The second term of President Donald Trump has begun with a whirlwind of public initiatives of various kinds. Federal employees are being offered corporate-style buyouts, and agencies and whole departments are being upended. Transgender and diversity programs are a special target.
Tariffs and other forms of protectionism are becoming customary, sort of.
Yet globally, markets and economies generally remain stable. In earlier times, political turmoil often reflected economic distress.
The United States provides powerful stabilizing factors. Fed Chairman Jerome Powell and colleagues at the Federal Reserve Board continue to give priority to fighting inflation, providing a reassuring presence.
Labor markets remain robust. Working people, in an expanding number of sectors, are reversing their long-term decline in relative real income.
By contrast, including financial markets, the Great Depression remains distinctive. The 1929 stock market collapse proved to be the spark for a decade of terrible economic and political difficulty.
The drop was sudden and steep. From the peak of 381.17 on Sept. 3, U.S. stocks lost 25% value over two days.
November brought recovery, but only fleeting. By July 1932, stocks reached the historic low of 41.22. During the height of the selling frenzy, they traded in volumes not reached again until the late 1960s.
Stocks did not return to the 1929 peak until the 1950s. Public suspicion, as well as hostility toward bankers, defined American political life for decades.
At home and abroad, extremism flourished, including Adolf Hitler’s Nazi Party in Germany. World War II followed.
In the U.S., drastic reforms maintained established institutions.
The severe financial crisis of 2007-2008 could have brought a similar collapse, but governments reacted quickly and effectively to stabilize markets.
Commercial banks became more regulated, with capital requirements raised as part of the rescue. In 2010, the Dodd-Frank Act became law, including the important initiative of Paul Volcker to again separate commercial from investment banking.
Chairman Paul Volcker of the Federal Reserve defeated inflation in the early 1980s, and that example informs current efforts. Traditionally, the money supply and interest rates have been principal tools.
The Fed today controls a relatively small share of total dollars. At the same time, the global reserve role of the dollar facilitates ongoing private investment worldwide. Most importantly, markets today are generally more fluid and robust.
Finance is one component of our complex economy. Money is a universally accepted means of exchange, but tangible value results from the work of enormous, diverse arrays of people.
Regarding national security, our powerful national economy provides firm undergirding for military threats, crises and conflicts across the board. This was true throughout the 20th century, especially regarding the two world wars and the long Cold War.
We Americans should remember our important opportunities: First, the U.S. has the most productive economy in the world. Our gross domestic product has doubled about every two decades since 1940.
Second, as a citizen, be active. Sustained public oversight of financial activities is essential.
Third, as an investor, do homework. One resource is the classic book by Dodd and Graham, respectively a professor and a Wall Street genius, first published in 1934, regularly revised.
The basic truths of investing remain unchanged.
Also unchanged is the core importance of committed, dedicated workers.
This is the powerful foundation underwriting the initiatives, and adventures, of U.S. political leaders.
Also important is that Trump so far focuses mainly on media visibility.
Learn More: Benjamin Graham and David Dodd, “Security Analysis.”
Arthur I. Cyr is author of “After the Cold War – American Foreign Policy, Europe and Asia” (NYU Press and Palgrave/Macmillan).
Contact acyr@carthage.edu
