House Republicans Leading Us Over the Abyss into the Great Crash of 2008

Politicians and talking heads in the corporate media repeatedly refer to the current crisis as the "greatest crisis since the Great Depression." This puts the cart before the horse, and confuses both history and understanding of the current crisis.

Before there was a Great Depression, there was the great financial crisis and crash of 1929, which delivered us into the Great Depression. The Great Depression was not a financial crisis. The Great Depression was the economic fallout that resulted from the failed efforts at dealing with the financial crisis that precipitated the great crash of 1929 and the continuing economic turmoil of the years that followed, which lasted until 1933 when Roosevelt replaced Hoover as President and overthrew the destructive ideology of free market fundamentalism with a more rational approach to economics and government action.

For most of his administration, Bush and his Republican party have channeled many of the failed economic policies of the Coolidge administration. Now Bush seems to be channeling Hoover by accepting the need for some kind of government intervention while failing to provide any clear and forceful leadership to his own obstructionist Party, which remains stuck in the ignorant policies of the Coolidge era and the totalizing ideology of free market fundamentalism.

In the absence of failed presidential leadership, Republican Senator Shelby and the House Republicans (now possibly aided and abetted by John McCain) are championing the very ideology of do-nothing free market fundamentalism that led us into this current crisis. And by doing so, they are leading us full steam ahead, like the Titanic, into the iceberg of a repetition of the very mistakes of inaction that drove the United States into the Great Crash of 1929.

So instead of simply repeating ad nauseum the stupid and misleading mantra that we are in the worst financial crisis since the Great Depression, the media and bloggers need to be discussing these historical lessons and educating the public and our politicians (and especially the House Republicans) about the errors of economic understanding and failures of governmental policy that delivered the US and the world into the crash of 1929 and the Great Depression that followed from this financial collapse.

No matter how much economists have emphasized that we cannot fall into such a crash today because economists understand how to avoid making the same mistakes, the best and brightest of economists cannot prevent the politics of fear and ignorance from taking charge of events in Washington in ways that prevent those who understand the historical causes of the 1929 crash and the Great Depression from acting. After all, hasn't most of the Bush administration been about rejecting all evidence of good science and historical understanding in order to obstruct governmental action on climate change and other pressing problems in favor of Republican ideology and governmental inaction?! This current crisis therefore seems to be the perfect culmination of where Bush administration policies have been leading us for the last eight years.

However smart Bernanke and Paulson may be, they cannot prevent the nation, guided by ignorance and fear, from rejecting all historical wisdom and repeating the tragic errors of the past, including those of 1929. This repetition is what now seems to be happening as the rescue plan of Paulson/Bush is being stabbed to death by House Republicans who believe that the "free market" should be allowed to magically solve the problem by itself.

But it was precisely a religious belief in the free market and doing nothing that allowed the financial crisis of 1929 to turn into the Great Crash of October and November 1929, and the Great Depression that followed.

Thus we now appear to be on a ship of state called the Titanic, without any coherent Congressional or presidential leadership, heading full steam into an iceberg called free market fundamentalism, which will most surely sink us all if it is not forcefully rejected and pushed out of the way by clear leadership and rational economic policy.

With the rebellion of the House Republicans against the Paulson plan, the parallels between our current crisis and the crisis of 1929 preceding the Great Crash are increasingly chilling (and all should brush up on this history through a reading of John Kenneth Galbraith's concise and brilliant The Great Crash 1929):

1. Throughout the 1920s, the Coolidge Administration encouraged economic policies of free market fundamentalism and "irrational exuberance" that encouraged all kinds of market speculation, amazingly similar to the last eight years of the Bush administration.

As Galbraith notes, "the Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable" (109).

"Confidence did not disintegrate at once.... Through September and into October [1929], although the trend of the market was generally down, good days came with the bad" (Galbraith 92).

