{"id":562,"date":"2012-02-13T23:08:05","date_gmt":"2012-02-14T06:08:05","guid":{"rendered":"https:\/\/somewhatlogically.com\/?p=562"},"modified":"2012-05-17T04:10:23","modified_gmt":"2012-05-17T11:10:23","slug":"economics-repeating-rhymes","status":"publish","type":"post","link":"https:\/\/somewhatlogically.com\/?p=562","title":{"rendered":"Economics: Repeating Rhymes"},"content":{"rendered":"

\"\"<\/a>\u00a0Harpers Weekly, \u00a01871<\/p>\n

As Mark Twain famously didn\u2019t say: \u201cHistory may not repeat itself, but it certainly rhymes.\u201d\u00a0 There is something unfortunately close to doggerel here, when considering the nostrum that tax cuts and bailing out the wealthy improves the economy.\u00a0Reviewing the Bush tax cuts and the current Republican candidate’s positions,\u00a0recall Treasury Secretary Andrew Mellon\u2019s policies prior to the Great Depression.\u00a0Not only did Mellon, then one of America’s\u00a0riches men, cut the maximum individual tax rate from 77 to 25 percent, but he also cut corporate taxes. He then engaged in an extraordinary program of refunds, rebates and remissions totaling another $6 billion (in 1930 dollars) during his\u00a0nine years in office.\u00a0To top it off, he proposed “replacing the lost revenues with a regressive national sales tax on all articles of retail trade”.<\/p>\n

As the Depression began, Mellon stated: “Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate\u2026 it will purge the rottenness out of the system. High cost of living and high living will come down. People will work harder, live a more moral life.\u201d (1) \u00a0If this doesn\u2019t rhyme with Bush’s tax cuts and Romney\u2019s position on not bailing out GM and letting the housing market continue to fail, what does?\u00a0In Mellon\u2019s favor, he believed that earned income should be taxed at a lower rate than capital gains, a far cry from the current carry-tax breaks for private equity. But\u00a0this is all mere doggerel compared to the epic poem of the successive decline of the three main financial empires that preceded the U.S: Spain, Holland and England, who all repeated essentially the same stanzas of economic rise and fall, none learning from its predecessor.<\/p>\n

Each country became, in turn, the world financial center.\u00a0In the early 1500s, Spain became the world\u2019s leading economic force as New World gold and silver flooded into their economy, creating an empire under Charles V that stretched from Antwerp, in the Lowlands, all the way to Italy.\u00a0But by\u00a0 the 1580s the largest segment of Spanish industry, textiles, had peaked.\u00a0Industry continued to decline as capital fled for investments in the debt instruments of an increasingly profligate monarchy, creating a financial market focused on money at interest, and rents.\u00a0The financial commentators\u00a0of the time noticed.\u00a0 Writing in 1600, Gonzalo de Cellorigo, \u00a0observed \u201can extreme concentration of rich and poor and there is no means of adjusting them one to another.\u00a0Our condition is one in which we have rich who loll at ease, or poor who beg and we lack people of the middling sort, whom neither wealth or poverty prevents from pursuing the rightful form of business enjoined by natural law.” (2)<\/p>\n

The\u00a0Thirty Years War finally put paid to Spanish ascendancy, along with the expulsion of Protestants from the Spanish Netherlands, with many of the merchants and skilled craftsmen fleeing north to Amsterdam.\u00a0By 1600, the Dutch soon had the largest merchant fleet and developed a significant technological edge in many industries, especially ship-building, textiles and specialized manufacture, as well as developing the precursor to modern banking.\u00a0They held an edge from the 1600s to the late 1700s, when once again capital fled industry for the financial sector.\u00a0Stunningly, much of that capital was invested in the next emerging financial empire, England.\u00a0At their peak, the wealthy of Holland owned one quarter of England\u2019s public debt, along with one third of the shares of the Bank of England and the British East India Company, while their manufacturing mostly peaked in the 1720s.\u00a0Earlier, travelers\u00a0had commented on the wealth of the Dutch middle class, but in 1764, English writer James Boswell noted: \u201dMost of their principal towns are sadly decayed, and instead of finding every mortal employed, you meet with multitudes of poor creatures who are starving in idleness.\u201d (3)<\/p>\n

