested in the U.S. Capitol during one push in the 1920s. Then the Great Depression hit, and boom… practically overnight it was widely popular. The Social Security Act of 1935 passed 372 to 33 in the House and 77 to 6 in the Senate.
Same with 94% tax rates after World War II. Low taxes were the most popular economic platform of the 1920s, and anyone suggesting a hike was pushed aside. Then everything broke with a dual Depression and war.
In 1943 Franklin Roosevelt said: “I do not think that any American citizen should have a net income in excess of $25,000 per year after payment of taxes [roughly $375,000 adjusted for inflation].” He was reelected in a landslide the next year.
Same with the Reagan revolution.
Almost 80% of Americans had high trust in the government in 1964. Then the 1970s happened.
George Packer recently wrote:
After years of high inflation with high unemployment, gas shortages, chaos in liberal cities, and epic government corruption and incompetence, by 1980 a large audience of Americans was ready to listen when Milton and Rose Friedman blamed the country’s decline on business regulations and other government interventions in the market.
Same with stimulus packages of the last 18 months. Deficit reduction was such a big topic in the 2010s, even among Democrats. Then Covid hit, and the $2.2 trillion CARES Act passed the senate 96-0.
Time and again we see that preferences are fickle, and views that a big chunk of society would have thought unthinkable can be quickly embraced when the economy changes direction. So we really have no idea what policies we’ll be pushing for in, say, five or ten years.
Hard times make people do and think things they’d never imagine when things are calm.
Your personal views fall for the same trap. In investing, saying “I will be greedy when others are fearful” is easier said than done, because people underestimate how much their views and goals can change when markets break.
Bill Seidman, who used to run the FDIC, once said, “You never know what the American public is going to do, but you know that they will do it all at once.”
The same story, again and again.