Liaquat Ahamed’s talk on "The Lords of Finance" began with a tour of some colorful characters of the early 20th Century world of banking, but quickly morphed into an insightful comparison of the 1929 stock market crash with more recent woes. The two bubbles show many similarities (e.g., overly easy credit leading to overborrowing) and some differences (an imminent sense of doom in the 1920s, versus financial hubris in the run up to 2008-2009).
But the main contrast is between how the US government handled the banking crisis once the bubble burst. In the aftermath of 1929, banks were allowed to fail, budget deficits were avoided, and interest rates were allowed to rise. Say what you like about Paulson, Geithner and Bernanke, but they did not repeat the mistakes of the 1930s. The stock market may have fallen a comparable 50% or so, but the recent crash was not accompanied by 25% unemployment. Ahamed attributes the avoidance of this outcome to the well-known bank bailouts, stimulus packages and interest rates controls, and it’s hard to disagree.
At the end of question time, Ahamed introduced the sobering idea that we are about to enter a ‘lost decade.’ In other words, growth and stability will have to give way to significant changes in both our economic and social arrangements. If found it easy to believe that this is so, and that the 2010s could join the 1930s and the 1970s in history as a time of more or less painful adjustment.
The full title of this session with Thomas Friedman (and his latest book) is “That Used To Be Us: How America Lost Its Way in the World It Invented and How We Come Back.” The leading phrase is taken from a speech by President Obama concerning economic progress in China (better rail system and the fastest supercomputer). The interview was conducted by Walter Isaacson of president and CEO of The Aspen Institute.
Friedman began by talking about the American Dream, and how “its future is now in play.” Americans can no longer assume that each generation will be better off than the one before, while our deteriorating infrastructure suggests things may actually get worse. He sees the possibility of a slow decline, and worries that Americans are getting used to second best.
According to Friedman, America’s past success was rooted in a public/private partnership with sensible policies around education, immigration, infrastructure, risk/capital management, and scientific research. Each of these five pillars now seems to be crumbling. Further, the US has “declared war on math and physics” by turning a blind eye to financial legerdemain and climate change. Markets and Mother Nature will correct us, if we don’t correct ourselves, and it won’t be pretty.
Robert Rubin, co-chairman of the Council on Foreign Relations and formerly of the Clinton administration, was interviewed by Chrystia Freeland of Thomson Reuters. Rubin stated that the US is at a ‘historic crossroads’ and that the ultimate challenge is political, not technical. Washington needs to address the debt crisis, finance public investment, and reform education and healthcare, but ideology and opinion are getting in the way of facts and analysis, and the media isn’t helping much.
At question time, Rubin said he was ‘really worried’ about the current impasse over the debt ceiling, and thought the situation was ‘horrendously risky.’ Making the debate about debt a debate solely about spending, is completely wrong, in his view. If the deficit is greater than discretionary spending, how can you cut your way to a balanced budget? The issues have not been framed properly, and there is no sensible discussion. I find it hard to disagree.
Like Tom Friedland, Robert Rubin ended by saying that he was optimistic. Both cited the basic strengths of the American people as the source of their optimism, despite having decried a certain level of ignorance in the electorate. One wonders if polarization is going away any time soon, given the ‘echo chamber’ effect of both traditional and social media, whereby people’s selection, sharing, and curation habits tend to reinforce their own deeply held beliefs.
More reviews can be found at the AIF blog and the Thomson Reuters blog.