During the weeks immediately before the Crash, there were frequent pronouncements of continued confidence in the market, such as this one by Charles E. Mitchell, a director of the Federal Reserve Bank of New York (and a leading cheerleader of free market fundamentalism), on October 15, 1929: "The markets generally are now in a healthy condition . . . values have a sound basis in the general prosperity of our country."

And on October 22, 2 days before the beginning of the market Crash on Black Thursday, Mitchell said that market conditions were "fundamentally sound," and concluded that the whole situation "would correct itself if left alone." Even after the first big market dive on Black Thursday, Mitchell continued to utter positive words that emphasized the "fundamental soundness" of the market, stating that the "fundamentals were unimpaired" (104-105). (Perhaps John McCain and the House Republicans have been channeling Charles Mitchell!)

"The singular feature of the great crash of 1929 was that the worst continued to worsen" for an entire month, until the market had lost 50% of its value by mid-November (Galbraith 108, 135).

But somehow the historical reality of the Crash that came before the Great Depression, and helped to precipitate it, seems to be getting ignored by politicians and the media. Is this because they don't want to admit openly the similarities between the days before the crash of 1929, and our current crisis? Or is it simply because they don't understand the basic facts of this history? Is fear or ignorance governing this silence about parallels between 2008 and 1929? I suspect it is a combination of both.

But whether our politicians in DC and our corporate media are ignoring these lessons out of ignorance or fear, it is clear that public lack of understanding, as it exerts influence on politicians in Washington, is now greatly aggravating the dangers of the current crisis. To help avoid the collapse of the financial system that will surely come if free market fundamentalism is allowed to interfere with clear action, the best thing we can all do is to educate each other and demand that the media and the politicians begin to discuss and understand the dangerous parallels between our current financial crisis and the crisis of 1929.

If we want to avoid repeating the mistakes of the past, we must emphasize to all the one clear lesson taught by the tragic failures of leadership in 1929: FREE MARKET FUNDAMENTALISM--the belief that the free market will solve a financial crisis if it is just allowed to do its thing--WILL LEAD US INTO THE ABYSS of economic collapse and a new great depression.

If the free market fundamentalism of the House Republicans is allowed to rule the day in Washington, and prevent clear action, prepare yourselves to be standing in soup lines by next year....

And lest anyone think the tragic consequences of free market fundamentalism during the crisis of 1929 are not important enough to understand today, remember that it took the United States market economy 25 years to fully recover from the Crash of 1929. Although the new policies of the Roosevelt administration and eventually World War II helped to lift the United States out of the Great Depression, it was not until 1954 that the Dow Jones recovered the level it had reached before the crash of 1929.

(And in light of Warren Buffett's recent investment in Goldman Sachs, I should note that Chapter 3 of Galbraith's book is titled "In Goldman, Sachs We Trust." Let us all hope Warren Buffett's attempt to shore up Goldman Sachs on Wednesday was not part of a repetition of the history of the past. At least we know that Buffett is NOT a free market fundamentalist, and even supports higher rates of taxation for the wealthy.)


Addendum

Galbraith (177-186) provides an excellent summary of the five characteristics of the "fundamentally unsound" economy of 1929 that made it possible for the Great Crash to lead the world into the Great Depression:

1. The bad distribution of income.

2. The bad corporate structure.

3. The bad banking structure.

4. The dubious state of the foreign balance.

5. The poor state of economic intelligence.

As Galbraith laconically summarizes this state of affairs, "there seems little question that in 1929 ... the economy was fundamentally unsound." And in the face of this fundamental unsoundness of the entire system, it was the "triumph of dogma over thought" that pushed this unsound system into collapse.

For a few days Bernanke and Paulson--who are at least able to think and are not controlled by dogma, and have actual expertise in economic matters--seemed to be in charge of dealing with the financial crisis. But now all the stupidities of Republican politics and ideology--which brought us to this crisis--have torpedoed the proposals of the few thinkers in the administration. And we are now once again witnessing the "triumph of dogma over thought."

