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Great Depression lessons lost in current global crisis
By Greg Cusack |
March 6, 2012, Tuesday
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I enjoyed reading the fine article by Professor Raghuram Rajan, (Public ignores warnings from 'worrywart' leaders) in the Shanghai Daily on March 1.
Discussing the current economic situation in Europe, he says that a common question among European publics is:
"Why ... can't politicians see the abyss that yawns before them, and come together to resolve the euro crisis once and for all? Even if there is no consensus on what a solution might be, can't they meet and thrash out a plan that goes beyond their repeated half-measures?"
He then discusses three different opinions as to why this is so. I was particularly intrigued by the third one, offered to him by Mr Axel Weber, whom Professor Rajan identified as the former president of Germany's Bundesbank and an astute political observer. "In Weber's view, policymakers simply do not have the public mandate to get ahead of problems, especially novel ones that seem small initially, but, if unresolved, imply potentially large costs."
I think this is a common dilemma everywhere, and it is important to know this. However, I would like to offer a modest, respectful demurral in part to Dr Rajan's observations.
Farsighted Roosevelt
There have been great leaders in the past who have managed to deal with such obstacles.
As an American example of a rare phenomenon, President Franklin Delano Roosevelt recognized early on the great threats posed by Hitler's Nazi regime, especially once Germany invaded Poland, and by Imperial Japan with ongoing developments in Japanese-occupied Manchuria.
Faced with a reality, the scope of which most others did not recognize (or did not want to acknowledge), he began a modest build-up of America's then-outdated military capacity and engaged in a creative lend-lease effort which enabled America to assist those resisting German aggression many months before America's declaration of war following the attack by Japan on Pearl Harbor on December 7, 1941.
But this kind of leader has been quite rare since.
America currently has a president who, I think recognizes that significant changes in American policies (and postures) must occur in order to both adjust to what has already unfolded and, even more importantly, face the many challenges of the near future.
While he does possess this wider understanding, he has proven disappointing in his stop-and-go efforts to share his vision with America's citizens, an essential first step in asking them to follow his leadership.
Furthermore, he has faced the most dug-in and rigid ideologically based opposition from the Right, which seeks primarily to demonize and defeat him.
Part of this can be attributed to continuing racist currents that have deep and ancient roots in our culture, but I believe there is something else at work, and not just in America. And that something is a politically driven culture of denial.
We are now 80 years from the cycle of the worldwide Great Depression. Almost all those who lived through that time are gone, and the rest of us seem unable (and unwilling) to derive any useful lessons from that trying experience.
In the 20 years before the recent crash (and its still developing consequences), Congress successively weakened, if not entirely disposed of, many restrictions placed upon the behavior of financial institutions in the wake of the Great Depression. One of the lessons drawn from that earlier time was that, left unregulated, financial institutions would engage in successively more risky behavior with other peoples' money! The Great Depression occurred precisely because of the bubbles created by too much leveraged money chasing too little product and service demand.
But, of course, in our "modern times" we have been repeatedly reassured that "everything is different now," that banks and investment firms had long ago learned their lessons, and that these cumbersome old restrictions were now longer needed. Right! We keep stumbling across the sad wisdom of George Santayana who famously said, "Those who cannot remember the past are condemned to repeat it."
One of our greatest problems - in America and in Europe - is that unfortunately, our political leaders are now essentially synonymous with the persons and interests of our wealthy elite!
Eerie echo
As an historian, I am very concerned by the developing larger picture, which seems eerily to echo that of the 1930s. Neither American nor European leaders seem willing (or able) to remember what arose from the last time widespread discontent occurred because of ongoing job and food shortages.
In my education, and as a public official, I was taught to regularly assess, in an ongoing manner, the success (or its lack) of measures I sponsored or employed, precisely so that needed corrections could always be made quickly.
By its nature, authentic and responsible public policy must be an active process which always has to evolve and be modified by factoring in lessons from the past, best practices from others, and the impact upon, and tolerance by, currently affected citizens.
In today's world, it seems that all too many are waiting for the deus ex machina (god from the machine of ancient times) where salvation will come from an as yet unseen source just in the nick of time.
We forget at our peril that difficult times do not always produce greathearted leaders.
The 20th century's experience with Nazism should warn us that sometimes monsters seize the reins of power that are willingly surrendered to them by desperate people.
