The stock market boomed in the 1920s. Prices reached levels measured as a multiple of corporate earnings, which made no sense in terms of traditional rules of thumb for valuation. At the market peak in September 1929 40% of stocks were trading at prices above fundamental values for no reason other than that most investors thought the stock market would go up simply because it kept going up. Sound familiar?

By 1928 the Federal Reserve was worried about the inflated level of the stock market, fearing that the "bubble" of stock prices might burst suddenly and recession might result. By 1929, it seemed better to try to "cool off" the market by raising interest rates, to make borrowing money for stock speculation costly, to accept the risk that this might also bring recession. All policy options seemed to have unfavorable consequences.

In the 1920s new technologies helped propel the predepression boom. The spread of electricity stimulated markets for new appliances: irons, toasters, stoves, washers, vacuum cleaners and radios. Along with the spread of movies, radio’s arrival fostered a new national pop culture and politics. Even more transforming were automobiles-from 1920 to 1929, car registrations tripled. The hunger for mobility spurred feeder industries, from filling stations to road construction to motels. Mutual funds, then known as investment trusts, were booming. Stock market setbacks were temporary; people bought on the dips, and warnings about speculative excesses were dismissed as old-fashioned. Sound familiar?

Fast forward to the present. In the late 1990s the Internet and the dotcom boom, the rapid rise of new-age companies like Enron, the success of merger combinations like Worldcom and the seemingly unstoppable growth of conglomerates like Tyco fueled a period of stock-market euphoria. When Alan Greenspan was sounding his warnings in 1999, it sounded remarkably like a déjà vu...

In both periods, prior to the bust, Americans enjoyed astonishing prosperity. In both, novel technologies generated a boom. In both, there was faith that the economic system had permanently changed things for the better. In both, the stock market rose to unanticipated heights before it crashed. The SEC itself was formed in response to the excesses that caused market-crash of 1929. The new, stiffened post-Enron SEC rules are still playing out.

The Great Depression caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation’s banks, businesses and farms. It transformed national politics by vastly expanding government, which was increasingly expected to stabilize the economy and to prevent suffering. Social Security, unemployment insurance, and federal family assistance all began in the thirties.

At its nadir, the Depression was collective insanity. Workers were idle because firms would not hire them for work; firms would not hire workers because they saw no market for goods; and there was no market for goods because workers had no incomes to spend.

Globalism too was born in the pre-depression era. Cheap foreign labor lowered costs and improved profits, which drove imports of foreign made products and pushed labor offshore. This caused a decline in domestic employment and eventually exacerbated depression problems to the extent that there was a significant backlash and the start of labor-union protectionism.

Now, in the US in February 2003, total non-farm payroll employment fell by about 300,000, with unemployment at 5.8%. Job losses were widespread; 8.5 million people were unemployed and nearly 1.9 million people had been out of work for 27 weeks. There is no doubt that some of this domestic upheaval was caused by job-shifts to lower-cost countries.

Already a significant share of manufactured goods is sourced in China and the third-world. But that’s just half the story. Many third-world countries are competing to replace US knowledge workers as well, turning out hordes of accounting and engineering graduates each year from universities that are rapidly growing in size and quality. As knowledge-work becomes more network-centric and less location-dependent, more and more work that was traditionally “white-collar” is being shifted offshore.

China already makes more than 50% of the cameras sold worldwide, 30% of the air conditioners and televisions, 25% of the washing machines, and nearly 20% of the refrigerators. A private Chinese company now accounts for 40% of all microwave ovens sold in Europe. A city in eastern China makes 70% of the world’s metal cigarette lighters. In 2002, China’s foreign trade increased an amazing 21% when that of most others declined. There is no question that China is exporting deflation to the rest of the world.

In the 1930s protectionism and political upheaval destroyed globalism; whether the current trend continues unchecked remains to be seen.

There is yet another eerie similarity between the two periods. The 9/11 attacks and the subsequent fear of terrorism have deepened the parallels between present-day America and the America of the 1920s. In the early 20s, Americans also felt assaulted by alien forces-radicalism and Bolshevism imported mainly by immigrants. There was fear of terrorism then too, though its impact was perhaps less pervasive.

We know what happened to the 20s-the depression lasted 10 years; the 90s endgame is still unfolding.