What if the 1987 crash had been even worse?

[Straha]

What if instead of a recession, after the 1987 crash, we ended up with a full blown depression, like the one in the 1930's? How would the political climate be different, along with the international one?

Just a few random thoughts on this....

If there had been a global economic collapse in 1987-88, the first casualty is George Bush. Rising unemployment and inflation, combined with millions losing their savings in the stock market collapse, rebounds on the Reagan/Bush administration. Dukakis, campaigning on a Roosevelt-style "New Deal" wins the 1988 election.

In Europe, financial collapse means hard times for millions, particularly in Britain, as the critical housing market collapses. However, interest rates are cut by a desperate Bank of England, under Government pressure, to try and re-start economic activity. Again, the depression leads to the fall of Margaret Thatcher, not as a result of an internal plot, but at the hands of the electorate in 1991 who sweep Neil Kinnock to power.

Perhaps Gorbachev can hold the eastern European states together by pointing to the economic disaster in the West but he still pushes for reform.

No doubt there will be recovery during the 1990s. Most important, conservative-style laissez-faire economics are discredited for a generation. Interventionist economic policies with higher taxes and spending take over. People become wary of amassing wealth through property or by investment and retreat to gold, diamonds or Government bonds.

 

[Tom_B]

I remember that Crash well. It could have been worse but not much worse because dividend yields on many key stocks would've made them too atractive if their prices got much lower (yields and P/E's were not at the levels then they would reach around 2000).

 

[Ilta]

I'm not an economics expert, but I've always understood that the 1987 crash didn't become another 30's style Depression was in some large part due to the New Deal safegaurds FDR had put in place to get us out of the last one. Insured banks, the strengthened Federal Reserve, and other such initiatives created an excellent safety net that helped keep 1987 from being 1929.

In other words, unless you have a POD back in the 40's, OTL is going to be pretty much inevitable in this respect, and a POD that far back will make 1987's economy too hard to predict anyway. Of course, you could also have a repeal of that sort of thing by a recent, fiscally conservative President -- Reagan perhaps -- but you'd need a cause for that, too. Or a more conservative Supreme Court in either the 80's or the 50's might decide that bank insurance is a violation of federal powers.

And as always, the way that you take out these safeguards and thereby cause another depression will determine what the fallout is. Bush might go, but you might also have more important things to worry about when the cold-war-era USSR starts to crumble at the same time as the rest of the world.