The author has been a college teacher of American history and political science, the director of the US National Catholic Rural Life Conference; he served as a member of the Iowa State House of Representatives, and retired from public service in the Iowa executive branch in 2004. Shanghai Daily condensed the article.
Discussing the current economic situation in Europe, he says that a common question among European publics is:
"Why ... can't politicians see the abyss that yawns before them, and come together to resolve the euro crisis once and for all? Even if there is no consensus on what a solution might be, can't they meet and thrash out a plan that goes beyond their repeated half-measures?"
He then discusses three different opinions as to why this is so. I was particularly intrigued by the third one, offered to him by Mr Axel Weber, whom Professor Rajan identified as the former president of Germany's Bundesbank and an astute political observer. "In Weber's view, policymakers simply do not have the public mandate to get ahead of problems, especially novel ones that seem small initially, but, if unresolved, imply potentially large costs."
I think this is a common dilemma everywhere, and it is important to know this. However, I would like to offer a modest, respectful demurral in part to Dr Rajan's observations.
Farsighted Roosevelt
There have been great leaders in the past who have managed to deal with such obstacles.
As an American example of a rare phenomenon, President Franklin Delano Roosevelt recognized early on the great threats posed by Hitler's Nazi regime, especially once Germany invaded Poland, and by Imperial Japan with ongoing developments in Japanese-occupied Manchuria.
Faced with a reality, the scope of which most others did not recognize (or did not want to acknowledge), he began a modest build-up of America's then-outdated military capacity and engaged in a creative lend-lease effort which enabled America to assist those resisting German aggression many months before America's declaration of war following the attack by Japan on Pearl Harbor on December 7, 1941.
But this kind of leader has been quite rare since.
America currently has a president who, I think recognizes that significant changes in American policies (and postures) must occur in order to both adjust to what has already unfolded and, even more importantly, face the many challenges of the near future.
While he does possess this wider understanding, he has proven disappointing in his stop-and-go efforts to share his vision with America's citizens, an essential first step in asking them to follow his leadership.
Furthermore, he has faced the most dug-in and rigid ideologically based opposition from the Right, which seeks primarily to demonize and defeat him.
Part of this can be attributed to continuing racist currents that have deep and ancient roots in our culture, but I believe there is something else at work, and not just in America. And that something is a politically driven culture of denial.
We are now 80 years from the cycle of the worldwide Great Depression. Almost all those who lived through that time are gone, and the rest of us seem unable (and unwilling) to derive any useful lessons from that trying experience.
In the 20 years before the recent crash (and its still developing consequences), Congress successively weakened, if not entirely disposed of, many restrictions placed upon the behavior of financial institutions in the wake of the Great Depression. One of the lessons drawn from that earlier time was that, left unregulated, financial institutions would engage in successively more risky behavior with other peoples' money! The Great Depression occurred precisely because of the bubbles created by too much leveraged money chasing too little product and service demand.
But, of course, in our "modern times" we have been repeatedly reassured that "everything is different now," that banks and investment firms had long ago learned their lessons, and that these cumbersome old restrictions were now longer needed. Right! We keep stumbling across the sad wisdom of George Santayana who famously said, "Those who cannot remember the past are condemned to repeat it."
One of our greatest problems - in America and in Europe - is that unfortunately, our political leaders are now essentially synonymous with the persons and interests of our wealthy elite!
Eerie echo
As an historian, I am very concerned by the developing larger picture, which seems eerily to echo that of the 1930s. Neither American nor European leaders seem willing (or able) to remember what arose from the last time widespread discontent occurred because of ongoing job and food shortages.
In my education, and as a public official, I was taught to regularly assess, in an ongoing manner, the success (or its lack) of measures I sponsored or employed, precisely so that needed corrections could always be made quickly.
By its nature, authentic and responsible public policy must be an active process which always has to evolve and be modified by factoring in lessons from the past, best practices from others, and the impact upon, and tolerance by, currently affected citizens.
In today's world, it seems that all too many are waiting for the deus ex machina (god from the machine of ancient times) where salvation will come from an as yet unseen source just in the nick of time.
We forget at our peril that difficult times do not always produce greathearted leaders.
The 20th century's experience with Nazism should warn us that sometimes monsters seize the reins of power that are willingly surrendered to them by desperate people.
The author has been a college teacher of American history and political science, the director of the US National Catholic Rural Life Conference; he served as a member of the Iowa State House of Representatives, and retired from public service in the Iowa executive branch in 2004. Shanghai Daily condensed the article.
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