Re-Regulation Begins a Multi-Decade Road


Today’s Big Picture view revolves around the probable coming re-regulation of the financial markets.  History shows regulation of markets is similar to a grandfather’s clock pendulum swinging back and forth although not as regular.  A brief look back to the start of the 20th century, shows free markets and a first age of globalization, with the introduction of the telegraph and telephone, steamships and railways, at a peak.  Millions even migrated without passports while trade flourished meaning free markets were in charge.

·         Governments Take Charge.  Then, in August 1914, with World War I, that age ended abruptly.  WWI left  people disillusioned and looking for something better and many turned to socialism and communism.  The Russian Revolution in 1917 drew followers and essentially sought to end capitalism for good, making private property illegal.  Socialists and other government controlled economic systems were winning the battle of ideas, governments were in charge, free markets were in retreat.  In less than 30 years, one third of humanity, including Eastern Europe, China and the Soviet Union, would be living under socialism or communism.  Capitalism looked to be doomed except for in America.  The 1920s in America was still a boom time, Americans buying cars, buying illegal gin, buying stock.  Radio was the Internet of the 1920s.  It was a classic bubble.  Finally the 1929 stock market crash started Americans on the way to despair, a complete economic collapse "with no ability to earn, repay, spend, consume."  Everything spiraled downward while about half the banks in the US closed.  America turned toward government for help and thus re-regulation with President Roosevelt’s numerous new government regulatory agencies.  Around the globe, governments gained power … over free markets.  In Italy, Spain and Germany fascism took charge.  World War II then arrived and even afterwards people all around the globe still blamed capitalism for causing the depression.  The whole world kept moving towards more regulated economies.  England even went socialistic as Winston Churchill, the great war leader, was beaten by the socialists!  Most of the world operated under this sort of government planning process for the next 30 years. 


·         Free Markets Regain Control.  But in the 1970s free markets began a resurgence.  Margaret Thatcher came to power in England with free market thoughts as did Ronald Regan here in the US. with his Reganomics.  Both cut back on government regulations, giving markets more ascendancy and free markets again starting coming to the forefront.  England started privatizing its economy while President Regan cut taxes and let free markets regain control as epitomized by breaking the air controllers strike.  Thus capitalism got a free hand which lasted for aboutt 30 years, even through the boom and bust.  But after last year’s incredible debacle with investment banks, money center banks, insurance companies, etc. losing billions after irresponsibly leveraging up their investments 20 or 30 times, it’s apparent to most everyone that, just like in the 1930s, we can’t afford to have any similar  financial market collapse spawning from totally free markets to happen again any time soon. 


Schwartz View:  So after reviewing the  history of the 20th century and seeing how over long periods, market regulation swings back and forth, I have to figure we’ve just started a long term swing back on the way to re-regulation.   For more on this topic, I recommend you watch Commanding Heights, the Battle for the World Economy,  by Daniel Yergin and Joseph Stanislaw which was turned into a DVD and a PBS prouction, a wonderful esplanation of the battle for economic minds in the 20th century.  Filled in some missing pieces for me and should for you all as well.  


Posted 10-06-2008 9:39 AM by Richard Schwartz