Tuesday, October 14, 2008

Lessons From Economic History

Re-reading books can be fun. Here's John Kenneth Galbraith in Affluent Society discussing the post-war economic developments in the United States:

The market revival brought no very drastic action. Desirable as sharp curtailment of federal regulation or civilian spending might be in principle, it was something to be approached with circumspection in practice. Only much later, in the presidential campaign of Barry Goldwater, did the ideas of the market revival -- the elimination of social security, an end to the farm programmes -- become a programme and many wiser men were prompt to warn their candidate that action was never intended. By the time of the Nixon Administration, it was accepted that the government could simultaneously endorse competition while doing all possible to secure the favored from its effects. The sincerity of such market evangelists as Professors Milton Friedman and George Stigler of the University of Chicago was conceded but it was not imagined that they would be taken too seriously in practical matters.

They were meant to be studied, perhaps called on for advice, but not too seriously followed. Still, in Washington and in statehouses, city halls and school districts across the land, the case for public spending became the case against freedom. This added powerfully to the older arguments about the grievous burden of taxes. In the deeper intellectual wastes of Orange and Harris counties, attitudes were more severe. To be for new schools, against air pollution or in favour of stronger zoning laws was to be in support of the first awful step down the steep slippery path to communism.

Meanwhile, and remarkably, these ideas were meeting no very effective attack from liberals...

(I seem to have a British edition of the book.)

Economic history also teaches us to not focus on every day's financial market numbers as signs of either recovery or not. We need data for longer time periods than that to tell what's happening, especially because volatility is to be expected in the kind of crisis situation we are facing now.