Page 1 of 2 BOOK REVIEW No longer just goodies for the top 1% The Trillion Dollar Meltdown - Easy Money, High Rollers and Great Credit Crash
by Charles R Morris
Reviewed by Julian Delasantellis
It was the famous 20th-century economist John Maynard Keynes who opined that
the current public policy ideas deemed as most daring and innovative were
invariably just the product of some long-dead economist. In his case, the
aphorism was correct; Keynes died in 1946, but his ideas survived for about
another 30 years, to about 1980. Charles R Morris' new book, The Trillion Dollar
Meltdown - Easy Money, High Rollers and Great Credit Crash, tells the
story of what happened next.
"Stop the presses!" American publishers are crying out, pus
hing aside the galleys for the diet books and how to be a winning contestant on American
Idol to get volumes through the printing press and out the door on the
financial crisis now bedeviling the markets. On April 26, I reviewed on these
pages what seemed to be the first past the post,
Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve."
After Morris a whole cavalry charge of like-themed books is racing to get a
share of the purse. Can The Idiot's Guide to the Credit Crisis, or The
Rescue of Bear Stearns by the Federal Reserve for Dummies be all that
far behind?
In
1986, in his book The Cycles of American History, the late historian
Arthur Schlesinger postulated a sort of regularly occurring sine wave-like
oscillation in American history, with dominant governing ideologies swinging
back and forth between periods where government intervention in the economy and
society was in favor, and times when it was shunned. It was in 1932, with US
president Franklin Delano Roosevelt elected to pull America from out of the
Great Depression, that the long swing to the left began, towards looking
favorably on government intervention.
Such intervention pulled the economy out of the depths of the depression at
home (although there is some debate among economists on that) and defeated the
fascist threat abroad (there's not a whole lot of debate about that), so that
for at least two decades after the end World War ll Americans were pretty well
satisfied with the enhanced role of government in their lives.
Also, with the victorious and prosperous United States such a gleaming model of
modern social organization, many nations of Western Europe, the victorious but
bankrupt United Kingdom and France, along with the defeated and near
obliterated West Germany, decisively eschewed the laissez-faire, free-market
ideology that had so failed them in the pre-war years.
In the United States, increased government intervention in the economy went
from Roosevelt's New Deal to Harry Truman's Fair Deal, then, after eight years
of president Dwight D Eisenhower consolidating government's gains in the 1950s,
broke boldly ahead with John F Kennedy's New Frontier and Lyndon Johnson's
Great Society.
In Western Europe, the march to the left was so self-evident that even the
rightist political parties admitted that they were living in countries that
were essentially organized along the lines of democratic socialism. The parties
of the left, Labour in the UK, the Social Democrats in West Germany, and the
socialist/communist bloc in France saw little or no need to maintain the
"democratic" pretense in their moniker; they just called themselves socialists.
However, as the turmoil of the 1960s settled into the ennui of the 1970s, it
began to be felt that there was a certain something, a certain spark, missing
from the lives of the citizens in these prosperous, free (at least compared
with that other form of socialism on the eastern side of the Berlin Wall) but
planned, and somewhat regimented societies.
Like the difference between cooking and eating a frozen as compared with a
fresh steak, these societies where the populations would be supported if they
fell but were restrained from climbing too high so as not to hurt themselves
too severely if they did fall seemed to be working against the natural human
instincts for greatness, glory, for finding out just how far they could push
out against the edge of the envelope.
In 1981, the Rolling Stones' song Hang Fire gave a glimpse at what life
was like at the end of the left/progressive era, just as newly elected
Conservative Party prime minister Margaret Thatcher (in no way, shape or form a
social democrat) set out on her path to swing the political and social pendulum
back to the right.
In the sweet old country where I come from
Nobody ever works
Yeah nothing gets done
we hang fire, we hang fire
You know marrying money is a full time job
I don't need the aggravation
I'm a lazy slob
I hang fire, I hang fire
Hang fire, put it on the wire
We've got nothing to eat
We got nowhere to work
Nothing to drink
We just lost our shirts
I'm on the dole
We ain't for hire
Say what the hell
Say what the hell, hang fire.
