Grisham’s ignorance of this rule spoiled the book for me.

We will definitely regret the loss of this rule at some point.

The government says inflation is under control, but they mean “core” inflation which does not include food or energy. How stupid is that?

Excellent post, and in my business, so to speak, as an economic historian. One caveat. I, too, believe in the depreciating memory theory of policy mistakes, and to set the record straight, I predicted inflation in the 1990s or 2000s. I guess it is still to early for people to have forgotten the inflation of the late 70s.

That most people have forgotten the depressionis obvious from their spending. I haven’t. For my family it lasted until about 1951 when my father finally got some job security (he was out of work from 1930 to 1938). One big difference, though, is that we know more about the economy than we used to, despite all the efforts of the Universities of Chicago and Minnesota to try to get us to forget that, too.

There is a “device” I use that clears a lot of “economic fog” and would be worthwhile developing, that is, instead of the traditional “inflation or deflation in terms of *price*”, the reciprical being the increase or decrease in purchasing power of the economic unit as the measure. This aproach will never find favor with governments or politicians as it shows exactly the results of economic policy in real terms and shows in many cases the failure of institution or the governing classes to understand or control economic processes. I think this perspective provides a more stable and less distortion in mirroring the economic enviornment.

Of the great economic philosophers (A.Smith, John Mills, Richardo, J.Stewart Mill, Malthus(?Sp), K. Marx, and Keynes), only Marx addressed the current system (and its flaws). Unfortunately that wisdom is well hidden behind political prejustices and is effectively dismissed from consideration. Only by restoring Marx to the intellectual integrity the work deserves, is there going to be the perceptions needed to face economic decisions with knowlege; survival depends on such knowledge. Should the Chicago “School of Economics” prevail, the outcome will be less than desirous and anthical to the Constitutional tradition, so contaminated it is with Straussian idio(t)logy.

Now to read the comments.

But eventually I realized that’s not quite true – rather when the people who have lived history die, the way is open for history to repeat itself.

That doesn’t disagree with, or even address, what Santayana was talking about.

Talk about shoehorning a quote into a blog post.

selise @ 51

Exactly, the US got lucky with FDR. It very easily could have gotten a fascist dictatorship out of it. I’ve been reading Schlessinger on Roosevelt, and it’s something he makes very clear – people wanted it fixed, and a lot of them were willing to give up their freedoms to have it fixed (the right, of course, would argue that they did give up many of their freedoms. Nonetheless there is a qualitative difference between FDR and Mussolini or Hitler that even they have to admit exists.)

I agree we were lucky. Hannah Arendt thinks one of the primary causes of the Hitler phenomenon was the fear of the German people which led to their willingness to subvert every principle for the sake of a bit of security.

This is a comment that I tried to put in its proper place in Ultra-EPU-land, two threads back, but the thread wasn’t taking any new comments, for some reason. Now that I look over this thread, it doesn’t seem so OT after all.

I had wondered what was going on in the minds of people on the right, as I could not figure out their motivations from reason, humanism, theology, self-interest, or anything else. Several people responded, and one word popped out at me: ‘threatened’. (Thanks, GordonM AT 104)

Maybe that’s it. 1/25 of the people walking around have never experienced sex, I hear. Whoodathunkit. Maybe 1/4 of the people are terrified that they won’t make it through life, that their little bit is so hard to get and so hard to hold on to, that somebody else (probably belonging to a group which is different from theirs and which doesn’t, therefore, understand their problems).

How are they going to pay the bills if they get sick? How are they going to keep a roof over their family’s heads?

People in that condition would be easily led, witness Germany between the wars.

What is interesting is that this suggests that universal health insurance, the assurance of an income you can live on, a plentitude of good jobs would ease people’s fears AND MAKE THEM LESS SUSCEPTIBLE TO DEMAGOGUERY!

(Darn. I think that that’s important.) No wonder the right thinks that socialism is so dangerous: implement programs that reduce fear in the populace and your mob crumbles.

Yes and no. Because there are 2 distinct types of people who are prone to feeling threatened. One – those making less than “enough”, for whom your prescription is just what the doctor ordered. But the Right Wing creeps you see on TV hyping threats aren’t all doing it just to be manipulative. Many of them believe it. You see, if you make too much money, you’re prone to it, too. My pet theory is that money measures their self-value, instead of being a way to live. So a threat to their money (as is posed by a socialistic movement) is a threat to them.

My favorite example: when Reagan was hawking the threat to national security posed by that nation of 20 ? or so million – Nicaragua, he went to the President of Mexico, and asked him to join in declaring Nicaragua a security threat. The Mexican president (a staunch ally) said, “I can’t do that – if I did, 40 million Mexicans would die laughing”. Now why would the populace of Mexico with their crooked gov’t and controlled media, know more than the US? The only answer I can see is: they’re not deluded by being rich.

Hmm. That’s probably not all that coherent, but it is Sat. night….

Scarecrow @ 17

Are there “canaries in the coal mine” we should be watching for?

The hardest part, for me at least, is determining when these things will crack up. …

That said – we have two economies right now, the normal one you probably live in; and the financialized one the elites live in where 20% returns in a year are expected, money is essentially free to borrow, etc… Their world is fantastically leveraged, with more money in derivatives and currency trade than the entire world economy (many times more). If that world is every forced to cover it bets, for any reason, than the entire house of cards could start coming down.

The wealth becomes so much hot air, mere binary digits which are not worth the electrons they’re made of. One crash and maybe it all disappears and returns us to an economy of hard assets. After all, what value is there in a $5B checking account if nobody can produce the wealth which that number references. So, look to the REAL world to see where things are going awry and how that would translate into someone getting pushed off a leveraged position in the Markets.

As for what the canary is – generalized uncontrollable inflation or deflation either in China or the US, is my guess.

I’d guess Fed chairman Bernanke will follow Republican advice and raise interest rates rather the way Greenspan did to Gore in 2000. Whether he alone can trigger a worldwide collapse isn’t clear.

It could also easily be triggered by … or of other nations [cease] to continue lending to the US for consumption (this happens when someone panics and thinks “I’m never getting this money back if I don’t pull out.”)

Exactly. Watch for Bush to talk about defaulting on US bonds as we get close to the election. If there’s a default or even if Asians think we *might* default, they’ll get jittery and that could cause them to slow loans. That would cause problems. No cash, US gov runs aground, economy receives less gov monies, economy slows, inventories pile up, lenders call in loans, everybody starts closing up shop, economy crashes, US stops buying foreign goods, world economy slows or crashes. There are various scenarios, but in the more connected world of today one thing can very well lead to another.

… we always come down to “so, what’s going to cause this edifice of sticks to collapse?”

‘edifice of sticks’? Not ‘house of cards’?

Perhaps more important is to consider it might be on the way and to think about how to create a softer landing.

I don’t mean to be terribly pessimistic and say it IS on the way. There may be some luck on our side. But, you can’t assume that.

Let’s say the Japanese have problems selling to America because of competition from India & China or let’s say they and China get nervous about US bonds or maybe Saudi Arabia and other oil countries see us moving away from oil and pull their capital from American markets. What then? Do they stop handing out cash? What would we have to do at that point to soften the blow?

There should very clearly be a worst-case economic policy plan and there should be steps taken to smooth out kinks in this new and evolving world economic system.

Worrying about Steagall-Glass isn’t perhaps as worrying as international business relations. Remember there is a move afoot to combine Wall Street with Europe in one large market. One bump and a lot more capital is jolted all at once.