The Other I

November 15, 2008

The Great Conflagration

Filed under: Political thoughts,Survival Strategies — theotheri @ 3:26 pm
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The best term I’ve heard so far to describe our global financial meltdown is “The Great Conflagration,” a term thought up by the economist Thomas F. Cooley.

Okay, so we now have a good name for it.  How do we put the fire out?  or rather, I suppose, get it under control?  Cooley and another economist, Lee Ohanian from UCLA have a scary article in Newsweek (http://www.newsweek.com/id/168626/output/print) about the effects of implementing the kind of populist approach we tried after the depression.

I can share the desire for justice and revenge with an urgency that drives me out onto the street with my placard and warm sweater for a night in a police cell.  But I do not think poverty will be reduced nor justice served by:

  • imposing heavy taxes on the rich and redistributing it to the poor.  Britain tried it for twenty years.  Their economy didn’t start growing against until they reversed the inevitable brain drain and lack of innovative motivation the policy stoked.
  • giving excessive powers to labor unions.  The US tried it during the depression and as a result kept unemployment above the 10% figure for a decade.  Only the labor shortages resulting from WWII finally increased the rate of employment
  • subsidizing some industries at the cost of others.  Our subsidies for farmers, and especially for growing corn, has both distorted the market and undercut profitability for farmers in the underdeveloped world, and has led to a huge increase of less healthy food in American supermarkets. 
  • imposing trade restrictions and self-serving tariffs.  India, a country rich in natural resources and abundant labor, tried it.  After 50 years of trying, they decided it wasn’t working, so they drastically reduced government controls.  The economy hasn’t stopped growing ever since and hundreds of millions of people have been lifted above the poverty level.

Well, I’m pretty sure I think I know what the wrong answers to The Great Conflagration are now.

I wish I were as sure about the right answers.  My back-up position is to hope that Obama knows what he’s doing.

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