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Those that fail to learn from history are doomed to repeat it. Winston Churchill Quote

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Autor:  sjisaac  19 May 2010
Tags:  History,  Churchill,  doomed,  repeat
Words: 2055   |   Pages: 9
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I do not believe "we" as a society, are capable of totally learning from previous generations mistakes. I believe, to some degree, that we are able to understand our past. We get information through stories from our forefathers, from our literature, as well as multiple other media sources that document the past. However, unless we experience things, we will not totally understand and believe things. I liken it to a child and a parent. As a parent you tell your children not to do things because you know the result will not be good. As a parent you have already done these things and want to protect your child from harm. An example would be not to touch fire because it is hot. When my daughter was very small we had a Citronella candle burning on the porch outside. She must have been 3 or 4 at the time. I remember telling her not to touch the fire many times knowing that if she did she would get burned. One night she must have decided she just had to see for herself if the fire was hot. She reached her fingers by the flame and got a slight burn on her fingers. She cried and had pain. As the tears rolled down her eyes I asked her why she touched the fire after I had told her it was hot. She could not provide me with an adequate explanation. Only that she wanted to see how hot it really was. Through her own experience she learned not to touch fire. That was ten years ago and I am sure she has never touched a burning candle since. I believe this tendency to learn from going through it yourself must be in our genetic make-up. We will only believe so much of what we are told. We must actually experience things to truly believe in them.

I also believe our country has a history that cycles. These cycles tend to repeat themselves in many ways. Kind of like the old saying "The more things change, the more they stay the same." In fact if you look back at great countries and civilizations in history the same mistakes are made over and over to different degrees. I believe part of the reason for that is because people have to live it to learn it. The wealth in America for the past 150 years or more has been controlled by what I call the one percenters. The one percenters are the 1% of people that control anywhere from 40% to 50% of the wealth in this country. With wealth comes great power and influence on our Federal, State, and Local governments. With these thoughts in mind I will discuss the depression of the 1930s and the current recession.

The great depression of the 1930s was a culmination of many events. The stock market crash, reduced spending by Americans, bank failures, and increased tariffs are all contributed to the great depression. During the 1920s times were good. Cash seemed abundant and spending was rampant. Credit was readily available to many Americans. There was a feeling of optimism by Americans that the good times were here to stay. With factories running at capacity and people spending at or above capacity all looked well. The previous 8 years the stock market had risen. This enticed people of all wage brackets to get into the market. People borrowed money and bought stocks on margin. They cashed in when the stocks went up. Bankers and investors persuaded many average people to invest their money in the market. People were looking for a way to get rich quickly. At this time the stock market was loosely regulated. A handful of men with a considerable amount of wealth could manipulate the market with various investments and divestitures. During the few months after the depressions stock market crash, investors had lost more than $40 billion dollars. The Federal Reserve did not get involved. It did not provide an injection of cash. It may have been the Federal Reserve's way of allowing irresponsible banks to fail. Maybe the Fed thought it was the right thing to do. The Federal Reserve had only been in existence for 20 years when the great depression hit. When the markets bubbled and crashed in 2009 it was similar to the depression. There had been a resounding return on stocks from 2003 to 2008. The Federal Reserve and our government observed a "hands off" approach to the market. Regulation of the market and derivatives was minimal. The Fed even discouraged regulators from probing too deep. A laissez-faire attitude was used with the market. When large investment companies began to fail The Federal Reserve and our government responded with an injection of cash and loans. Business and banks were declared too large to fail. The government used the trickledown effect philosophy. I personally do not believe this is the most effective and efficient way to get money in the working man's pocket. I believe it is government's way of allowing the one percenters to continue to be in control. It is still too early in the recovery to proclaim if this strategy worked or not. At this stage the markets are rebounding and the bleeding has stopped. Personally my investments are back to their pre-recession value. Manufacturing is slowly picking up, but unemployment is still around 10% and underemployment is most likely double that. It will be a few more years before we will know if what we did differently this time was effective or not.

