In national finance, no good deed goes unpunished. For centuries, every attempt at sound and stable money anywhere has set the stage for yet another crash. When it seems to work, everyone says, “This time is different”. The problem is...well,
Every complex problem has a solution which is simple, direct, plausible — and wrong.
H. L. Mencken
From Continental paper money during the Revolution to the tech and housing bubbles, to Friedmanite tax cuts for the ultrarich! Basing the US economy on gold, silver, land, sugar, cotton, bonds, stocks, clever financial instruments supposedly designed to prevent risk, fossil fuels, war, peace, imperialism, regulation, deregulation…You name it, it has been tried or at least proposed. All have allowed for rapid growth and all have then permitted major panics.
Every aspect of government, society, politics, economics, industry, and finance has been blamed, but none of the proposed diagnoses and prescriptions has taken us out of the bogusly named “business cycle” of boom and bust.
I will take on another aspect of this problem, that of The Blind Men and the Elephant, tomorrow, as a Zen koan.
In math and the sciences of physics, biology, and chemistry we have come to expect continuing advances, with the latest work showing that previous theories were mostly correct, and building on them—Physics since the 16th century, and evolutionary biology since the mid-19th century.
Not so much in political economy. Especially not in finance, regulation of. Since William Duer simultaneously funded the American Revolution and tried to corner the bond market, right up to the housing bubble in unregulated mortgage derivatives, the Federal government tried to rein in the speculators, and the speculators invented organizations and financial instruments not covered by the latest laws.
I can’t even list all of the gyrations covered in the book. I can definitely recommend the book as a series of cautionary tales that raise the great question
Is there anything we can do about all this?
Answer #1: We have only a faint idea how. Tax the rich, clearly. Regulate everything financial in sight, with a SCOTUS-proof means of closing loopholes as fast as they are discovered. When banks were regulated, but trusts weren’t, kaboom. Then trusts were broken up, but not holding companies. When money, stocks, and bonds were regulated, with margin requirements raised when there were signs of trouble, but there was nothing whatsoever controlling derivatives, gooey kablooey.
Answer # 2: We could find out.
Answer # 3: Not if the Republicans can help it.
Anyway, Universal Basic Income. The unbalanced budget amendment. Get rid of all outdated subsidies, as Adam Smith taught us. Bidenomics.
Vote like your wallet depends on it, not just your life.
What I can do here is to list some of those cited by Nelson who have thought about these matters, and even done something about them. I don’t count the simply greedy and underhanded, like Duer or J. P. Morgan.
First, the complete duds, as Nelson and I at least agree.
- Karl Marx—Revolution
- William Jennings Bryan—Free coinage of silver
- F. A. Hayek—National health is Stalinism or worse
- Milton Friedman—Everything that the government does, notably including public schools, is tyranny
- Arthur Laffer—Trickle down (on the pee-ons)
Then those who got hold of a significant part of the elephant, and argued vociferously with those who got hold of other parts.
- The early Quakers who revolutionized British and American business by being trustworthy
- Thomas Jefferson (Slave owners “have a wolf by the ears”.)
- Alexander Hamilton (Internal improvements)
- The Mormon Church’s social and economic structure (even though Joseph Smith was a notorious con man)
- The Prairie Populists
- The Grangers
- John Maynard Keynes (countercyclical spending)
- The original Progressives
- FDR
- LBJ
- Joseph Schumpeter (the “business cycle” as creative destruction from new technologies)
- Obama bailing out the auto industry and Wall Street, but not home buyers, by buying totally worthless paper with real money
- Economic modelers/Cliometricians relying on data they didn’t understand
Rather than provide a voluminous book list for you today, I’m going to let you look them up, either in this book or the lists in the relevant Wikipedia articles.
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