Guardian UK: 1929 once more?

[marmar]

1929 once more?
Economies in crisis: There is a dearth of politicians able and strong enough to learn the lessons of history and keep banking in check

Ann Pettifor
April 12, 2008 3:00 PM | Printable version



In debates about the financial crisis - on the left and right - there are five oft-repeated economic fallacies.

The first of these is that 'economic fundamentals are sound' and that the crisis is limited to a finance sector previously celebrated as vital to prosperity but now somehow detached from the real economy. The second is that the crisis is caused by 'turbulence' in the housing market. The third: that the crisis was caused by low rates of interest, in particular monetary easing since 2001. The fourth: that the UK government was guilty of profligacy during the good years. The fifth: that we should remain fearful of inflation.

These fallacies arise because our leaders have not learned from parallels in history; and because they refuse to correctly analyse the long process that has led us to the end-game that is today's systemic crisis.

The parallel with the Great Depression is frequently drawn, while parallel events that were the cause of the disaster are ignored. After 1918 policymakers liberalised finance under the banner of the gold standard. Winston Churchill reflected on the consequences:

"The year 1929 reached almost the end... under the promise and appearance of increasing prosperity, particularly in the United States. But in October a sudden and violent tempest swept over Wall Street......... The whole wealth so swiftly gathered in the paper values of previous years vanished. The prosperity of millions of American homes had grown up a gigantic structure of inflated credit, now suddenly proved phantom. Apart from the nation-wide speculation in shares which even the most famous banks had encouraged by easy loans, a vast system of purchase by instalment of houses, furniture, cars and numberless kinds of household conveniences and indulgences had grown up. All now fell together."

For a brief period, lessons were learned. John Maynard Keynes worked with politicians and policymakers to develop a new financial order for the world, with interest rates low and the financial sector returned to its role as servant, not master of the global economy. The Bretton Woods Agreement was not his ideal, but it led to a 'golden age' of prosperity unknown before or since. .......(more)

The complete piece is at: http://commentisfree.guardian.co.uk/ann_pettifor/2008/04/economies_in_crisis_1929_once.html

[Karenina]

1. Those who forget history...