Columns » Ernest Dumas

Parallels in panics



A bunch of times the past 150 years we were right here — the country in economic distress, millions disillusioned and the political order mesmerized by a paranoid minority convinced that government is in the hands of sinister forces and the social fabric threatened by demons from rum and foreign agents to immigrants and alien religions.

So does all that history give us a clue about what will befall the country from this long recession and the Tea Party's weird sway?

Not much, except this: The country recovers only after a long spell when a recession is brought on by financial panic, and the paranoia eventually turns on itself. The latter has already happened with the Tea Party. A movement formed in the fall of 2008 on rage over the government's bailout of financial moguls and the big automakers has morphed into a crusade to protect the financiers and big business from government and to promote the welfare of the rich.

Historians one day will have fun figuring out how that happened. An immutable law is at work and a Nobel Prize awaits the scholars who frame it.

Let's review the precedents.

Panic of 1873

The banking house of Jay Cooke & Co. (the Lehman Bros. of that era) went belly up and set off a chain of bank failures that led to what historians call the Long Depression. Cooke had helped finance the Civil War and the great railroad-building boom that followed (the subprime mortgage bubble of the day). Unemployment soared to 14 percent in three years, wages fell, 18,000 businesses closed, real-estate prices collapsed and farmers were devastated. Other crises contributed to the national funk: the Chicago fire of 1871, the equine flu pandemic the next year, a debt crisis brought on by the demonetization of silver and what amounted to an embrace of the gold standard.

The paranoid strain of politics would never again reach such peaks. The agents of evil were everywhere: liquor, tides of immigrants from Northern Europe with their guttural languages and orders from the Pope, railroad barons, Wall Street, gold bugs, European bankers and — always — the government that bowed to them.

Political movements and parties proliferated to give vent to the rage, mostly agrarian and labor. All were populist, the description that Republican pundits now assign to the claques that run under the Tea Party banner, suggesting that they want to put ordinary folks ahead of the privileged and powerful.

Blame fell on the Republicans, who had been in power since the Civil War. They suffered massive defeat in the congressional elections of 1874 and would have lost again in the 1876 presidential election, but the splinter groups — mainly the Populist and Prohibition parties — drained off enough votes that the Democrat, Sam Tilden, despite winning the popular vote by a good margin, lost by a single electoral vote.

Panic of 1893

The Philadelphia and Reading Railroad, which had led another torrent of railroad speculation, went bankrupt 10 days before President Cleveland's second inauguration, setting off another run on banks. Five hundred banks, big railways and 15,000 businesses failed, and joblessness soared to nearly 20 percent. The causes were many but Cleveland and the Democrats were blamed and, like the Democrats in 2010, went down to defeat in the 1894 congressional elections.

Farmers and workers gathered in 1896 under the Democratic banner and took over the party in much the way that the Tea Party, despite its small numbers, captured the GOP in 2010. They hoisted their leader, William Jennings Bryan, to the Democratic nomination under the cry of free coinage of silver, to the quiet dismay of President Cleveland and the party leaders, who thought silver had been the chief culprit in the collapse.

That classic struggle was a turning point in economic history. The Republicans under Bill McKinley battled for the gold standard and high tariffs, both the better for American industry, the "job creators," and they won. The populist movement faded over the next two decades.

Panic of 1907

Another bank panic sank the country into a recession, tripling unemployment and igniting populist fury again. Bryan returned to capture the Democratic nomination a third time, but he failed badly. The recession produced the Federal Reserve System, now one of the demons of the Tea Party.

Great Depression

You know the story of the great bubble of the '20s, the crash of '29 and the dismal aftermath. Herbert Hoover presided over nearly four years of it before leaving office so Franklin Roosevelt never had to take any blame. The Republicans, the financiers, the speculators, maybe some European Jews — they were the objects of the paranoia. FDR's jobs programs and social reforms proved only helpful, not magic, but the firebreathers couldn't settle on a champion in the 1936 elections after a political foe gunned down Huey P. Long.

Perot's Rebellion

The modern paranoid style was best represented by Ross Perot, who rose to fame in the recession of 1991-92. He said both parties were controlled by rich interests and wouldn't address the gravest crisis since the Depression — the vast national debt accumulating under Reagan and Bush I. Perot's issues dissolved when Bill Clinton turned deficits into surpluses and presided over the greatest business and job growth in history.

Now the rage is against a government run by a black man with an alien name and a sea of troubles brought on by liberals, unions, immigrants and gays. While the Republican bailout of the financiers was the founding grief, that's long forgotten. The corporate billionaires headed by the Koch brothers quickly bought the movement and it is on course with William McKinley. Get government off the backs and out of the pocketbooks of big industry and the rich, the job creators, and manna will flow.

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