For two hundred years our economy has endured vicious cycles of boom and bust, huge surges of capital accumulation followed by devastating contractions. This not only profoundly affected investors (formerly known as capitalists) but shaped the lives of workers and all those who supplied them with food, clothing and shelter. Looking back, if there is one thing which we learned from this was the need for regulation and oversight. The investors, too preoccupied with the lure of profit, do not attend to that, and the workers, of course, too dependent on others, cannot change the course of events.
How did we forget what we have learned? How did we neglect the lessons of our economic history?
Now as we are discovering this lesson all over again, trying to put into place the oversight and controls needed to manage this essentially unruly system, we need to think about why we forgot. What we don’t know we know is how investors cannot be entrusted with the job of overseeing the system.
There are I think two prominent reasons.
After the collapse of the Soviet Union, the ideology of the free market clouded our collective judgement. More accurately, those who stood to profit from the expansion of business opportunities, deregulation, and privatization, used that ideology to inhibit any attempt to control their profits. James Galbraith has brilliantly outlined how this happened in his new book, The Predator State.
Gradually we all became invested through pension funds, savings accounts, etc. etc. As a result we too became blinded to the risk. Those who took out subprime mortgages or home equity loans, those who ran up credit card balances, who overextended themselves in our new credit economy — they all lost the objectivity needed to keep in mind our economic history and the risk built into it.
As Obama puts together his new economic team and as we individually struggle to get out of this recession, how can we work to remember what we so easily forgot?