In the United States, the loss of
faith in government intervention was perhaps best symbolized with the mid-1970s
financial crisis that befell New York City, most remembered with the famous
October 1975 "Ford to City: Drop Dead" headline in the New York Daily News that
announced president Gerald Ford's rejection of financial aid requests to the
city.
With the best of intentions, New York had attempted to create a
government-services bureaucratic superstructure that could supplant, and if
necessary replace, families as the primary vehicle for its citizens'
socialization into the values and morals of the greater community. The attempt
bankrupted the city, and, as the rioting and looting that followed on the New
York City blackout of 1977 proved, wasn't all that successful, either.
Morris, who first made a name for himself with his 1980 book about the fiscal
and social failures of New York City government, The Cost of Good Intentions:
New York City and the Liberal Experiment 1960:1975 writes this way
about the end of the liberal age in his new book.
Alarmed by spiraling
crime and violence in central cities, President Lyndon Johnson pushed through
his War on Poverty and Model Cities legislation, pot pourris of 1920s' vintage
social improvement schemes, wartime systems engineering, and modish concepts of
self-empowerment. Urban welfare rolls jumped, riots flared through most major
cities, and large swathes of poorer neighborhoods burned to the ground. Big
companies fled downtown, leaving mayors to grapple with plummeting tax rolls
and escalating demands for security and services.
Thatcher was
elected British prime minister in May 1979. In August that year, monetarist
Paul Volcker was appointed by Jimmy Carter to head the US Federal Reserve. In
November of the following year, Ronald Reagan was elected president in the
United States, and, at least in Britain and America, the revolution was
complete.
The era of, in Morris' words, "the idol of the quasi-omniscient technocrat" was
over. As The Who sang in their saga of revolutionary dreams defiled, Won't Get
Fooled Again, meet the new boss - the free markets, and their avatars,
financial market traders - possessing such incredible quantities of wisdom,
forethought and sagacity that never again would their actions be ever
questioned by any feckless government functionary.
Prefiguring the fate of the monument to Saddam Hussein in Baghdad, the
revolutionaries pulled down the statues of Keynes, and replaced them with
graven images of Milton Friedman, the pint-sized intellectual powerhouse,
opposed to government regulation of everything from subordinated bonds to
school buses and who, all during the years of the Keynesian consensus, was the
lonely voice in the wilderness proclaiming monetarism, the study of how the
quantity of money affected the destinies of economies.
Friedman had Reagan's ear. Soon, the entirety of the world's financial markets
held their breath every Thursday afternoon for the release of the latest money
supply data, to see if the new faith would countenance any reduction of the
record high short-term interest rates - in 1981, three-month US Treasury bills
paid over 20% - that were crippling the economy.
Morris contends that, for all Volker's professed fealty to monetarism, the
central banker essentially used it as a smokescreen; at his heart, he was
always more an anti-inflation fighter than a monetarist ideologue. His gamble
worked, the inflation fever broke early in 1982. Money, paper money, regained
its credibility, and, when the gods of the law of unintended consequences
looked down and saw this situation, the great credit creation boom of the next
25 years commenced, the phenomenon whose seeming collapse so bedevils us today.
It is important to note the key role that the vanquishing of inflation has had
in the economic history of the past quarter century, how it started the world's
capitalist economies down the road on which they at present find themselves.
At its core, inflation is, in essence, nothing but a phenomenon wherein people
prefer to hold wealth in the form of material things rather than paper money.
If commodities, gold, stocks or even real estate, are rising in price, it means
that people are bidding up the prices of these things, would rather own these
things, would rather use them as a store of wealth, in place of paper money.
You can think of a capitalist economy as a sort of twin-tray apothecary scale,
with the total quantity of money on one tray
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In
1986, in his book The Cycles of American History, the late historian
Arthur Schlesinger postulated a sort of regularly occurring sine wave-like
oscillation in American history, with dominant governing ideologies swinging
back and forth between periods where government intervention in the economy and
society was in favor, and times when it was shunned. It was in 1932, with US
president Franklin Delano Roosevelt elected to pull America from out of the
Great Depression, that the long swing to the left began, towards looking
favorably on government intervention.