This should be no surprise. The current crisis is the perfect culmination of all that the Bush administration has been leading us toward. Now the only question is: Will rationality and sanity be able to reassert itself in ways that save us from repeating the mistakes of 1929, or will the dogma of free market fundamentalism prevail, and sink us all?

John McCain: Savior of the Nation, or Trojan Horse?

We seem to be watching a Shakespearean tragedy of world-historic proportions playing itself out in this historical moment. Within this tragedy, which now seems to be catapulting us all into financial disaster and economic depression, McCain seems to have chosen to play the absurdist role of a comic actor within the larger tragic drama. But while Shakespeare's comic characters do not usually play a major role in the overarching tragic drama, McCain seems to have chosen to place himself and his sidekick Palin at the center of this emerging disaster.

We must therefore ask: Does McCain fully comprehend the role he has chosen to play? Does McCain understand that in choosing to place himself in the midst of the debate over the financial crisis in Washington, he has chosen his personal political interests over the interests of the country that he has repeatedly said he would place first?

As our nation and the world pivots on the edge of an abyss that could make the financial panic and market crash of 1929 look pale in comparison, we are being forced to witness the spectacle of John McCain's pretensions to being the savior of the nation, while he aids and abets the splinter group of House Republicans that seems determined to have us repeat the mistakes of free market ideological totalitarianism that brought us the Great Crash of 1929 and the resulting Great Depression. the religious mantra of this ideological crowd is "the free market, limited government, and financial discipline" uber alles.

Under the guise of heading to Washington to save the nation from disaster, instead of continuing his political campaign and appearing on David Letterman's show last night, McCain (in no particular rush, and after taking time to do a full round of media interviews to announce he was 'suspending' his political campaign in order to take up the role of savior of the nation) arrived in Washington today -- to do what exactly? Did McCain rush to the White House with a commitment to helping Democrats and Republicans come to a common ground of agreement on a rescue plan? Did McCain meet with Obama to discuss how they could work together to help their two parties resolve this national crisis?

No. Rather than offering substantive assistance to a contentious meeting at the White House, where McCain could have played a constructive role by helping to lasso resistant Republicans into quick agreement on a comprehensive plan for fending off the increasing danger of a complete meltdown of the capitalist market similar to that of 1929, McCain (who has admitted his lack of economic understanding) seems to have come to Washington to aid and abet the reactionary Republican rebellion of the economically ignorant and outraged against the Bush-Paulson rescue plan.

Perhaps McCain, in the face of his declining poll numbers, recognizes that he is in the most difficult of political positions--a position that would actually require him, per his own oft-repeated words, to choose "country first" over his personal self-interest, by championing a cause that would put him at odds with a Republican base that has suddenly discovered it is the victim of a class war it has long ago stopped fighting. These Republicans, as part of a bitter awakening, are finally mad as hell, and are rising up en masse against the very plutocratic rule and policies they have twice voted into the White House.

But now, as all their political chickens are coming home to roost, these Republicans and Bush Independents have suddenly realized that they may be forced to pay the tremendous financial costs of the disastrous Republican financial, economic, and war policies that they have supported for the past eight years. Rather than accepting painful responsibility for the expense of the failed policies they supported with their votes, these folks have apparently chosen to raise a national tantrum of opposition to the one plan that might possibly save them and the nation from the ultimate consequences of these failed policies: Market Crash and Economic Depression.

Ironically, it was the Bush-Paulson plan that attempted to come to grips with, and accept some responsibility for, addressing the disastrous consequences of the failed "free market, limited government" ideology. But for those still in the grip of this totalizing ideology, who believe they possess the ultimate Truth--in defiance of the reality collapsing around them, defending this ideology to the bitter end is all that matters. For these mad Republicans, the hard truths of history learned through the experience of the 1929 Crash and the Great Depression, are of no value. And now the entire nation and world may be forced to bear the crushing costs of the ultimate failure of this ideology.

