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A few excerpts from Land of promise: An Economic History of the United States, by Michael Lind.
"Successful public purpose banks have a long and successful history in the United States. They include not only the Reconstruction Finance corporation, which was abolished after World War II, but also the Farm Credit system and the Home Loan Bank system. The worst failures were Fannie Mae and Freddie Mac. But those two government-sponsored enterprises (GSEs) failed not because they were public but because they were compelled to act like profit-maximizing corporations instead of public utilities. Free-market ideology was responsible for the privatization of Fannie Mae and the creation of Freddie Mac as a would-be competitor. Ginnie Mae, which remained a government corporation, did not engage in similar profit-driven risk taking. Nor did the Federal Home Loan Bank system, which, like the Farm Credit System, is a nonprofit cooperative, owned by risk-averse member banks. The lesson of the Fannie/Freddie debacle during the housing bubble and subsequent crash is not that public financial institutions are a bad idea, but rather that they work only when they are organized as nonprofit government corporations or public-private cooperatives." (p. 467)
The moral of this story is: don’t try to be something that you are not. As Alexander Hamilton said, banking should be a public utility and not a profit making endeavor.
"The maldistribution of income and wealth that has occurred in the United States since the 1980s should not have come as a surprise. What else could one expect to happen, once unions were crushed, the minimum wage was reduced by inflation, labor markets were flooded with low-wage immigrants, taxes on the rich were dramatically lowered, and salaries and stock options for corporate executives were raised to obscene levels? […]
When too much of the wealth of a nation or the world is channeled to too few people, industries are starved of the mass demand they need to keep running or to expand. At the same time, the economy can be destabilized, when the rich try to become even richer by speculating with the money they do not consume or save. The series of asset bubbles the world economy has experienced in recent years-in housing, in stocks, and in commodities such as gold and energy-is a telltale sign that too much money is going to the rich, who use it to gamble on assets, rather than the middle class and the poor, who would have spent the money on goods and services generated in the productive economy.” (p. 470)
After reaching very high levels of inequality in the 1920s the US (and global) economy crashed into the Great Depression. The Depression was followed by a period lower inequality, growth, and stability, The great recession happened after the US once again developed high levels of inequality, however the period immediately following the Great Recession has only increased inequality.
"The fact that middle classes are made in part by enlightened public policy is illustrated by the contrast between the South and the rest of the nation. While independent yeoman farmers formed a majority in the North in the first half of the nineteenth century, in the South poor farmers were squeezed between a tiny oligarchy of rich planters and the slaves they exploited. In northern factories, despite employer resistance, unions made gains, particularly during the New Deal and World War II. But the one-party South used law and intimidation to prevent unions from taking root in a region whose elites viewed themselves as employers or brokers of poor black, white, and Latino workers deprived of bargaining power. As a result, in the twenty-first century, many southern states have levels of inequality, poverty, and illiteracy similar to those of developing countries." (p. 472)
Like the South in the 19th century there are many in the US today seem to be intent on pursuing policies designed to undermine the middle class.
Consisting of two parts history and one part liberal economic manifesto the Land of Promise is worth a read.
The early financial history of the United States reads like a playbook of things to avoid: an experimental central bank with almost no accountability, regional banks with even less oversight of their own back-room currency printing presses, and an easy credit mentality driven by the new national pastime of Western expansionism. This heady mix of credit and confidence exacerbated a boom and bust cycle that would last until well after the American Civil War.
Many of these booms and busts in early U.S. history can be attributed to the emergence of the agricultural futures markets in Chicago, the use of leverage in those markets, and the ability of banks to use local harvests as a source of credit in the form of new loans without centralized control. This newly created credit exacerbated price volatility around harvest times, which was made even worse by leveraged commodity speculation. The frequent outcome was widespread bank failure."
Isaiah Berlin pointed out that “because” is used differently in science and history. In science, it means reliably causal. In history, it means a looser, narrative kind of causation, a useful explanation of the complex web of factors affecting a particular situation. Since Plato many have privileged universal timeless truths. But history’s truths are typically particular and time bound, describing changes through time.
Pinker’s science needs types and theories. It assumes that phenomena “may be explained by principles that are more general than the phenomena themselves.” But Berlin noted that knowledge can be nomothetic or idiographic. “Nomothetic” means fit for law-like generalizations, having reliably repeatable regularities. “Idiographic” means much the same as the Hebrew word “da’at”: knowledge gained through direct relationship with the particular (not via theories or types)."
In a spirit of philosophical bipartisanship, it would be pleasant to conclude that each of these traditions of political economy has made its own valuable contribution to the success of the American economy and that the vector created by these opposing forces has been more beneficial than the complete victory of either would have been. But that would not be true.
What is good about the American economy is largely the result of the Hamiltonian developmental tradition, and what is bad about it is largely the result of the Jeffersonian producerist school."
"Historians have also examined the deleterious effects Of the New Deal on African Americans, particularly in compressing the skill level of black workers in relation to their white counterparts. White workers took over many jobs held by black workers during the Great Depression, and New Deal job training programs benefited white more than black labor. Paul E. Mertz, in New Deal Policy and Southern Rural Poverty (1978), examined the relief programs of the New Deal, which exacerbated rural poverty. African Americans are still trying to catch up to white Americans who gained economic, educational, and housing advantages through government programs of the New Deal and World War Il. In When Affirmative Action Was White (2005), Ira Katznelson traces the rise of the white middle class through New Deal job training and the benefits of the GI Bill after World War Il, which helped white men and women go to college and purchase homes. African Americans found themselves excluded from job training programs and relegated to domestic and service positions, and because of racial discrimination they had limited access to the benefits of the GI Bill.”
-Robert Harris, Jr., “The Changing Contours of African American History During the Twentieth Century,” A Century of American Historiography, Ed. James M. Banner, Jr.
In the movement that culminated in Gettysburg, Robert E. Lee’s men kidnapped free blacks by the hundreds—men, women, and children. Up to a thousand were captured and forced into labor with the Confederate Army. And during the eventual retreat from Pennsylvania, they were sent South. Once in Virginia, they were returned to their former owners, or if born free, sold into slavery.
What’s key is that this wasn’t the work of bad apples or isolated units. It won approval from field commanders and leaders at the top of the chain. It was so widespread, in fact, that you could legitimately describe these raids as an objective of the campaign, especially given the time and manpower required to carry them out."
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