Monday, July 26, 2010

This Time Is Different, but It Ain't

I spent the weekend trying to read a new book, "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," by Carmen Reinhart and Kenneth Rogoff, two eminent economist. The data they collected for their study goes back centuries, to fourteenth century England, Spain in the 1500s, the economic effect of the Napoleonic Wars on France, Asian economic crises in China and India, African crises and Latin and North America crises. They collected a lot of data. It is very difficult reading and I'm only halfway through it. I would have preferred a summary, but they go to great lengths explaining how they used the data and where the data came from, so, to get to the point, you have to read all of the detail. So far, the point appears to be that the title of the book is intended to be contradictory: This Time is NOT Different at all. It's all happened before, again and again. The title seems to be sarcasm aimed at all of those policy makers and economist who say, "this time is different." But, a little attention to history could have save our bacon. Our government, and the Federal Reserve and Allen Greenspan in particular should have seen the crisis coming and should have done something. The thing that got in the way was ideology, the free-market, greedy libertarian philosophy, which in turn motivated the Republican government to deregulate.

So far, two things appear to be true in history:

  1. A country that required through regulations that banks limit risks and hold sufficient assets in house to  support loans, i.e., debt, were much better able to weather the financial storm. They didn't need to bailout their businesses.
  2. A country that saved during good times is better able to weather bad times.
Of course, we did neither of these. In fact, since President Reagan we deregulated at record speed culminating with the repeal of the Glass-Steagall Act that controlled banks in the late 1990s and loosed the dogs of the financial world. And, the "debt doesn't matter" Bush and Cheney Administration put us in debt at record levels with rich-man tax cuts and record defense and war spending, and of course the dumbest, most expensive drug, pro-pharmaceutical company prescription legislation in history, among other of the dumbest and expensive things they did. You name it and they screwed it up and put us deep in debt.

So now we have a good President inundated with ideological arguments in Washington D. C., and ideology seems to be winning - everywhere. Which legislation do you want to talk about? How about the climate change bill? The gist of the reason it failed to pass is that the so-called "Conservatives" are determined to "conserve" the oil and coal industry instead of conserving our country. It appears that we're going to continue to pay Arab countries for oil instead of revolutionize our energy industries to Green Energy. Go figure that one out. Even if you don't believe in climate change, wouldn't it be a good idea to be self sufficient? We are going to be sorry we didn't do something, such as kicking the conservatives out of government entirely.


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