Re-Regulation Begins a Multi-Decade Road

RichardSchwartz — Mon, 06 Oct 2008 14:39:00 GMT

THE BIG PICTURE

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 20^th 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 dot.com 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.

America's Path Forward

RichardSchwartz — Wed, 09 Jul 2008 14:31:00 GMT

A Recap of: THE WORLD IN 2020: POWER, CULTURE AND PROSPERITY

By Hamish McRae (1994)

Before my memory fades, let me recap a bit of the fact and opinion filled book I read on my vacation. Essentially Mr. McRae, an acclaimed commentator with a 25-year career writing for two British national newspapers interpreting the international and economic scenes and previously already a best selling author, portrays how the world will develop by 2020. Basically he briefs us about where the world stood in 1994, then discusses the major forces for change, including demographics, natural resources, trade, tech and government, and then concludes by describing the world as he sees it in 2020. (Mr. McRae's book offers great perspective. I recommend getting and reading it yourself.)

Let me begin at the very end. I was absolutely delighted to find in the final chapter this McRae conclusion: “If the US does reimpose majority values, it will do so in a spirit of decency and humanity. The United States has to come to terms with an inability to increase living standards for the majority of its people until and unless its citizens behave in a more ordered way. But it will do so.” Schwartz View: Yay! That’s my belief too. America must start living in a more orderly, civilized way to really regain our leadership role and again improve our living standards which have been stagnating for far too long.. Thus I’m relieved and delighted to come upon some other observer of life and the times noting the same thing I have.

This morning I’ll just describe America in 2020. But in forthcoming letters, say in my regular GLOBAL VIEW section, and elsewhere when and where appropriate, I’ll fill you in on Mr. McRae’s views on other countries’ progress and their standing in 2020 as well.

The United States In 2020. The US will continue to get multicultural, much more so than any other country. Thus it will feel much different than the past and different also from the rest of the world which discourages immigration. We’ll feel “big and vibrant” but not “particularly rich.” There will continue to be large pockets of poverty. [Schwartz: Unfortunately, that’s just how capitalism works.] The incoming immigrant population will keep the ideas flowing and innovation happening and the US growing faster than Europe or Japan but will cost us more as running a multicultural society is expensive. By 2020 we will be well on our way to de-industrialization, having less then 10% of America employed in manufacturing. We will be depending more and more on the service sector and will be the global leader in services by far. [Schwartz: This is debate about whether abandoning manufacturing is a good thing or not.] We will see a decline in the old city centers and further growth in edge cities which will also be different than the rest of the world. Edge cities just being semi-urban agglomerations inhabited mostly by professionals. Better communications will make large cities redundant as more workers will telecommute. More work and social life will be done by phone, videoconferencing, email and fax. Our neighbors, Canada and Mexico, will become even further integrated into the US economy as migration continues. Cultural and economic borders, if not political ones, will disappear. Although likely losing our richest nation role, the intellectual leadership of the US will remain and we will continue to export our culture, ideas and language.

We have three big issues facing us domestically; bureaucracy, security and lifestyle. Bureaucracy-wise, we are running an inefficient society now, for one example, too much litigation is a big drag on the economy. Security-wise, we have too much crime, as another example. And lifestyle-wise, we have too much divorce, too many single moms, low savings and low education standards. Schwartz View: Any and all ways of running our economy, political system and lifestyles inefficiently hurts our economic growth, no question about that. But Mr. McRae feels the US will break this negative cycle. And get back on track, living in a more orderly way, rebuilding the family unit, etc. McRae speculates on how this change will happen: “At some stage, most probably in the second decade of the next century, there will be one of those great radical shifts in US political attitude which take place from time to time, a shift akin to the New Deal …” Hey, it can’t come too soon for me as I rail under the monkey-see, monkey-do atmosphere of Hollywood, the New York Post and Mike & the Mad Dog, crude and rude, using whatever sells, taking no responsibility, gaming the freedeom of free speech, just living off other people. I see this shift beginning no matter who becomes our next president, although I see it really accelerating if presumptive Democratic nominee Barack Obama wins.

Search results matching tags 'Culture', 'Macroeconomics', and 'Historical Perspectve'

Re-Regulation Begins a Multi-Decade Road

America's Path Forward