Are We Sinking Into a New Great Depression?

June 26, 2009 — -- Have we dodged a bullet or is it still heading our way?

I'm in the southwest Oregon beach town of Bandon this week, as I have often been during the past 25 summers. Longtime readers will know that I periodically measure cultural change by leaving Silicon Valley -- one of the most atypical of U.S. communities -- and coming here.

I've watched and reported in the past dozen years as Bandon has grown from a sleepy village largely dependent upon fishing and logging, to a tourist town with the fastest broadband in the nation -- and best-known for three new, and famous, golf courses nearby.

Bandon is also the yardstick by which I measure the changes in my own life. I first visited this town with my parents as a 13-year-old in the late 1960s. I returned in 1984 for my honeymoon. Both of my boys came here as infants -- every day I'm here I drive by the hill where Tad broke his arm at age 9. Now, Tad is a new high school graduate heading off for Oxford, England, and staying home this summer in Sunnyvale to work. Meanwhile, Skip (Tim), who used to sit on the beach in his diapers and eat sand, is now a strapping 13-year-old. He's here with one of his eighth-grade buddies.

As I've often noted in the past, as much as I love Oregon, I also have few illusions about the state. My late father, who grew up in Eugene during the Depression, joined the circus the day after he graduated from high school and didn't return for almost 40 years. When I once told him that I thought the state would be "the Next Big Thing," he laughed and said, "Son, Oregon has been the Next Big Thing for more than 100 years."

And, sadly, he was right. Because Oregon is all but forced by geography to be the economic satellite of California -- even in tech, it is largely the land of manufacturing divisions of Silicon Valley-headquartered companies -- the state is inevitably one of the first into, and one of the last out of, any economic downturn.

So, how bad are things in Bandon these days? Well, keep in mind that despite having a few thousand residents, Bandon is really two towns: the inland town, composed largely of Oregon natives and near-natives, who are mostly permanent residents and live in small, low-cost homes, and the Bandon of Beach Loop Road, the big million-dollar houses lining the cliffs above the rocky beaches you see in TV commercials, mostly owned by retired Californians.

The Face of 15 Percent Unemployment

Inland Bandon, though it seems largely unchanged -- a few businesses have gone bust with none to replace them -- has suffered a burst of foreclosures. Meanwhile, out on Beach Loop, the for-sale signs -- always a summer phenomenon by owners looking to see if they can find a rich sucker -- are more plentiful than ever. And this is particularly true in the several new housing developments, which now stand forlorn, nearly empty and, if local rumors are true, many of them financially underwater.

I still make my morning drive down to Bandon Coffee -- but now the news on the radio is not the status of the local salmon run, but the fact that unemployment in the region has now reached 15 percent. I'm reminded that the during the Great Depression, that number reached 25 percent -- a figure I used to find unimaginable, and an experience so devastating that my 88 year-old Dust Bowl mother still hoards string and rubber bands and rinses out plastic bags even as she sits in her seven-figure, modernist Eichler home.

Fifteen percent unemployment and the Oregon legislature is preparing to raise taxes. As in California, the people have voted down tax increases, but the legislators refuse to believe them. Instead, they threaten to cut vital services as a sort of punishment for false consciousness by voters, even as they race to preserve as many state government jobs and perquisites as possible.

Fifteen percent unemployment. What does that look like? Well, we all may know soon enough. But what is most disturbing about it is that it doesn't look that much different. A few more beggars. A few less new cars on the highway. Fewer people in the stores. More vacancies at the local motels.

But, for the most part, as surveys are showing around the country, people are hanging on, holding off buying anything but the essentials, taking vacations closer to home, restructuring their debt where they can. There is a general, albeit nervous, sense that we've now gotten through the hard times and that prosperity, if not just around the corner, is at least not too far off.

But what if that isn't true? Taking advantage of the unsurpassed broadband in Bandon, I surfed the Web last night -- and thanks to Instapundit.com, found this story. Downstairs, my son and his friend are thrilling themselves searching out horror movies on cable TV. But, like most grown-ups, I don't need to search for scary things; they do an excellent job finding me. Like these charts.

Remember Your Eighth-Grade History

For several weeks now, I've had a disquieting feeling about the economy. And, I suspect, consciously or unconsciously, so have many Americans. I remember my parents telling me that their lives barely registered the stock market crash of 1929. Rather, the Depression hit full-force in 1931 -- and reached its full horror in 1933.

None of that will surprise anyone who took eighth-grade U.S. history. But what few people seem to know these days is that after the economy seemed to turn upward in 1934, it crashed again two years later. In fact, in many lives, that's when the real damage was done. That's when my great-grandfather lost the farm in Oklahoma -- the one he'd home-steaded 40 years before in the Land Rush. My father's family in Oregon went on relief, and my teenaged dad fed himself as a field worker by picking string beans (he never ate them again).

Look at those charts again. Nothing in them suggests that the stimulus of the past eight months has accomplished much of anything. On the contrary, almost every chart seems to suggest that we are making exactly the same mistakes of 1929-1939. It is almost as if it is programmed into human nature, and we can't help ourselves.

Every sane adult knows what it takes to pull out of an economic deadfall: You tighten budgets, cut inessentials, pay as you go and restructure your debt -- and hang on to your current job for dear life. And we also understand that, when it comes to a national economic crash, the same principles apply -- with the addition that you stimulate the economy briefly with increased spending, you cut taxes and loosen onerous regulations, maintain free trade because the alternative is so much worse, and you support innovation and new company creation in hopes that a new cohort of hot companies will help pull you out.

What you don't do is nationalize industries under emergency rule and make them less efficient, you don't conduct social experiments with large segments of the economy, you don't increase expensive regulations on industry, you don't pile on massive amounts of debt that will flatten any economic turnaround when it finally comes and that will take a generation or more to pay off, you don't turn against entrepreneurs as they are your last best hope, and you don't increase taxes on the most productive members of your economy.

Only fools and ideologues don't know all of this. And yet, that is what smart people in Washington did in the 1930s -- at the very moment when they seemed to have the Depression beaten -- and that is what Washington seems to be doing today. Perhaps we just can't help ourselves. Perhaps economic crashes are just so intrinsically heartbreaking, creating such a sense of betrayal in the electorate, that we can't help but turn on the one thing that can save us -- free market capitalism -- and reach in desperation for the weak straws of socialism, statism and, if worse comes to worse, absolutism and totalitarianism.

Brace Yourselves for Far Worse

And that worse may be coming soon. When the world seems crazy, it's usually because it is. It's too late for Twitter and the iPhone 3G or any other hot new product or technology to pull us out of this one. The country's entrepreneurs, abandoned and running out of money, are disappearing. Meanwhile, Washington, D.C., alone among all of the cities of the United States, is enjoying a boom.

It's a good time to be in government. It's not so good a time to be living in Bandon, Ore. And not even the roar of the waves can mask that little voice in your head whispering for you to brace yourself, because things may soon get a whole lot worse.

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000.