Earn What You Spend

So what would a return to the Great Depression look like? Drake Bennett of the Boston Globe asks just this question, and finds a repeat would look quite different from the last.  

In essence - 

Unlike the 1930s, when food and clothing were far more expensive, today we spend much of our money on healthcare, child care, and education, and we’d see uncomfortable changes in those parts of our lives.  The lines wouldn’t be outside soup kitchens but at emergency rooms, and rather than itinerant farmers we could see waves of laid-off office workers leaving homes to foreclosure and heading for areas of the country where there’s more work - or just a relative with a free room over the garage. Already hollowed-out manufacturing cities could be all but deserted, and suburban neighborhoods left checkerboarded, with abandoned houses next to overcrowded ones.

So we wouldn’t likely see the kind of hunger we saw in the Great Depression.  Furthermore, many economists and urban planners alike have been predicting the death of suburbia and exurbia with the rise in fuel prices - any sustained downturn that is accompanied by deflation would only exacerbate this phenomenon.  You would have, in the words of one economist in the article, a number of ghost towns around the country.  

We likely wouldn’t go hungry (though we may forsake organic), nor would we want for clothing.  But we’d be hit in pretty significant ways: 

Housing, health insurance, transportation, and child care are the top expenses for American families, according to Elizabeth Warren, a bankruptcy law specialist at Harvard Law School; along with taxes, these take up two-thirds of income, on average. 

If we think healthcare is bad now, just imagine what would happen if ERs increasingly became the only viable medical option for those without health insurance.  It is also instructive to appreciate just how far gas prices have fallen since last summer - imagine living through this current financial crisis and paying over $4 per gallon of gas.   

Of course it is important to keep in mind just how far we are from another depression, as painful as the current situation is.  We are a long, long way from the unemployment rate of over 25%, and, regardless of their current generosity, we do have an incredibly well established welfare state.

As was reinforced by a number of panelists at a conference I attended yesterday, our confidence in our economy is what currently presents the greatest obstacle to growth.  Yet not everyone in the blogosphere is as pessimistic (or realistic, at least) as I am here: just read a number of the articles in this Carnival of Personal Finance.  It is, after all, called the smile edition.