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Friday, September 26, 2008

Are We On Board a Ship of State called the Titanic?

The utter chaos of Congressional leadership in dealing with the current financial crisis (which parallels so much of what happened in 1929), along with the failure of clear Presidential leadership, seems to have placed us all on a ship of state called the Titanic. Under the direction of House Republicans, who appear to have taken control of the ship in Washington (without any knowledge of how to steer it), we now seem to be heading full steam ahead into the iceberg named Free Market Fundamentalism.

From The Great Crisis of 2008:

Politicians and talking heads in the corporate media repeatedly refer to the current crisis as the "greatest crisis since the Great Depression." This puts the cart before the horse, and confuses both history and understanding of the current crisis.

Before there was a Great Depression, there was the great financial crisis and crash of 1929, which delivered us into the Great Depression. The Great Depression was not a financial crisis. The Great Depression was the economic fallout that resulted from the failed efforts at dealing with the financial crisis that precipitated the great crash of 1929 and the continuing economic turmoil of the years that followed, which lasted until 1933 when Roosevelt replaced Hoover as President and overthrew the destructive ideology of free market fundamentalism with a more rational approach to economics and government action.

For most of his administration, Bush and his Republican party have channeled many of the failed economic policies of the Coolidge administration. Now Bush seems to be channeling Hoover by accepting the need for some kind of government intervention while failing to provide any clear and forceful leadership to his own obstructionist Party, which remains stuck in the ignorant policies of the Coolidge era and the totalizing ideology of free market fundamentalism.

In the absence of failed presidential leadership, Republican Senator Shelby and the House Republicans (now possibly aided and abetted by John McCain) are championing the very ideology of do-nothing free market fundamentalism that led us into this current crisis. And by doing so, they are leading us full steam ahead, like the Titanic, into the iceberg of a repetition of the very mistakes of inaction that drove the United States into the Great Crash of 1929.

So instead of simply repeating ad nauseum the stupid and misleading mantra that we are in the worst financial crisis since the Great Depression, the media and bloggers need to be discussing these historical lessons and educating the public and our politicians (and especially the House Republicans) about the errors of economic understanding and failures of governmental policy that delivered the US and the world into the crash of 1929 and the Great Depression that followed from this financial collapse.

No matter how much economists have emphasized that we cannot fall into such a crash today because economists understand how to avoid making the same mistakes, the best and brightest of economists cannot prevent the politics of fear and ignorance from taking charge of events in Washington in ways that prevent those who understand the historical causes of the 1929 crash and the Great Depression from acting. After all, hasn't most of the Bush administration been about rejecting all evidence of good science and historical understanding in order to obstruct governmental action on climate change and other pressing problems in favor of Republican ideology and governmental inaction?! This current crisis therefore seems to be the perfect culmination of where Bush administration policies have been leading us for the last eight years.

However smart Bernanke and Paulson may be, they cannot prevent the nation, guided by ignorance and fear, from rejecting all historical wisdom and repeating the tragic errors of the past, including those of 1929. This repetition is what now seems to be happening as the rescue plan of Paulson/Bush is being stabbed to death by House Republicans who believe that the "free market" should be allowed to magically solve the problem by itself.

But it was precisely a religious belief in the free market and doing nothing that allowed the financial crisis of 1929 to turn into the Great Crash of October and November 1929, and the Great Depression that followed.

Thus we now appear to be on a ship of state called the Titanic, without any coherent Congressional or presidential leadership, heading full steam into an iceberg called free market fundamentalism, which will most surely sink us all if it is not forcefully rejected and pushed out of the way by clear leadership and rational economic policy.

With the rebellion of the House Republicans against the Paulson plan, the parallels between our current crisis and the crisis of 1929 preceding the Great Crash are increasingly chilling (and all should brush up on this history through a reading of John Kenneth Galbraith's concise and brilliant The Great Crash 1929):

1. Throughout the 1920s, the Coolidge Administration encouraged economic policies of free market fundamentalism and "irrational exuberance" that encouraged all kinds of market speculation, amazingly similar to the last eight years of the Bush administration.

As Galbraith notes, "the Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable" (109).

"Confidence did not disintegrate at once.... Through September and into October [1929], although the trend of the market was generally down, good days came with the bad" (Galbraith 92).

