Washblog

According to the New York Times, Bush, speaking at the Treasury Department in August after discussions with department officials , referred to the escalating crisis as "not a cause for worry but a natural adjustment from the improvident lending of recent years."

And after the crash, The "leave-it-alone liquidationists" headed by Hoover's Secretary of the Treasury Mellon felt that government must:

keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate".He held that even panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."

Fortunately, during and after World War I the United States [had barely] started to develop a cohesive financial system. Historian Niall Ferguson characterizes the development of our cohesive financial system this way:

......interesting thing about the United States, they didn't have a proper central bank until the eve of the First World War. It muddled through the nineteenth century with only periodic central banking functions being performed by the First and Second Bank of the United States. And in the later nineteenth century, before the creation of the Federal Reserve System, there was actually a tremendous chaos in the monetary institutions of the U.S., giving rise to quite severe financial crises.

We, like most countries, were made to modernize our financial system because of war, but the greater impact was positive and, as Prof. Ferguson explains it:

It's not intentional. It's not supposed to bring about the industrial revolution. But once you get this combination of non-corrupt tax collectors, of representative assemblies in which property owners actually have a say about the tax rates that they pay, once you get a central bank in which the money in an economy is managed in a rational way without the multiplicities of coins or worthless pieces of paper in other systems, and, finally, once you get financial markets where governments can borrow quite large sums of money at low interest rates, then you're off. There are all kinds of what economists call "externalities," that's to say, unexpected side benefits that propel economic developments in the private sector.

Like many conservatives, Ferguson does not accept the implications of his own arguments: If the institutions societies create for financing war have unintended positive consequences, how much better would it be if institutions were developed intentionally???

And of course that is exactly what happened during the New Deal. America used and developed the power of war finance to save an economy that had been left to the ravages of laissez faire. And when the second Great War came, of course, we were ready to finance and build the greatest war machine in the history of the world - now unchallenged.

We are more than ready to do that again - if we have the will and the leadership to harness that will. I fear Edwards was more prescient than he knew about what issues are important in America right now. But although he transformed himself from the New Democrat Coalition conservative Democrat he was to come to become a spokesperson for the weaker of the "Two Americas", Edwards failed to capture the imagination of an America yearning for transformation.

John McCain has pledged to conduct a war on any of the billion and a half angry Muslims who see fit to harass us or the governments we support. As America "marks down" the world's economy, John McCain tells us that religious idiocy in the third world and not economic crisis in the first world is our primary concern. He asks us to fiddle expensively overseas while Rome begins to burn from within.

Fortunately, there's a candidate who really seems to be capturing people's faith that the transformation they want and need is possible. To the circumspect Democrat who puts most stock in policy statements, Obama may seem audacious, a little vague and too willing to make a broad, emotional appeal. I'd only ask you to remember that FDR seemed the same way as he led the country towards a realignment in the New Deal Era.

The point is this: we will almost certainly need and benefit from more new programs and policies than ANY candidate could propose at this point. To propose these programs, a candidate would have to assert a reason for them and to do that, a candidate would have to sound fatally pessimistic.  We do not have to assert the need - the need will make itself painfully obvious. We have to assert the confidence that we can make the change.