Far From Brooklyn

The Lords of Finance by Liaquat Ahamed

I suppose I came to this book, a history of the financial devastation the crash of 1929 and the Great Depression that followed it, looking for comfort.  And I suppose I did get some comfort from it.

Say what you will about Tim Geithner or Henry Paulson – at least they haven’t gone a-jaunting in the desert for months at a time while on duty, the way Treasury Secretary Benjamin Strong did during his tenure at the helm of the U.S. economy.  Nor – as far as I know – have any of today’s key economic leaders had (quiet) mental breakdowns, or made incognito transatlantic cruises, as did Montagu Norman, the head of England’s central bank in the years leading up to the crash.

So at least we have had hands on the economic rudder these 18 months, and perhaps if we are lucky this long downturn will turn out to be no worse than it has been thus far – that is, a really dreadful recession, but not another Great Depression.  (Although it strikes me as far too early to make that call.)

Reading “The Lords of Finance,” and looking back on the economic policies that led the world not only to the brink but over it, I kept wondering: What are our blind spots today?  What commonplace financial assumption will seem ridiculous 75 years from now?

In the first part of the 20th Century, Europe (and America) clung steadfastly and foolishly to the idea of the gold standard, dragging economic activity to a halt. John Maynard Keynes had clearly and brilliantly debunked the idea of the gold standard, but he was largely ignored by the central bank establishment.

We look back on that misplaced faith in the power of gold and shake our heads, but surely we have our own misplaced faiths. What assumed economic truths will future generations look back on and wince about?

Perhaps the idea of easy credit as a widespread economic lubricant?

Our faith in the incorruptible power and rightness of “the free market”?

Who knows, some day historians may be writing acid profiles of a generation of laissez-faire economists, painting them as ignorant dogmatists who paddled the world economy to the brink of disaster, as smug in their confidence in unrestricted capitalism as central once were in their belief that a pile of yellow metal was the same thing as national wealth.