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home : opinion : e-opinion August 17, 2017

8/9/2017 2:10:00 AM
Watch Out For The Bulls
Herbert Hoover 1928 election campaign brochure.
Herbert Hoover 1928 election
campaign brochure.

Wayne Howard
Staff Writer

It was just over eight years ago that the value of stocks on the New York Exchange hit their lowest point during the recession.  Since then, values have tripled--something that has happened only five times in history over an eight year time frame.  

The recent record highs, the report of the lowest unemployment rates in years, and other business news has created an unbridled optimism that some are comparing to 1928--the era of prosperity fueled by borrowing that eventually led to the 1929 stock market crash and the Great Depression.


We may not be in for another 1929, but some are saying we are likely to see another October 1987. That--and not 1929--is when the stock market suffered its biggest one-day percentage loss in history.

There are obvious parallels--and some are indeed frightening. The price/earnings ratio was about 20 times earnings in 1987 compared with 23 times today.

President Donald Trump warned that stocks were a "big, fat, juicy bubble" before the election. He also said the low unemployment figures of the later Obama years were a myth--they didn't tell the whole story. Of course, he's singing a different tune now.

Unemployment rates have fallen almost everywhere. The national unemployment rate dipped to 4.3% in July. North Carolina's rate is down to 4.2%, the lowest in 11 years. In Lincoln County, June (the latest county by county figures available, released last week) saw the lowest unemployment rate in 17 years. The June rate was 3.7%, the sixth lowest of any county in North Carolina, and the lowest since the 3.3% rate in June 2000.

President Trump is, of course, happy with the figures. But he may have been right in his pre-election statements.

One big area of concern in the unemployment figures is that nationally, the current workforce participation rates of men has fallen to 69 percent--even lower than the 86 percent in 1948, the lowest level previously on record. The rate is lower even than the rate during the Great Depression.

The unemployment rate most often reported--and the one we've referenced--is the so-called U-3 rate. It's noteworthy that other rates, figured differently, have enjoyed about the same reduction percentages in unemployment during the boom. Some say that the rate is faulty because it doesn't include those who have given up on trying to find a job or who are working part-time but would rather be working full-time. The first group is actually considerably less than one percent of the working age population; and the latter is less than three percent.

The percentage of Americans 18-64 who are working or want to work is currently at 63%--the lowest this century. Also not included in the unemployment rate are the disabled--a figure that has grown 40% this century--currently over nine million people.

We don't mean to rain on the parade, but despite all the good news, there is certainly reason for concern.

Two years before the great crash of 1929 and the onset of the Depression, President Calvin Coolidge declared that America was entering a new age of prosperity. In 1928, Herbert Hoover campaigned on the slogan "A chicken in every pot and two cars in every garage." The 1920s economic bonanza was fueled by federal tax cuts, notably for those earning more than $100,000 (and in 1928 dollars--so we're talking about that well-known 1%) as well as installment buying that enabled ordinary Americans to drive the new cars and buy other things they could barely afford (and only if things continued to go well). It was a period without any significant regulation of businesses or banks.

Coolidge's America was isolationist, protectionist, and shielded by a conservative judiciary favoring the rights of business. Both Coolidge and Herbert Hoover, his successor, viewed their roles as managerial rather than Presidential. Prosperity in the Coolidge years did not eradicate poverty. Millionaires who paid no taxes and poor people who went hungry was then and is now the most dangerous social fact in America.

More Americans than ever (now more than 10%) currently receive EBT (food stamps). In Lincolnton, over one-fourth of the population currently lives below the poverty line. The gap between the rich and poor is bigger than ever; Congress can't agree on a healthcare plan that provides healthcare for all Americans; and if things do take a downturn, millions will find themselves in serious trouble. Those who do not learn from history are doomed to repeat its mistakes.


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