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My Two Cents

The great depression

Chris Farrell Dec 8, 2008

Ben Bernanke is one of the truly great scholars of the Great Depression. Bernanke doing a terrific job fighting the great depression of the 1930s. He’s not repeating the mistakes of the central bank back in the dark days of the 1930s. I don’t have an answer, but what if that isn;t the right set of solutions for the crisis of 2008?

To say that this is the greatest financial crisis since the great depression isn’t the same as sayng that we are ack in the great depression era.

Conservative think tank scholars are peddling a potted history how the New Dea made the depression worse at worst or was ineffectual at best. It isn’t good scholarship, and economic historians are getting tired ripping apart the bad histories. (Just ask Brad Delong, economist at the University of Caifornia, Berekley. Mark Thoma at the University of Oregon, Barry Eichengreen of Berkeley, Paul Krugman, and so on.). To some extent we are refighting the legacy of the New Deal.

It’s fascinating. But again it’s the right historic analogy.

John Maynard Keynes was a genius, and he is always worth reading. His essays are astonishing for their insight and breadth of knowledge. Political leaders should have listened to him. In many respects, Keynes helped save civilization. His isights on fiscal policy still resonate today. He is the economic of economic crisis. (And I love reading his Essays in Persuasion.)

But Keynes wasn’t the right scholar for the 1970s (although some of my favorite essays on inflation and deflation–such as the ones in Essays in Persuasion–were written by Keynes.) Milton Friedman was an exceptional scholar and a prolific marketer of ideas. And there here are good reasons why his ideas came to the fore in the difficult economic times of the 1970s.

So, what is the right set of ideas for our time. I feel that University of Chicago economist uigi Zingales is heading in the right direction. He has been putting forward a persusive set of essays that our bankruptcy system can handle much of the fallout. He isn’t denying that there is a crisis. He takes it very seriously. Nor is he writing the nonsense that its all the fault of the Comunity Reinvestment Act, Fannie and Freddie, and Barney Frank. But Zingales is challenging the stop-the-great-depression solutions that have been used so far. (He co-authored a terrific book, Savings Capitalism from the Capitalists; I don’t think we’d be in this mess if some of the ideas taken up in the book were taken up by political elites.)

Chapter 11 works for companies. I think we should go back to the pre-2005 changes in bankruptcy law, with a modification alowing bankruptcy judges to cram down mortgages.

Clearly, I don’t have an answer. But I am concerned that so much intellectual firepower is being spent reliving the Great Depression and the New Deal.

Here’s another concern. The first modern super-lobbyist was Tommy “the Cork” Corcoran. He was vital to the political sucesses of the New Deal. He was tough and smart. And then, recognizing that power had shifted to Washington, he became a lobbyist. Several decades later we end up the K-Street project and Jack Abramoff, the disgraced and disgraceful lobbyist. My concern is that Abramoff is only a prelude to much worse, hard as that is to believe. Not right away. But the amount of money and power flowing into Washington is huge. Any CEO with half a brain will boost corporate spending on Washington lobbyists.

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