Dust Bowl and the U.S. Stock Market
What do the 1929 stock market crash and July 2002 market troubles have in common?
August 6, 2002
The sharp decline on Wall Street is increasingly being compared to the worst previous financial calamity in U.S. history — the Black Friday stock market crash on October 28, 1929.
Back then, the fall in the U.S. stock market was followed by the onset of the Great Depression — and a severe crisis in America's farming heartland, which came to be known as the Dust Bowl.
It affected the vast American Plains region, where the drought and severe winds created crowds of dust that hung over areas measuring thousands of square miles.
In six sessions starting on October 23, 1929, the Dow Jones Industrial Average dropped around 30% of its value. In 2002, during two months between mid-May and mid-July, the Dow lost 25%, which is a comparable figure.
Moreover, the market's decline has been accelerating. In July alone, the Dow plunged by around 15% before trying to stage at least a bit of a recovery.
Overall, from its peak in September 1929 to its nadir three years later, the Dow shed almost 90% of its value. Of course, a loss of such magnitude has not been visited on Wall Street now.
It is hard to say whether a general economic collapse of the magnitude of the Great Depression will follow a massive loss of wealth which occurred in 2000-2002 in the United States.
Alarmingly, however, one feature of the 1930s is already in place. And it is once again occurring simultaneously with the decline in the Dow.
According to the National Drought Mitigation Center, as of early July, 44 of the 49 continental U.S. states were affected by drought.
Officially the drought has been declared mainly in Western and Midwestern States, in the mid-Atlantic region and parts of the South and New England. But a number of additional states are either under watch for drought conditions — or are recovering from drought.
To be sure, there are no dust clouds hanging over drought stricken regions today. And yet, there is an equally alarming phenomenon—wildfires. Massive wildfires have been seen in states such as Arizona and Colorado.
The intensity and frequency of fires has stretched U.S. domestic firefighting resources so thin that fire chiefs had to be recruited abroad to fight fires in the United States.
Back in the 1930s, the agricultural debacle that affected the American Plains was mainly man-made. While meteorological conditions exacerbated the situation, the root cause of the Dust Bowl phenomenon lies in the agricultural methods practiced in the region.
Farmers had plowed the prairies deeply and destroyed the grasslands, which had previously prevented soil particles from blowing in the wind.
Whether today's ecological disaster is man-made is quite controversial. Some believe that global warming plays a part, while others point to El Niño, the warming of the ocean surface around the equator.
And certainly both forest management methods and development patterns in the west have played a role in making wild fires there such a disaster.
Perhaps the saving grace is that agriculture is no longer a large part of the U.S. economy. Only 2% of U.S. workers are now employed in that sector, compared to 22% in 1929.
That means that the economic impact of today's drought on jobs will be much less than the problems of the 1930s. Of course, that still leaves the impact of the stock market decline — which could be bad enough.