Needs more Galbraithby: Daniel De Groot
Sat Jul 10, 2010 at 18:30
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Earlier this week, I cheered Paul Krugman for a trio of direct and confrontational posts. As we're watching Republicans and Democrats lining up to gut Social Security, and the gelling of elite opinion to repeat the mistakes of the Great Depression, I want to quote a few pieces from one of the Depression's best economic histories, J.K. Galbraith's recounting of the period, The Great Crash 1929. As the elites seem determined to create a third depression, it is instructive how familiar Galbraith's recountings are (all added emphasis mine).Then as now, there was the crushing weight of an orthodoxy of inaction: (pp185-6)
The rejection of both fiscal (tax and expenditure) and monetary policy amounted precisely to a rejection of all affirmative government economic policy. The economic advisers of the day had both the unanimity and the authority to force the leaders of both parties to disavow all the available steps to check deflation and depression. In its own way this was a marked achievement -- a triumph of dogma over thought. The consequences were profound.
We may not be as bad as this next bit yet, but does it have to come to this? (p187)
Finally, when the misfortune had struck, the attitudes of the time kept anything from being done about it. This, perhaps, was the most disconcerting feature of it all. Some people were hungry in 1930 and 1931 and 1932. Other were tortured by the fear that they might go hungry. Yet others suffered the agony of the descent from the honor and respectability that goes with income into poverty. And still others feared that they would be next. Meanwhile everyone suffered from a sense of utter hopelessness. Nothing, it seemed, could be done. And given the ideas which controlled policy, nothing could be done.
Don't say the elites were doing nothing: (pp138-9)
Yet to suppose that President Hoover was engaged only in organizing further reassurance is to do him a serious injustice. He was also conducting one of the oldest, most important -- and, unhappily, one of the least understood -- rites in American life. This is the rite of the meeting which is called not to do business but to do no business. It is a rite which is still much practiced in our time. It is worth examining for a moment.
Men meet together for many reasons in the course of business. They need to instruct or persuade each other. They must agree on a course of action. <...> Finally, there is the meeting which is called not because there is business to be done, but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.
The fact that no business is transacted at a no-business meeting is normally not a serious cause of embarrassment to those attending. Numerous formulas have been devised to prevent discomfort. Thus scholars, who are great devotee of the no-business meeting, rely heavily on the exchange-of-ideas justification. To them the exchange of ideas is an absolute good. Any meeting at which ideas are exchanged is, therefore, useful. This justification is nearly ironclad. It is very hard to have a meeting of which it can be said that no ideas were exchanged.
The Masters of the Universe were much the same, if a little more direct: (pp157-8)
President of the New York Stock Exchange] Whitney was not in all respects an ingratiating witness. ... Whitney admitted to no serious fault in the past operations of the Exchange or even to the possibility of error. he supplied the information that was requested, but he was not unduly helpful to senators who sought to penetrate the mysteries of short selling, sales against the box, options, pools and syndicates. He seemed to feel that these things were beyond the senators' intelligence. Alternatively he implied that they were things that every intelligent schoolboy understood and it was painful for him to have to go over the obvious. <...> The government, not Wall Street, was responsible for the current bad times, Whitney averred, and the government, he believed, could make its greatest contribuiton to recovery by balancing the budget and thus restoring confidence. To balance the budget he recommended cutting the pensions and benefits of veterans who had no service-connected disability and also all government salaries. When asked about cutting his own pay he said no -- it was "very little." Pressed for the amount, he said that currently it was only about $60,000. His attention was drawn by the committee members to the fact that this was six times what a senator received, but Whitney remained adamantly in favor of cutting the public pay, including that of senators.
And then, as now, the fundamentals were sound and the tax policy preferences of the left were really to blame for any perceived problems: (p104)
In Wall Street itself lights blazed from every office as clerks struggled to come abreast of the day's business. <...> Representatives of the thirty-five largest wire house assembled at the office of Hornblower and Weeks and told the press on departing that the market was "fundamentally sound" and "technically in better condition than it has been in months." It was the unanimous view of the those present that the worst had passed. The host firm dispatched a market letter which state that "commencing with today's trading the market should start laying the foundation for the constructive advance which we believe will characterize 1930." Charles E. Mitchell announced that the trouble was "purely technical" and that "fundamentals remained unimpaired." Senator Carter Glass said the trouble was due largely to Charles E. Mitchell. Senator Wilson of Indiana attributed the crash to Democratic resistance to a higher tariff.
And finally, the Media were as responsible then as today, on the myth of mass suicides by brokers and traders after Black Thursday (p130):
The weight of the evidence suggests that the newspapers and the public merely seized on such suicides as occured to show that people were reacting appropriately to their misfortune. Enough deaths could be related in one way or another to the market to serve. Beginning soon after Black Thursday, stories of violent self-destruction began to appear in the papers with some regularity.
Given all the similarities we're seeing being then and now, and the increasingly bleak analysis from the reality based economists, there isn't a lot of good news. What I fear is that it will take a Great Depression level catastrophe to really break the neoliberal elite consensus for another generation or two, as happened last time. However even with a Great Depression II, there's no guarantee of a New New Deal. If the public's reaction in 2012 is to remove the Democrats from power en masse, a very different sort of "New Deal" would be on the agenda. I don't know that engaging in these fights will prevent that, but disengaging from them in despair makes it almost certain.
I don't know exactly what liberals need to do now to fix this. There are some good ideas that we could push for, or like Krugman and Atrios we can at least make it increasingly clear that nonsense parading as serious thought will be called out, until something approaching actual wisdom appears. Sometimes this even works. Not much for it but to fight through as best we can.
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Link:
http://www.openleft.com/diary/19398/needs-more-galbraith:shrug:
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