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No FREE Lunch! Is Capitalism Dead?

July 18, 2011

Updated June 14, 2012

Dateline: May, 2008.
My wife, Sue, and I were rocketing across America on a three week, 6,500 mile Amtrak train trip. For a couple of Canucks from the Great White North, it was a phenomenal experience to spend time in Chicago, San Francisco, San Diego, plus many other cities and towns. Seeing the Grand Canyon, the Meteor Crater and the splendid beauty of Sedona, Arizona, was thrilling.

We also met dozens and dozens of wonderful Americans. Don’t believe the bullshit you read in the various media. Americans are amazing people: generous, resilient and friendly.

While we were travelling, senior federal civil servants such as Hank Paulson, Ben Bernanke and Timothy Geithner were panicking as the U.S. and, indeed, the international economy inched towards the abyss. They were meeting with a sordid cast of characters from the country’s major financial institutions, negotiating, and at times dictating, what was going to happen to prevent a national meltdown.

Being a long-practicing economist of over 30 years, I get a thrill out of reading analyses of economic events, including solid books. So I’m a boring 56 year-old. Get over it.

To gain an interesting insight into these events, check out Too Big to Fail produced by HBO, featuring a big hit-list of Hollywood’s best.

The stakes are HUGE for all of us, whether you’re a naïve, boring Canadian who believes that because your banking system is more solid than that of the U.S. you’re immune, or a Greek who lives on a distant planet pretending that you don’t need to pay taxes. We’re all in deep shit.

There’s one guy out there who has a few clues. His name is Nouriel Roubini

Viewed by some as Dr. Doom, Roubini is one of the few credible people who has a grasp of economic history and the dangers of what unbridled capitalism can exert on an uninitiated population in what discredited former federal reserve chief Alan Greenspan once dubbed as “Irrational Exuberance.” (Note: Greenspan’s remark back in 1996 threw the markets temporarily into a panic).

Nouriel Roubini’s book Crisis Economics is a must-read for anyone who wants to get a better grasp of what lead to America’s near-financial collapse. Whether you’re an economist, public servant, financial analyst or Joe-layperson, Crisis Economics is a compact distillation of history and the logic-defying events that lead to the 2008 financial meltdown. At the end, Roubini presents some “radical remedies.”

Here are some examples of Roubini’s observations:

[On Alan Greenspan]
“That Greenspan presided over the Federal Reserve is ironic….as a young man he became smitten with the power of the free market…. His ambivalence about government’s role in regulating the free market was evident from the beginning. Four months after his [1987] appointment, the stock market crashed, and Greenspan immediately rode to the rescue. Out the window went any principled opposition to government intervention. As he memorably put it: ‘In a crisis environment…we shouldn’t really focus on longer-term policy questions until we get beyond this immediate period of chaos.’

…In 1996, as the stock market spiraled into a giddy bubble focused on tech and internet stocks, he warned of ‘irrational exuberance,’ then did nothing to stop the bubble from inflating….When the dot com bubble finally popped in 2000, Greenspan poured plenty more alcohol into the proverbial punch bowl. [After 911] he kept cutting the funds rate, even after signs of a recovery started to appear. When he finally resumed raising rates in 2004, he did so in tiny and slow and predictable increments….The result was the housing and mortgage bubble.

[On the risks associated with the U.S. mounting debt, financial bailouts, stimulus spending and loan guarantees to business]
“Economists of a Keynesian bent tend to minimize these risks, pointing out that the United States ran enormous deficits during the New Deal and World War II and managed to pay them off without a problem. The total value of the public debt hit an all-time high in 1946, when it was equivalent to 122% of the nation’s GDP. By contrast, current projections point to debt reaching 90% of GDP in the near future, though it may certainly go higher.

That’s a highly comforting comparison, but it’s highly misleading. In 1946, the United States was at the peak of its power….[It was] the world’s biggest creditor and net lender…and the dollar had just become the global reserve currency. Little wonder it was able to pay down its debt with ease. Whether same can happen today is another question….The United States of today is not the country of 1946.

Check out Crisis Economics. You won’t be disappointed.

I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.
– Alan Greenspan

Photos by J. Taggart

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4 Comments leave one →
  1. July 28, 2011 8:14 pm

    well, being part Icelandic, there’s a certain pride – they are also the first country to elect a woman as president – Viggdus Finboggadottir – and she was elected directly, not as the leader of the elected party

    and their collapse caused their Prime Minister to step down and be replaced by the first Lesbian to lead a country

    I have also admired Iceland since their 1972 Cod War against Britian and how they managed the European sanctions that resulted by making a deal to sell herring tot he Russians in exchange for Russian fuel, which they turned around and made the Americans buy if they wanted to keep their NATO base.

    Iceland is the little mouse in a cage of tigers

    • July 28, 2011 8:15 pm

      btw, that Cod War was the only bloodless war in history – Icelanders bought a boat with a single shot cannon and fired cod and potatos at foriegn ships invading their newly declared 200 mile limit for territorial water

  2. July 18, 2011 6:11 pm

    I have many places on the net where I debate with Americans who often deride Canada as being a nanny state and their state being better since it’s free market and no government regulation.

    Until of course, the free market inevitably fails, and then who’s the nanny state.

    Iceland’s economy tanked and they let the banks fail – now they are recovering and probably not investing in the US anymore – and Iceland is doing a daring social experiement and using social media for citizens to make suggestions for a new constitution – talk about power to the people!

    • July 18, 2011 6:40 pm

      I’m not sure that Iceland’s the best example, given how stupidity, just as with the U.S. and European countries, lead to collapse or near collapse. That Iceland is trying to pick itselg up by the bootstraps is a good sign. Greece and the other PIIGS should pay heed.

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