A Brief History of Economic Downturns
On a summer trip to the local amusement park, there is always one kid in the group who can’t get enough of riding the roller coaster. What makes everyone else dizzy and a little queasy gives him an addictive shot of adrenalin that leaves him always wanting, “just one more ride.” At the amusement park that is the American economy, capitalism is a lot like that roller coaster, a never-ending ride with lots of twists, turns, ups, and downs – or booms and busts, if you will.
The US and much of the world is enmeshed in what may be one of the worst recessions in history, though some say there may be light at the end of the tunnel. While most Americans know about the Great Depression of the 1930s from history class, according to the National Bureau of Economic Research there have been a number of other major recessions over the course of our history which had a profound effect on the nation.
Hoovers Editors have compiled some selected highlights of America’s economic lowlights:
1. The Panic of 1819: War Is Good for Business
Once the fighting was over in the War of 1812, the fledgling American economy took a nosedive. Both the agricultural and manufacturing sectors slowed as demand for goods dropped and many American workers lost their jobs. That brought on a wave of home foreclosures, bank failures, and high unemployment. (1819-1824)
2. The Panic of 1837: The Cash Was Trash
The introduction of paper currency, new to the American economy, caused the failure of a large number of banks. Heavy-handed attempts to pay debts with paper rather than gold and silver panicked consumers and caused them to lose confidence in paper money and demand hard currency. (1837-1843)
3. The Panic of 1857: Too Big to Fail
A single major company, The Ohio Life Insurance and Trust Company, went under and dragged the entire US economy down with it. Ohio Life’s failure was tied to European financial speculation on US railroads and triggered a wave of bank failures that caused some 5,000 other businesses to close in a single year. (1857-1858)
4. The Long Depression: A Nation Reunited, But Broke
Rampant financial speculation in the years following the Civil War - combined with economic problems in Europe - finally burst the post-Civil War bubble. The recession was mainly due to the failure of Jay Cooke & Company, the largest US bank at the time, and the Coinage Act of 1873, which depressed the price of silver. (1873-1879)
5. Panic of 1907: Short But Not Sweet
A run on a single bank, the Knickerbocker Trust Company, in October 1907 led to the first severe monetary crisis of the 20th Century. While the recession lasted only a year, it had a devastating effect and caused massive job losses, numerous business failures, and pushed many financial institutions to the brink of collapse. (1907-1908)
6. Post-World War I: No Dough for Doughboys
A combination of hyperinflation in Europe and the end of US wartime production caused a brief but severe downturn in the American economy. The influx of hundreds of thousands of American soldiers returning from the war caused high unemployment and labor unrest, a lesson not forgotten at the end of WW II. (1918-1919)
7. The Great Depression: Buddy, Can You Spare a Dime?
The collapse of the stock market and the American banking system sent the nation – and indeed the rest of the world – into a catastrophic economic depression. The crash caused the loss of billions of dollars and massive social upheaval, particularly in the Midwest. Some economists say the Great Depression did not officially end until the beginning of WW II. (1929-1933, 1937-1938)
8. The Oil Crisis: Pain at The Pump
In 1973 a group of oil cartels from the Middle East placed an embargo on the US in retaliation for its support of Israel after the Yom Kippur war. Petroleum prices quadrupled overnight, pushing consumers into long lines at the gas station and sending Western economies reeling. On the heels of years of government spending during the Vietnam War, the oil crisis pushed the American economy into several years of stagflation – stagnant growth and high inflation. The stock market dropped some 45%. (1973-1974)
9. The Dot-Com Bubble & 9/11 Attacks: A Double Whammy
The collapse of the overvalued Internet industry and the September 11, 2001 terrorist attacks combined to pull the rug out from under what had been a decade of strong economic growth in the 1990s. Though short-lived, it left some sectors of the American economy – such as aviation, tourism, and high tech manufacturing – wounded and struggling for many more years. (2001-2003)
