Wednesday, December 18, 2013

Will We Ever Learn?

  The scene: The wake of a major recession, caused by excesses by wealthy individuals and corporations.  The nation, particularly the middle class and small businesses, has been severely damaged.  The Democratic Party presses for reform and more regulation.  The Republican Party splits between its mainstream conservatives, who support the status quo, and a fringe group demanding a sweeping change in the party's direction.  The time: 2013, after the Great Recession of 2008? 

  Nope—I am writing about the turn of the 20th century, after the devastating Panic of 1893.  Ironically, the Republican Party's fringe were then left-wing progressives calling for legislation that would limit the power of the great trusts and monopolies, and provide more protection for unions and the average citizen.  (Remember: the Republican Party was at that time truly the party of Lincoln.)  Fortunately, the president was Theodore Roosevelt, one of the Republican fringe who—after being relegated to the powerless office of Vice President by the mainstream of the party—had succeeded to the presidency on the assassination of President McKinley.  By virtue of that accident of history, Roosevelt almost single-handedly launched the Progressive Era of the first two decades of the 20th century.

  That era is the subject of an excellent new book by Doris Kearns Goodwin: The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism.  As the title suggests, it is a twin biography of Roosevelt and Taft, the 26th and 27th presidents of the United States.  It also contains a series of mini-biographies of the so-called muckraking journalists, notably S. S. McClure, publisher of the influential McClure's magazine, and those who wrote lengthy exposés for it—among them Ida Tarbell, Ray Stannard Baker, Lincoln Steffans and William Allen White.  It is a massive book (over 900 pages, about a third being copious end notes documenting its many quotations) but for all its length a very worthwhile read.

  I need not summarize Bully Pulpit here.  That has been done in a splendid review in the New York Times by Bill Keller, formerly executive editor of the paper.  Suffice it to say that the biographies of Roosevelt and Taft are fine pointillist paintings of the men, their families, their philosophies and their long-term interdependence—gripping even for those who have read about them previously.  The biographies of the muckrakers are much shorter, but explain how each became a stentorian voice for the people and against conglomerations of corporations and corrupt politicians.  The book illuminates how Roosevelt, Taft and the muckrakers interacted to change the course of the nation.

  Of course, Teddy Roosevelt dominates the book, as he did the era.  Scion of a rich and famous family, he was brash, hyperactive, and multi-talented: a prolific writer, a consummate politician, a warrior, a rancher and a big-game hunter.   He made his mark as a politician by being marvelously open to others' insights, especially the muckrakers' investigations of excesses in the country, always probing to get an understanding of the thinking of the masses.  Taft plays a secondary, supportive role—a counterbalance to Roosevelt's sometimes-immoderate forays.  They both used the Congress, the courts and executive power to break up trusts that had monopolized the oil, steel, railroad and financial industries through bribery, corruption and intimidation; and to empower the middle class and labor unions in their opposition to those trusts.

  Goodwin's book cannot help but focus one's attention on the repetitive folly of the business cycle, as new generations forget the lessons of the past.  We have had three such major cycles in the United States in the past 150 years, each starting with a period of increasing laissez faire that led to an extraordinary disparity of wealth, income and power between the moneyed classes and the rest of the population.  Major economic crises ensued, followed by periods of reform:
 
In the aftermath of the Civil War, the period of laissez faire was accompanied by the ascent of the robber barons in railroads, steel, oil, finance and other industries.  The Panic of 1893 called forth the reformers and regulation of the Progressive Era described above. 
Subsequent laissez faire excesses during the Roaring Twenties led to the Great Depression of the 1930s.  Franklin Roosevelt's New Deal then added massive new regulation to the economy, reining in the free-wheeling financial and industrial sectors and empowering unions.
In the 1970s and 1980s, laissez faire came back in favor, with many of the New Deal's regulations being reversed.  Subsequent excesses caused the Great Recession starting in 2008.  There is a still-ongoing period of regulatory reforms, against those who purblindly again want the market to "do its magic" unimpeded, and therefore are busy chipping away at those reforms.

  Will we ever learn?  I doubt it, for such madcap cycles have been occurring with regularity since at least the Dutch tulip mania of the early 17th century.  In this opinion, I am in the good company of John Kenneth Galbraith who in his little gem of a book, A Short History of Financial Euphoria, concludes that "there is probably not a great deal that can be done.  Regulation outlawing financial incredulity or mass euphoria is not a practical possibility." 

  When will the next disaster hit?  No one can tell, not even Nobel Prize-winning economists, for all their expertise.  As Galbraith once famously said, "The only function of economic forecasting is to make astrology look respectable."