John Kenneth Galbraith’s authoritative work on “The Great Crash 1929″ does more than remind us that history can repeat itself; it shocks us how quickly it is forgotten. Writing in the early 1950s, Galbraith of course could not foresee our present predicament, and was not one in any case to make predictions, asserting that “very specific and personal misfortune awaits those who presume to believe that the future is revealed to them.”

Not only does a great deal of commentary currently claim to know what economic lurches lie in the months ahead, but to a greater extent it ignores the lessons that can be learned from those that have past. Obligatory reference is made to the Great Depression but usually only as a measure of how bad this economic crisis is, and how best to get out of it. Democrats say we need New Deal spending and Republicans say rather than a Raw Deal we need tax cuts.

However, by focusing on Roosevelt’s Keynesian policies, begun in 1933, these pundits neglect to mention 1929, the year that the lines on charts started plunging south and the year surely that most mirrors this. The parallels are spooky at best and outrageous at worst; outrageous because they lie largely in the pages of dusty books. 1929 saw a real estate boom, speculation in the stock market, and banks and investment trusts leveraged so that a $500 fund could grow in just a few years to have an on-paper value of almost $700 million. 1929 harbored a criminal of Madoffian magnitude, doted on economists who claimed to know the answers and was soothed by a presidential voice that offered that careworn reassurance: the “fundamental business of the country” is sound.

With complicated financial forces at work, it is hard for the layman to comprehend how all this happened, how all the white magic that whizzed about on Wall Street turned black. So, understandably, we turn to economists for an explanation. Suddenly these sages are the rock stars of the academic world, rolled out and quoted by newspapers and politicians when it suits their agenda. Paul Krugman is the champion of the Left, a Nobel prize winner who advocates more government spending; more even than has been promised. Robert Barro, of Harvard, is emerging as Krugman’s nemesis, the champion of the Right because he says the government action will not work and that it is “more likely that the economy will eventually recover despite these policies, rather than because of them.”

Whom are we to believe? I’m inclined to say neither. In 1929, just before the crash, Professor Irving Fisher of Yale said, “Stock prices have reached what looks like a permanently high plateau.” Joseph Stagg Lawrence, of Princeton, opined with wordy certitude that, “the consensus of judgement of the millions whose valuations function on that admirable market, the Stock Exchange, is that stocks are at present not over-valued.” A whole team of economists from Harvard, the Harvard Economic Society, actually predicted that a recession was on the way, but when the good times continued into the summer, they admitted they had made a mistake. That same Society, in late 1929, at the start of the ten year Depression said “a depression seems improbable,” then, “manufacturing activity is now definitely on the road to recovery,” then a month later, “The outlook continues favorable,” and after another month, “by May of June the spring recovery forecast in our letters of last December and November should be apparent,” and so on and so on until August 1930, when a puffed missive declared, “the present depression has about spent its force.” After one or two more absurdly positive and premature forecasts, the Society was dissolved.

After the crash economists of course offered their explanations for it, not cowed by previous failures. Of this Galbraith says, “Much of it tells what went wrong and why with marked firmness. However, this paradoxically can itself be an indication of uncertainty. When people are least sure they are often most dogmatic.” Krugman on the Left, Barro on the Right.

So if we can’t trust the economists, who can we trust? Barack Obama? Well the new President is certainly making some tranquil noises and surrounding himself with some intelligent men and women, the sort of omniscient super humans who can make things happen. Obama’s stern tone and understanding of the crisis indeed earned my trust, so you can imagine my dismay when the President and his team today said, yes, the economy is “fundamentally sound.” When John McCain, during the election race, said, “The fundamentals of our economy are strong,” he may as well have taken out a shotgun and pointed at his feet. Now Obama is echoing the same line. The theory is that economic performance hinges on confidence; the confidence to invest rather than to horde one’s money. The problem is, this is exactly what Herbert Hoover did. He surrounded himself with the captains of industry, people who surely knew what was going on, and in said May 1930 that “we have now passed the worst and with continued unity of effort shall rapidly recover.”

I am not saying that we are about to enter a ten year depression, but it is a healthy practice to question the words of our leaders and understand why they are saying what they are saying. One careful prediction that Galbraith does make is that should an economic crisis of similar magnitude occur again there will be the same sounds of reassurance. He was right. He also says that Federal insurance of bank deposits should prevent recessions becoming Great Depressions: “Rarely has so much been accomplished by a single law.”

History also tells us that we can be thankful for Bernie Madoff; or at least thankful he was caught. Now we have a scapegoat, a figure of hate, a man who epitomises the relentless greed what we think is the dent in capitalism’s breastplate. Without Madoff, we are not sure exactly where to direct our ire. The Great Crash provided the people with Richard Whitney, the Vice-President of the Stock Exchange and presidential confidante. More well known and held in higher regard even than Madoff, Whitney once was the toast of America when he went to the floor to buy steel stocks, during a panic, with a nonchalance that lifted the entire market. In the early 1930s, Whitney was a star witness at a congressional investigation into the crash; in 1938 he was arrested for grand larceny. Like Madoff, Whitney had been robbing Peter to pay Paul. Like Madoff, he was saddled with a lot of the blame that belongs with hazy principles rather than one man. The Security and Exchange Commission was designed to stop men like Whitney getting away with similar crimes again. This is the same SEC, of course, that missed Madoff.

Looking back will not give us the answers; if history truly does repeat itself then that makes us powerless now. However, in a time of great stress and uncertainty, it can be therapeutic to remind ourselves that past generations have lived through this before, and there ought to be no need to endure surprises.

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