Ali’s blog

Mostly quant stuff with occasional digressions

Booms and busts

Posted by alifinmath on March 6, 2008

So foreclosures are at an all-time high. We don’t give news like this a second glance anymore, so inured and jaded have we become to the torrent of bad news. Yet the people who pay the price for the bust are not necessarily the same people who benefited big-time from the boom. It’s reminiscent of the “gay ’20s.” During that time, farmers’ incomes went down, and the wages of those who actually had to work for a living were stagnant at best. That boom period benefited only a small minority. When the bust came in 1929, there were well-publicised instances of executives diving off the ledges of Wall Street skyscrapers but of course the real price was paid for by tens of millions of ordinary Americans. The rich — by and large — continued to remain rich; perhaps the only thing that changed was consumption became less conspicious. As I seem to recall, the Rockefellers built themselves a $1m fitness centre in the depths of the depression (at a time when a dollar actually had some purchasing power).

So this is what boom-and-bust means: a minority gets even more obscenely rich during the “boom”, but come the bust, the poor are left holding the bag, as their hovels get repossessed and they lose their low-paying jobs. The attitude of the rich? Let them eat cake.

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2 Responses to “Booms and busts”

  1. Chris Prouty said

    I think you meant to say the “roaring ’20s”. I think that “gay” is a term usually associated with the 1890’s, as in the “gay ’90s”. This phrase has been twisted by a popular gay bar in downtown Minneapolis, which goes by the same name.

  2. alifinmath said

    I stand corrected and blush with mortification. Yes, the roaring ’20s and the gay ’90s. Upto this moment I thought the 1890s were also known as the “Gilded Age,” but just having done a quick search, I see the “Gilded Age” covers the period from the end of the Civil War to the start of WW1. My reading on the period has been sporadic: Doctorow’s novel, “Ragtime,” a biography of Clarence Darrow, and bits and pieces I’ve read of Rockefeller, Carnegie, Morgan and Vanderbilt. This does allow me to segue into disparities between rich and poor (which were only mitigated decades later by Roosevelt’s “New Deal,” and even later by Johnson’s “Great Society.”). Here is a link:

    http://www.pbs.org/wgbh/amex/carnegie/gildedage.html

    QUOTE

    Mrs. Stuyvesant Fish once threw a dinner party to honor her dog who arrived sporting a $15,000 diamond collar.

    While the rich wore diamonds, many wore rags. In 1890, 11 million of the nation’s 12 million families earned less than $1200 per year; of this group, the average annual income was $380, well below the poverty line. Rural Americans and new immigrants crowded into urban areas. Tenements spread across city landscapes, teeming with crime and filth. Americans had sewing machines, phonographs, skyscrapers, and even electric lights, yet most people labored in the shadow of poverty.

    To those who worked in Carnegie’s mills and in the nation’s factories and sweatshops, the lives of the millionaires seemed immodest indeed. An economist in 1879 noted “a widespread feeling of unrest and brooding revolution.” Violent strikes and riots wracked the nation through the turn of the century. The middle class whispered fearfully of “carnivals of revenge.”

    UNQUOTE

    The party for the dog reminds me of how an Indian maharaja (of Hyderabad?) once threw a birthday party in the 1930s costing sixty thousand pounds (when a pound could actually buy something) — for his dog. And now I read that an Indian magnate is building a $1bn 28-storey residence for himself in a country where a third of the population gets by on $1 a day.

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