Michael Boskin's Open Forum (http://articles.sfgate.com/2010-05-28/opinion/21647864_1_debt-eurozone-gdp) the Greek Debt Crisis and America's "fiscal Folly" is reminiscent of critics of banking reform in the 1930s. It is not governments who got us where we are today, or Greece's people, rather it has been bankers, and no one can deny that Goldman Sachs' efforts to hide Greek debt were innocent in this. Rather we should look at research done by Professor Reinhart in her new book with Kenneth Rogoff (This Time Is Different: Eight Centuries of Financial Folly by Reinhart, C.M. and Rogoff, K., published by Princeton University Press). They present a lucid analysis of the history of crises and their tempo, much as Strumpeter attempted in 1939.
Just knowing that panics happen and that people are duped or simply driven by greed and opportunity to invest in bubbles has done nothing to staunch their frequency. What has made a difference is the role of government to limit the potential as the Glass-Steagall law achieved. As W.C. Cunningham noted in his 1913 essay on Western civilization, by the time of Augustus the forum was crowded with speculators who had changed it into "an immense stock exchange."
Speculation thus came to dominate the heart of the political polis once dedicated to the democratic process. What is new about Rogoff and Reinhart's book is their focus on the huebris of our time, our continued tendency to mistake technology for stability and knowledge. Yet even John Marshall realized that during periods of the Roman Republic and Empire civil live and commerce was more stable and less troubled by crises and piracy. We have to renew the ideals of honor in career that gives civil servants the determination to act to protect the commons, without which we have only the barest hidden self-interest exploiting every advantage to the detriment of order and safety.
I am reminded of the work of Thurman Wesley Arnold, former Assistant Attorney General of the Anti-Trust Division under FDR from 1938 to 1943. The torrent of Republican criticism of FDR after his election confused the public and stymied action. Every effort was made to undermine legislation in much the way the Republicans have acted over health care reform. In the face of the failure of the banks since the beginning of the present crisis in 2008, not only in the USA but in Russia (see Catherine Belton's article FT 14 April 2010 and Charles Clover, same issue) and the UK to lend and rising inequality and government debt, it is becoming clear that the effects of the credit crisis are not over but have simply moved into a different phase.
The idea of needed reforms in finance, of "too big to fail" had been prevalent from the beginning of the Depression and Arnold's The Folklore of Capitalism (1937) astutely and humorously describes
efforts prior to 1937 of government to deal with cartels and all the generally accepted evils of monopoly, size and influence. In a surprising parallel with current explanations of failure in regulation,
Arnold described to Congress how regulating agencies had historically been underfunded and understaffed. He also detailed how existing law, like the Sherman Act were underutilized. In addition, Arnold targeted the American Medical Association in their anti-competitive efforts
against health plans. This is essential background for anyone seriously interested in solving America's current health care catastrophe. His study of collusion and manipulation in a variety of
industries and a culture of anti-competition demonstrated the detrimental effect of monopoly not only on consumers but on small business and new technology. This was published in his book,
Bottlenecks of Business (1940). Arnold described the problems created by corporations that become so large they stifle competition and government regulation. His examples and philosophy are thoughtful
reading in today's situation with corporations like AIG and Citibank that are deemed "too large to fail." The claim was made from 1933 to 1938 that cartels were necessary and that anti-trust actions and the threat of suits were preventing recovery. One could have made the charge, "too big to break up" or that size had become necessary due to technological change and market requirements about efforts to break up A.T.& T. 30 years ago. Such arguments were made for banking and trusts in 1933-9 and are being made today.
Just as in the actions of the holding companies of the Power Trusts in the turn of the 20th century and leading up to the crash in 1929, today's crisis is the result of manipulation of credit and capital. FTC investigators demonstrated how off-balance sheet activities and the creation of dummy entities (remember Enron?), stock manipulation and production of the 1920s version of derivatives were frauds against the government and consumers. Clarence Darrow's investigation during FDR's term provided solid evidence and then James C. Bonbright and Gardiner Means documented the results of an earlier FTC study in their book, The Holding Company (1932), as does Marion L. Ramsay in Pyramids of Power (1937) for more data on the Depression. Reform is needed now, but also we need jobs. The government needs to begin large scale projects, like WPA, CCC and the CETA program of the 1960s and 70s. That will stimulate consumption and stabilize the economy where giving money to banks has failed.
Niccolo Caldararo, Ph.D.
Dept,. of Anthropology
San Francisco State University