Sunday, September 21, 2008

Sunday Reading Assignments

...A pair of articles from, both well worth a read:

General Jack Keane tells "Why the Surge Worked," in an interview with Matt Kaminski, and historian Amity Shales reminds us that "Taking Revenge on the Rich Will Not Bring Recovery."

If there's a common theme in these articles, it is this: often, the most innovative thinking (and best policy) comes from outside the halls of power, and so-called "wise men." General Keane had already retired from active duty when he began advocating the surge (along with Fred Kagan).

Naturally, the strategy was opposed by "experts" in the Pentagon and the State Department. To his credit, President Bush ignored their counsel and listened to Keane and Kagan; the results speak for themselves.

Historians have also credited FDR with "going against the grain," implementing a slew of policies and programs that, supposedly, lifted the nation out of the Great Depression. But, as Ms. Shales reminds us, the New Deal included a strong element of class warfare; FDR and his Justice Department targeted leading Wall Street figures, attempting to blame them for the crisis:

But like today's politicians, Roosevelt also used the downturn as a weapon to trash markets generally. The New Dealers even used the same mocking phrases Mr. Obama does today. The rich might think that wealth trickled down, Roosevelt's speechwriter Sam Rosenman would later note, but "Roosevelt believed that prosperity did not 'trickle' that way."

In 1933 and 1934, Roosevelt went on the attack. The Sergey Brin of the 1920s was Samuel Insull, the Chicago utilities magnate who created the format for the modern electrical grid, taught housewives about refrigerators, employed thousands and proved it was possible for the private sector to raise the prodigious amounts of cash necessary for utilities, the most capital-hungry of industries. But the credit crunch killed off Insull's leveraged companies, rendering shareholder portfolios worthless.

Insull was extradited from Greece and hauled back to Chicago. A jury refused to convict him of fraud. But federal or state prosecutors continued to harry him until he died of a heart attack or stroke in 1938.

FDR mounted a similar effort against Andrew Mellon, the Alan Greenspan of his era. While a grand jury refused to indict him for income tax evasion, the Roosevelt administration continued to harass Mellon until his death in 1937. Exoneration came after his passing.

Meanwhile, as Ms. Shales observes, FDR's own programs failed to end the economic downturn.

Roosevelt's first effort at raising wages to revive the economy, the National Recovery Administration, was declared unconstitutional. Next came the Wagner Act, which led to massive unionization. Wages increased and unemployment even dipped a bit, but productivity did not rise in commensurate fashion. This contributed to companies' struggles, as Lee Ohanian of UCLA has shown. Industrial production plunged. In 1938, John L. Lewis of the CIO attained the apogee of his power, but unemployment was again at that appalling
two in 10.


A desperate Treasury Secretary [Henry] Morgenthau traveled to New York to placate a crowd of 1,000 economists and businessmen at the Hotel Astor in November, 1937. The audience laughed at him for daring to try. By the next year the New Dealers were quietly telling themselves their anti-wealth experiment was over -- and turning to the impending war in Europe.

As Ms. Shales concludes: what works politically is different from what works economically. Revenge, however sweet, cannot bring recovery. It's a lesson that Washington (once again) is likely to forget.


Papa Ray said...

There is more Wall St to blame as you know for the mess that we have now. The very ones we voted into office had their hands in this up to their necks. For almost ten years, and they were rewarded every year with more and more money. Obama is third on the list of the most money given to our elected officals. He would have been first but for his short time that he has been in office.

Between the Legislature and Wall St only a few sounded alarms and tried to do something about the now so real reality of Billions of Dollars of corrupution and waste, of terrible decisions piled on top of stupid decisions made on top of ignorant decisions.

Revenge would be sweet, but it would almost empty out our houses of legislature and decapitate many of our financial institutions.

But maybe that is what is needed along with saddling the American Taxpayer with almost a trillion dollars of debt that will never be paid back.

Bring out the ropes is what is going to be said in a few short months when the relization and the reprecussons of what has happened hits the average American where it hurts the most.

In his/her ability to buy or get loans to buy and in his pocketbook.

That is when it is going to start to get really ugly.

Papa Ray

PCSSEPA said...

It is time for Americans to take back America. This isn't a call for class warfare or the proletariate to rise against the burgoise. This is a call for the law abiding to unseat the scoundrels in both houses of the Congress and the permanent bureaucratic class. Toss the bums out in November. See how they like living without an income. They are ALL a bunch of crooks.

Unknown said...

Papa Ray--Driving to work this morning, I sprayed a mouthful of Coca-Cola across my dashboard during the 8 a.m. (EST) Fox Radio newscast.

There was Congressman Barney Frank, demanding more oversight and accountability for those who caused the financial meltdown. Mr. Pot, meet Mr. Kettle. Frank, as you know, is among that group of Congressmen who fought efforts to reform Fannie Mae and Freddie Mac, allowing Frank Raines, Jim Johnson, Jamie Gorelick, Daniel Mudd and Co., to cook the books, setting the seeds for the financial crisis.

One final thing: I disagree (slightly) with your math. When the feds announced we were bailing out Fannie and Freddie, our national debt grew by 50%. The two firms have current loan portfolios totaling $4-5 trillion, with a "t." By comparison, bailing out the investment firms and insurance companies is veritable chump change.