Saturday, 22 May 2010

Studying the Right History

There is so much going on these days that I don't even feel the need to include links with my articles. The conclusions I'm drawing based on what I'm hearing are shocking and catastrophic enough by themselves. But yes, it's the long weekend, so go away and enjoy yourself. There's nothing pleasant to read here. You can come back on Tuesday.

One of my favourite quotes is Winston Churchill's: "Study History! Study History!" There he sat on the poster in one of the classrooms I passed through during my academic career, hunched over his chair and staring at me with his no-lipped frown and single cocked eyebrow, stuffed into his black suit, the words loud and big in quotes underneath him. It was an impressive image that has obviously stayed with me. Ok Winston, I will. You look like you know what you're talking about. And this is an eminently quotable quote. Not like that stupid one about Russia being wrapped in custard wrapped in bacon or whatever; I think that one was at the end of that day's bottle. No, but seriously, people like to quote this guy. But they don't like this quote very much.

The huge bailout that was orchestrated by Henry Paulson (U.S. Treasury secretary at the time, former Goldman Sachs big cheese) and Ben Bernanke (Chairman of the United States Federal Reserve) in the fall of 2008 is now, with the passage of time, being revealed to be the utterly hopeless and bogus undertaking that it was. The chickens are coming home to roost, so to speak, or however that expression goes. The bailout actually did nothing but grant a repreive of two years, well, until now, before the fundamental issues which necessitated it had to be faced. America is in the exact same situation it was two years ago, which is overextended and deeply indebted because of wars, no health care, speculation and greed, and now it has a couple trillion more dollars of debt to show for its "recovery" efforts.

This is where the title comes in.

Because someone did study history. Ben Bernanke did. He is a student of the Great Depression, you see. His phd thesis argued that the depression would not have needed to be so long and so painful had the federal institutions of the time more capacity to intervene. In other words, bet on the future, lend money to banks that they don't have and you don't have to prop them up, pretend everything's going to be okay, say a hail mary and hope for the best. Interesting argument, but in any case its no longer being argued anywhere where it will affect anything. It's immaterial at this point because that is what he and Paulson went ahead and did. For good measure, with the benediction of Bush, to whom this made perfect sense, coming from the seasoned, neatly bearded economic scholar. In Paulson's taped confessions after he left office he says Bush routinely threw his hands up in the air at these meetings and said "Whatever. Do what you have to do. You guys are the experts.", but this I don't think I need to mention other than for the purposes of comic relief. It goes without saying by now that this stuff was not exactly in his intellectual weight category and not anything he could be personnaly held responsible for, especially when crash landing his way through the last months of his term.

But Bernanke was hailed as a visionary and a genius for it. His second term was confirmed by the Senate not long after and Time Magazine even named him person of the year. I'm not trying to be sarcastic about Ben Bernanke, I have no axe to grind with him personally. The issue I have is with the history he studied.

How can you compare the 1930s to now? Like seriously. Maybe 20% of the population at the very most was alive at all in that decade, and 80% of them were probably still infants. The cause of the depression decade was excessive speculation, like now. What did the government do? How did they respond? Infrastructure that needed to be built was built, unlike now. (Our stimulus gets us more lanes on highways to nowheresville suburbs and assorted pet projects in government held ridings). They enacted legislation to protect consumers, which up until then was non-existant. And other than that, people did something they don't know how to do now. They waited. They struggled. They did the best they could each day. And then a massive war started and all hands were needed on deck, flooding the economy with the jobs that it had been missing for a decade. It convieniently added women to the work force en masse, so that was using a previously dormant 50% growth trump card right there.

So in other words, demand was created by external forces: timing, circumstances, changes. Things changed on their own. They were not artificially manufactured to stay the same by government bailouts. Those sullen, sunken-cheeked newsboy-looking guys you see in breadline photos were not thinking about cash for clunkers, 42 inch plasmas from best buy, and ho ho hold the fucking payments on their living room sets from Leon's. And they were not being told like we are, however subtly, that it was their duty as citizens to buy new cars and couches and big screens even when were broke and, for the most part, still agree to do. The juxtaposition is to show the fallacy of comparing the recession of 08 with the depression. There is no comparison.

No, as students of history we can look at a much more recent period: 1980. The oil crisis was over and petroleum was cheap again, and Reagan told America to go blow its load for the next decade, so to speak. Sorry for the vulgarity but this is a much better comparison. The economy had been fully converted to consumer-and-debt based, manufacturing was shipped out, and urban sprawl was about to embark on its most massive push yet. These factors are much more in keeping with our times than 70 or 80 years ago. Thing was, Reagan had political capital to squander and American households still had some room to manouever. Now they don't. Everybody is maxed out. And America's recklessness has created real estate, asset and stock market bubbles everywhere else in the world that will pop when it does. I'm sorry, capitalism, but you're out of room and you're out of answers.

But instead, those years are remembered fondly by many people. Because they were good years. Life is way better for more people now than it was in the depression. And there was some stuff in the past thirty years that I can't deny was cool; internet and ipods and cheap plane tickets, to name a few. All I'm saying is there's a massive bill we have devilishly managed to postpone payment forever on, and the time has come to pay that bill, whether we like it or not. I'm not being smug, I'm worried and not looking forward to it either. If you've found a new source of confidence, please let me know.

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