Reasons America will not Repeat the 1920s
I predict history will disappoint those who think the United States will experience a 1920s style economic boom in the 2020s. Instead, I think America will face a different prosperity in the coming decade.
If you follow the business media, you have seen the headlines about the new Roaring 20s. The headline writers’ thinking is that America experienced an economic boom in the 1920s after the Spanish Influenza pandemic of 1919.
That scenario is not entirely true. The United States experienced a recession and a stock market retraction in 1920. In fact, the Dow Jones Industrial Average (the 1920s equivalent of the S&P 500) fell by 32% in 1920.
Thus if we repeat the 1920s, America will see a recession and a stock market collapse in 2021 followed by a boom in 2022. That recession could be bad, the unemployment rate hit 11.7% in 1920.
However, I do not think the United States will repeat the 1920s because 2020s America is a different nation in a different time. The factors that led to the 1920s boom are not present in 21st Century America.
Some reasons 2020s America will not be a 1920s Repeat:
1. 1920s America was a fast-growing nation. The Balance estimates America’s economy grew by 42% during the 1920s.
2. 2020s America is not a fast-growing nation. America’s real gross domestic product (GDP) grew by 4% in 2020, the Bureau of Economic Analysis (BEA) estimates. That’s a respectable level of growth, but it is hardly 1920s level.
3. In the 1920s America was transitioning from an agricultural economy to an industrial economy. Agricultural accounted for 18% of the US economy in 1920 and 12.4% in 1929. In comparison, agriculture comprised 5.2% of the US economy in 2019, the US Department of Agriculture estimates.
4. New technology, mostly automobiles, drove the massive economic growth in the 1920s. There were 26 million cars on the road by 1929. That led to new businesses including auto insurance, motels, restaurants, and gas stations.
5. Other new technologies that spawned new industries in the 1920s included radio and airplanes. There were 60 radio stations in 1922, there had been none in 1919. Annual air passenger traffic grew from 6,000 in 1926 to 173,000 in 1929.
6. It is too early to tell if modern technologies such as autonomous vehicles, battery storage, private space flight, and green energy will create new industries or enormous numbers of jobs.
7. 1920s technology created enormous numbers of jobs. In the 1920s, workers assembled most machines, including airplanes by hand. In fact, they sewed airplane hulls and wings together. Every 1920s machine required several laborers to build it. The nature of 1920s technology created thousands of new factory jobs.
8. In contrast, experts predict 2020s technology is a job killer rather than a job builder. For instance, Oxford Economics estimates robots could kill over 1.5 million US factory jobs by 2020.
9. Similarly, 1920s cars were fragile machines that required constant maintenance. The maintenance created jobs. 1920s cars were so fragile that almost every gas station had a mechanic.
10. In contrast, some observers predict today’s auto tech will kill millions of jobs. For example, the International Transport Forum forecasts autonomous trucks will kill 3.4 million to 4.4 million jobs by 2030. However, some experts disagree.
11. The United States was not the world’s policeman, or principal military power, in the 1920s. Something Americans forget is that the British Empire was still the world’s dominant power in the 1920s. Furthermore, His Majesty’s army and navy were the world’s police forces in the 1920s.
12. During the 1920s, the United States had a handful of overseas military bases in Latin America, a few Pacific Islands, the Philippines, and Shanghai. US troops withdrew from Europe and Russia in 1921, and there were no American forces in the Middle East in the 1920s.
13. Today, USA Today estimates that there could be 800 US military bases outside the United States. It is hard to tell how many overseas military bases exist because they are constantly building new bases.
14. There were around 220,000 US military personnel and civilian military employees serving in over 150 countries in February 2021, The US Department of Defense estimates. The US is the world’s police force in the 2020s, which will affect our economy.
15. To elaborate, in the 1920s, the US did not have to maintain a gigantic military establishment or huge overseas deployments. That freed up enormous resources to invest in the domestic economy. 2020s America, like 1920s Britain, does not have that luxury.
16. The United States had no serious economic rivals in the 1920s. During the Roaring Twenties, Britain was in terminal decline, China was being ripped apart by Civil War, Communism and civil war crippled Russia, Japan was still developing, and Germany was an economic basket case after World War I.
17. Today the US has a rival that could soon overtake it economically, the People’s Republic of China. Nomura Holdings estimates China could become the world’s largest economy as early as 2026, Fortune reports. The Centre for Economics and Business Research (CEBR) predicts China will overtake the USA in 2027 or 2028.
I predict history will disappoint those who expect the 2020s to be Roaring Twenties 2.0. However, not repeating the 1920s is not a bad thing. Remember, the Great Depression and World War II followed because the 1920s. If we do not repeat the Roaring Twenties, we could avoid a second Great Depression and a Third World War.