During the weeks immediately before the Crash, there were frequent pronouncements of continued confidence in the market, such as this one by Charles E. Mitchell, a director of the Federal Reserve Bank of New York (and a leading cheerleader of free market fundamentalism), on October 15, 1929: "The markets generally are now in a healthy condition . . . values have a sound basis in the general prosperity of our country."

And on October 22, 2 days before the beginning of the market Crash on Black Thursday, Mitchell said that market conditions were "fundamentally sound," and concluded that the whole situation "would correct itself if left alone." Even after the first big market dive on Black Thursday, Mitchell continued to utter positive words that emphasized the "fundamental soundness" of the market, stating that the "fundamentals were unimpaired" (104-105). (Perhaps John McCain and the House Republicans have been channeling Charles Mitchell!)

"The singular feature of the great crash of 1929 was that the worst continued to worsen" for an entire month, until the market had lost 50% of its value by mid-November (Galbraith 108, 135).

But somehow the historical reality of the Crash that came before the Great Depression, and helped to precipitate it, seems to be getting ignored by politicians and the media. Is this because they don't want to admit openly the similarities between the days before the crash of 1929, and our current crisis? Or is it simply because they don't understand the basic facts of this history? Is fear or ignorance governing this silence about parallels between 2008 and 1929? I suspect it is a combination of both.

But whether our politicians in DC and our corporate media are ignoring these lessons out of ignorance or fear, it is clear that public lack of understanding, as it exerts influence on politicians in Washington, is now greatly aggravating the dangers of the current crisis. To help avoid the collapse of the financial system that will surely come if free market fundamentalism is allowed to interfere with clear action, the best thing we can all do is to educate each other and demand that the media and the politicians begin to discuss and understand the dangerous parallels between our current financial crisis and the crisis of 1929.

If we want to avoid repeating the mistakes of the past, we must emphasize to all the one clear lesson taught by the tragic failures of leadership in 1929: FREE MARKET FUNDAMENTALISM--the belief that the free market will solve a financial crisis if it is just allowed to do its thing--WILL LEAD US INTO THE ABYSS of economic collapse and a new great depression.

If the free market fundamentalism of the House Republicans is allowed to rule the day in Washington, and prevent clear action, prepare yourselves to be standing in soup lines by next year....

And lest anyone think the tragic consequences of free market fundamentalism during the crisis of 1929 are not important enough to understand today, remember that it took the United States market economy 25 years to fully recover from the Crash of 1929. Although the new policies of the Roosevelt administration and eventually World War II helped to lift the United States out of the Great Depression, it was not until 1954 that the Dow Jones recovered the level it had reached before the crash of 1929.

(And in light of Warren Buffett's recent investment in Goldman Sachs, I should note that Chapter 3 of Galbraith's book is titled
"In Goldman, Sachs We Trust." Let us all hope Warren Buffett's attempt to shore up Goldman Sachs on Wednesday was not part of a repetition of the history of the past. At least we know that Buffett is NOT a free market fundamentalist, and even supports higher rates of taxation for the wealthy.)

Addendum

Galbraith (177-186) provides an excellent summary of the five characteristics of the "fundamentally unsound" economy of 1929 that made the Great Crash possible:
1. The bad distribution of income.

2. The bad corporate structure.

3. The bad banking structure.

4. The dubious state of the foreign balance.

5. The poor state of economic intelligence.
As Galbraith laconically summarizes this state of affairs, "there seems little question that in 1929 ... the economy was fundamentally unsound." And in the face of this fundamental unsoundness of the entire system, it was the "triumph of dogma over thought" that pushed this unsound system into collapse.

For a few days Bernanke and Paulson--who are at least able to think and are not controlled by dogma, and have actual expertise in economic matters--seemed to be in charge of dealing with the financial crisis. But now all the stupidities of Republican politics and ideology--which brought us to this crisis--have torpedoed the proposals of the few thinkers in the administration. And we are now once again witnessing the "triumph of dogma over thought."

This should be no surprise. The current crisis is the perfect culmination of all that the Bush administration has been leading us toward. Now the only question is: Will rationality and sanity be able to reassert itself in ways that save us from repeating the mistakes of 1929, or will the dogma of free market fundamentalism prevail, and sink us all?

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