Summary
Felix Rohatyn, in an editorial in the New York Times issue of June 29 noted that Europeans were fascinated by the economic freedom that is fundamental to American capitalism. But the practice of that has become different from the theory. The U.S. began to diverge from Europe in the 1980s as a result of population growth plus greater investment in technology. By the 1990s, changes in the U.S. corporate culture plus easy money resulted in astonishing levels of wealth. Management and directors collected hundreds of millions while thousands of employees lost their jobs. These events struck at the heart of market capitalism. The problems began in the 1980s with a shift away from an industrial economy. Repeal of Glass-Steagall allowed to banks to enter the securities field. The Enron collapse resulted in the Sarbanes-Oxley Act of 2002. It is late in the day to restore faith and confidence. The administration must engage the Congress to return to American market capitalism.
Analysis
American capitalism came under fire in the 1850s. Factories were thought to enslave skilled artisans under onerous “wage labor” conditions. But parallel to that popular issue came the polarity of public opinion regarding slavery. Danger loomed. The Compromise of 1850 pushed these problems into the future, until 1857. That year after a decade of growth a severe railroad speculative bubble ended in the famous banking panic. It was a downturn almost or perhaps as serious as the one unfolding today. By the elections of 1860, civil disturbances had erupted in New York and other large northern metropolitan regions. The south was practically untouched by this. King Cotton still ruled. History rarely if ever repeats in detail but human nature repeats and the calamities recorded by historians are of eras where humans were collectively pressed into extreme circumstances. Today the U.S is an old nation. Once a nation becomes old, it is difficult for it to avoid senility. Signs of decay become just as visible in the economic system as in a doddering person afflicted with hardening of the arteries, loss of hearing, dementia and lack of energy. The U.S. today has reached that point, as all governments of all times eventually do. Political parties which once added strength to the legislative process have now become antagonistic entities with no purpose but to promote narrow agendas. The attitude of the Congress is to pass any kind of law that will keep the hordes away from the gate. Give the people what they want. Run the printing presses to pay for it. The Congress has too many members and they work at cross purposes. The Administration has become bloated. Bureaucrats and functionaries occupy the White House and the myriads of nearby offices with no purpose but to keep themselves in high-paying jobs.Few of them can imagine that Father Time with his scythe lurks in the streets waiting his chance. So where is the hope? It could come in the form of a constitutional convention called by the several governors. Its purpose would be to establish a system under which the states funded the federal government on their terms, rather than the existing system under which the federal government takes what it wants from the states by means of an income tax on the citizens and corporations. Any such convention would be opposed by both the Administration and the Congress for obvious reasons. Absent a peacefully agreed system, at some point, as the money continues to lose value because of printing press funding of idle projects, some states, unable to meet basic needs, will secede as they did in 1860. When Abraham Lincoln was elected president, the south was rural and agricultural. The north was urban and industrial. The patchwork compromise of 1850 had run its course. Historians debate to what degree the Panic of 1857 contributed to the American Civil War. But all agree that it was an influence. Fundamentally the American Civil War pitted one type of society against another that was completely different. Without saying it in as many words, Ambassador Rohatyn was warning that in perilous times, as these certainly are, the cohesion of the nation becomes threatened. Even today, controversy exists in the academic world about why the Great Depression of 1930-39 did not end in civil war. Could it still happen? In the van would be Texas and California. Texas likely would attract Oklahoma, Arkansas, Louisiana and New Mexico. California would attract Arizona, Nevada and Oregon. Once two leading states withdrew, others would follow. Utah, out of the union, would expand by attracting Mormon communities in nearby Wyoming, Idaho and Colorado. Some states, perhaps North Dakota, Washington, Minnesota, Oregon and Maine would seek to join Canada. The mid-western states of Illinois, Indiana, Michigan and Ohio would fall into chaos because of problems both financial and racial. Racial problems would become paramount in Mississippi, Alabama, South Carolina and Georgia. Armed militias would rise. Blacks from other states would be motivated to migrate to the region with the idea of establishment of a black super state. Chances are good that it would succeed. Clearly, with such a mélange, some long period of time would be required for any kind of political equilibrium to emerge. So in the final analysis the question for the people is whether they wish to preserve the union or witness it fly apart as a result of worthless currency. The population of California today exceeds that of the entire Union of 1960. The population of Texas today exceeds that of the entire Confederacy in 1860. Both states have natural resources that would help them regain their poise in the event of a split up. The moment of the last clear chance will likely occur at the time of the 2010 Congressional elections. By then, the people will have a more accurate perception of the state of the economy. It will be possible to gauge the degree of damage done by the printing press spending. What, if any, results of “stimulation” can be judged with some precision. It is worth remembering that the secessions of 1860-61 did not happen in masse. South Carolina seceded in December of 1860, Mississippi, Alabama, Florida and Alabama in January of 1861, Texas in February. Only after the attack on Fort Sumpter in April did Virginia secede. Arkansas North Carolina and Tennessee followed in May. The great disaster was underway. This unhappy era is graphically depicted with copious detail by James M. McPherson’s in his masterly “Battle Cry of Freedom”. It is worth a read today.