We can perhaps understand the anger and frustration of working and middle class Republicans who have suddenly realized they've been betrayed and sold down the river by a Party they believed to represent their interests. Perhaps McCain has realized all too clearly that if he chooses to work with Obama and the Democrats to champion a quick constructive deal, he will place himself at odds with the swelling Republican groundswell of people who have finally recognized that Republican plutocratic policy has sold them down the river for profit? And now this mad public is demanding its pound of flesh, and is seeking revenge on the capitalists of Wall Street who betrayed them, even if this means bringing on the next Great Depression.

And many of these very same Republicans apparently continue to hope that the Republican Party--in the person of the wealthy McCain (with at least seven houses and 13 cars)--will somehow magically change the color of its stripes, and transform itself into a party of the common working people.

While the war in Iraq and the failures after Katrina were not enough to reveal the dangers of reliance on Republican ideology and politics, apparently this financial crisis has finally been enough to raise the long-suppressed class war within the Republican Party to the surface. But unfortunately the price of this twisted discovery of class war and rejectionism in the midst of the greatest financial crisis since the days of the Crash of 1929, may well be . . . the Great Crash of 2008, and a twenty-first century Great Depression.

But in the end it can hardly be surprising that our country would be brought to the brink of financial and economic collapse at the very end of an Administration that has done everything possible to undermine the financial and political stability of the nation. Is it any great surprise that the past eight years of misguided economic policies, systematic doublethink, governmental corruption, and war and terrorism-obsessed politics that have characterized the Bush administration, have brought us to the edge of this abyss?

There seems to be some kind of ironic world-historic justice working behind the scenes to direct this tragicomic drama. Onn Wednesday night we watched a President who shamelessly took us into a major and unending war on the basis of distortions and lies, and who is now broadly distrusted and even despised as the person who could not save the people of New Orleans or lead the nation in reconstructing the city after Katrina, stand up before the nation and beg it to trust that he could rescue the nation from a financial disaster that he had largely helped to create. And Thursday we witnessed his own Republican party spurn his appeal, and thus prove President Bush's utter powerlessness in the face of this crisis.

The pitiful irony of Bush's speech was only underlined by the fact that he could not bring himself to admit any responsibility for bringing on this crisis. Instead, he seemed to be displacing responsibility onto an abstract historical development, and onto the individuals and banks who took advantage of the kinds of cheap loans that his administration's policies had encouraged. Not only did he refuse to admit any responsibility for bringing the country to this extremity, but even more absurdly and tragically, Bush attempted to continue to defend the very principles of the anti-regulatory vision of the free market that has brought us to the edge of the complete collapse of the global financial and economic system, as if this collapse is simply some terrible accident of history having nothing to do with the failures of this ideology and the policies spawned by his Administration.

And now, the ultimate humiliation and ironic justice has been handed Bush as his own Party members have rejected his plan for solving the crisis by throwing the very free market ideology he championed back in his face. And with the seeming encouragement of John McCain, this totalitarian strain of the Republican party seems to be winning the battle in Washington, and may scuttle the entire Bush-Paulson plan.

As a result of this class war and rebellion from with the Republican Party, we are now beginning to face the increasingly real possibility that the capitalist financial and economic system will be pushed over the edge of the abyss by members of a Republican party that rejects the rescue plan of its own President, in the delusional belief that the same free market/ anti-regulatory ideology that has delivered us into this crisis will somehow magically rescue us from having to pay the consequences of this many years of failed policy

While major economists (including John K Galbraith) have argued that we should never have to suffer through the experience of another Great Depression because we have the technical knowledge and governmental institutions that allow us to intervene to prevent such a crisis.

But this assumes human beings will collectively act on and apply the economic knowledge we have when necessary to prevent such an eventuality. But if politicians reject this knowledge, in favor of free market fundamentalism, they will be choosing to go the way of the folks who brought us the Great Crash of 1929 by constantly repeating to themselves in the days before this crash: If we just allow the free market to work things out, all will be fine.

So, if you believe in the Free Market, and fresh grapes--
"Don't worry, be happy....."

And prepare for the Great Crash of 2008 by reading JK Galbraith's The Great Crash 1929.