A lesson from the depression

Endlessly, to some degree dangerously, commentators keep comparing the nation’s present financial mess to the Great Depression, an assessment amiss in many ways but correct in at least one.

In both instances, it was largely government flubs prompting market malfunctions that sought out shoved calamity the public’s way, and that’s worth thinking about even if some are now saying we should fix the future instead of dwelling on what got us here.

The question matters, in part, because the business-belittling left is now arguing that it was greedy, out-of-control corporate executives and a relatively unfettered and generally unreliable marketplace that led to us to the present accumulation of junk assets and an imperiling credit crunch.

"Today’s headlines are brought to you by Bush-McCain economic policies, deregulation of financial markets and lapdog devotion to the speculative economy at the expense of the real economy in which working families live and struggle," John Sweeney, president of the AFL-CIO, has written.

We can and should grant that executives of some of the collapsing financial institutions behaved as if booms go on forever and blindly failed to notice that this one was constructed on the squishy foundation of suspect mortgages, but we shouldn’t stop there. We shouldn’t figure as the left does with its morally superior, told-you-so sarcasm that the lesson is to allow misbegotten capitalism ever-less freedom in a nation that can now start moving away from that silly idea.

Instead, we can observe that tour prosperity is plainly and simply the consequence of free markets that improve living standards wherever they are found, and we can trace most of the moment’s difficulties to governmental intervention _ to a law, bureaucrats and politicians pressuring lenders to extend mortgage loans to bad risks; to the Federal Reserve’s persistently low interest rates and to the creation (and liberal refusal to reform) the quasi-government leviathans, Fannie Mae and Freddie Mac.

There’s nothing unusual in this. Probe the granddaddy of all this country’s various panics, the Great Depression of the 1930s, and you find a variety of contributing factors, but nothing that looms larger than a Federal Reserve that shrunk the money supply, according to a number of economists.

What’s more, some economists have written that various government fixes before and as part of the New Deal actually prolonged instead of shortened the national misery — among them the Smoot-Haley tariff, limiting agricultural production, efforts to lessen competition and the impositions of growth-stifling tax rates — even if some of the steps were ameliorative.

A chief problem is that central planners are seldom clever enough in assessing broad, complicated issues to avoid unintended consequences, an argument insufficiently heard during our congressional debate by leaders of both left and right as if there were one and only one answer.

Maybe so, but maybe, too, a Harvard economics lecturer had it right in a CNN opinion piece that worrisome financial assets could be sold to private concerns and that you would sooner or later find lenders coming along to make money by giving credit to those who are trustworthy.

The writer, Jeffrey Miron, also spoke of all the "scare-mongering" going on, and this wish to frighten us into $700 billion worth of action, I think, has been one reason for all the references to the Depression, even if engendering fear could create more chaos and we know that the possibilities of something so awful as that catastrophe are practically nil.

There are serious, immediate threats, of course, but there are also threats if what we do today is followed by a loss of faith in a great economic system and continued efforts to displace the energy of free men and women in their economic pursuits with overdone regulation.


(Jay Ambrose, formerly Washington director of editorial policy for Scripps Howard newspapers and the editor of dailies in El Paso, Texas, and Denver, is a columnist living in Colorado. He can be reached at SpeaktoJay(at)aol.com.)