In the depression of the 1930s over 9,000 banks failed. The FDIC did not insure consumer's deposits and people were simply out their money. If a bank survived the depression they were not willing to loan out money. This credit crunch greatly slowed the economy. With consumers not buying, retailers and manufacturers business declined sharply. It was not until World War II that manufacturing was able to recover. In the current recession we had a similar credit crunch. Close to 200 banks have went out of business since January 2009. When these banks went out of business the FDIC insured each depositors account up to $100,000. Banks went out of business during the depression and the recession because they loaned money to people or business that were not credit worthy. In the 1920s consumer credit became available to the masses with "buy now and pay later" programs. It was a great way to entice consumers to buy something they wanted but did not have the savings to purchase. It was a way to increase sales and grow business. This is similar to the housing bubble that was made by our lenders during the late 1990s and 2000s. Credit was made available to people that were not credit worthy. Through various changes over the years Freddie and Fannie were encouraged to lend money to people that were not qualified in previous years. Houses continued to be built and home values kept going up. People mortgaged and re-mortgaged their homes to buy more and more things on credit. When the housing bubble burst and peoples home values deflated, many Americans were in a heap of trouble. Many people had adjustable mortgage rates and when their rates went up, they could no longer afford to make the payment. High unemployment attributed to people not being able to make house payments as well. The housing market was saturated with more homes than people able to afford a house. Property values plummeted. This is an example of where the one percenters will continue to do well. With real estate at historic lows, one percenters are able to gobble up property at bargain prices. It seems as though we did not learn our lesson about extending credit to those who do not have the means to repay what they borrow. The unknown fact in this recession is how much of our real estate will be purchased by foreigners. Time will tell how much of our land will be owned by non-American people as a result of poor lending practices.

In June of 1930 the Smoot-Hawley Tariff Act was enacted. This raised tariffs to record high levels. The tariff was intended to help farmers get better prices for their crops here in America. What the tariff did was slow trade with other countries. When American businesses were not able to ship products to foreign markets they lost a considerable market share. The current recession was not impacted by tariffs but was impacted by the continuing trade deficit. Since the 1970s, our country has continued to grow a trade deficit with countries around the world. A large part of our deficit is the result of losing jobs abroad and importing products made with cheap labor in another country. This deficit is a vicious circle. American consumers demand cheaper prices. To get cheaper prices, manufacturers move abroad to find cheaper labor. Jobs are lost here at in America as a result. I believe we are at a point where we cannot afford to continue to ship jobs abroad to drive prices down. With unemployment around 10% there are fewer people with money to spend. Our government is extending unemployment benefits to keep consumers spending. This spending of money we do not have will not benefit our country in the long run. Americans need to find a way to bring manufacturing back home or we will be in a precarious situation for decades to come. It is not quite the same but it seems we failed to manage our trading effectively much like we did in the depression.

In both the recession and the great depression consumers tightened their belt buckles. With consumers spending less and saving more, retailers have a difficult time moving product. This will continue for many years to come. I have a great aunt who is now 95 years old. She lived through the depression. Her entire life she was a saver. She never bought anything on credit. To this day she lives a meager life style. I believe many Americans who just went through this recession have changed the way we spend and save. One line that caught my attention in the film during class was the statement that there is a downturn in the market every 20 to 30 years. That is the financial memory of people and in that time there will be new suckers to put their money in the market.

In Conclusion I believe the current recession is a failure to learn from history. I believe we will continue to have recessions or depressions every 20 to 30 years because the next generation will have to learn for themselves what we just went through. When comparing the depression of 1930s to the recession of 2008, we learned some things that softened this recession and made it more tolerable than the depression was. I do not believe we are capable as a race to learn without experiencing things firsthand. The one percenters will continue to have much influence and control of our government and financial systems for the foreseeable future. When times are good a laissez-faire, free market approach will be taken and greed will get the best of people one more time.












Works Cited

http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm
http://uspolitics.about.com/od/economy/tp/what_caused_great_depression.htm
http://www.investopedia.com/articles/economics/08/cause-of-great-depression.asp
Roars, Johnson, Cohen, Stage, Lawson, Hartmann. The American Promise. Bedford/St. Martin 2009
The American Experience. The Crash of 1929. Produced by Ellen Hoyde & Muffie Meyer
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
http://americanhistory.about.com/od/greatdepression/f/smoot_hawley.htm
http://www.tradingeconomics.com/Economics/Balance-Of-Trade.aspx?Symbol=USD

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