England followed almost exactly the same path as Spain and Holland, with the rise of trade and the Industrial Revolution, an increasingly wealthy middle class and the celebration of manufacturing by the early Victorians, followed by the rise of the financial sector and investments abroad from the Argentine to Australia and America. As in Holland, capital fled England\u2019s productive economy.\u00a0Yet, like the Dutch, the British claimed that the substantial income from their global\u00a0investments would offset the decline in Britain\u2019s internal economy, with its ever-growing wage inequality. By the late Victorian age, lack of investment had rendered much of England\u2019s manufacturing economy obsolescent.\u00a0Yet the share of wealth of the top\u00a0one percent continued to increase to 69% while, at the same time, Britain\u2019s share of world manufacturing declined from 32% in 1870 to 15% in 1910.\u00a0During this period, the U.S. share of manufacturing rose from 23% to 35% as America started the same historical cycle all over again.<\/p>\n

Romney, Gingrich and Santorum are beyond intellectual redemption with their pandering and pimping in an attempt to procure the Republican base, and the 4th estate is never going to insist that they answer difficult fundamental questions. \u00a0 However, for pundits\u00a0such as\u00a0David Brooks and those who call for moral rectitude and other nostrums to save us by restoring American exceptionalism, consider the preceding brief economic history. Then, with the current levels of inequality in an America that assigns up to 40% of corporate profits to the financial sector, look at Neil Degrasse Tyson\u2019s excellent video graphic (4) on the decline of U.S. science<\/a>\u00a0. \u00a0 Next, please explain, to borrow the title from Carmen and Rogoff\u2019s excellent book on\u00a0eight centuries of financial crisis, why ‘This Time is Different.\u2019<\/p>\n

 <\/p>\n

Notes: \u00a0 There’s nothing really new in this piece, and even the sources have been used repeatedly in both the academic and popular press. \u00a0What is really depressing is that they are so readily available, yet we get so little historical context in the current economic debates. \u00a0 I’ve just listed the main sources with some comments.<\/em><\/p>\n

<\/em>1.\u00a0Hoover, The Memoirs of Herbert Hoover. Vol.III<\/em>\u00a0 (McMillan 1952)\u00a0\u00a0p.\u00a030. \u00a0This quote fromHover’s Memoirs can be found on-line in the original McMillan version at:\u00a0<\/em>http:\/\/www.ecommcode.com\/hoover\/ebooks\/displayPage.cfm?BookID=B1&VolumeID=B1V3&PageID=41<\/a> and it is very informative to read it in the context of Hoover’s views at the time, and how they were influenced by Mellon.<\/em><\/p>\n

2. Elliot,\u00a0Imperial Spain, 1479-1716. (Penguin, 1970)<\/em>\u00a0 p. 310 \u00a0The full \u00a0quote, well worth reading, \u00a0is available on-line at:<\/em> \u00a0http:\/\/www.amazon.com\/Imperial-Spain-1469-1716-J-Elliott\/dp\/0141007036<\/a>\u00a0if you ‘search inside the book for ‘arbitristas’<\/em><\/p>\n

3. \u00a0Boswell’s comments regarding Holland in his letter of 17 June 1764, to Temple are most instructive. “Utrecht is mostly ruined….” It’s on line with a little scrolling to page 288 at: http:\/\/www.archive.org\/stream\/boswellinholland027081mbp\/boswellinholland02<\/a><\/p>\n

4. \u00a0Recorded 2011\/05\/12 during Tyson’s lecture at the University of Washington entitled “Adventures of an Astrophysicist”\u00a0http:\/\/www.youtube.com\/watch?v=NXIR9ve0JU0<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

\u00a0Harpers Weekly, \u00a01871 As Mark Twain famously didn\u2019t say: \u201cHistory may not repeat itself, but it certainly rhymes.\u201d\u00a0 There is something unfortunately close to doggerel here, when considering the nostrum that tax cuts and bailing out the wealthy improves the … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-562","post","type-post","status-publish","format-standard","hentry","category-financegovernment"],"_links":{"self":[{"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/posts\/562","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=562"}],"version-history":[{"count":30,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/posts\/562\/revisions"}],"predecessor-version":[{"id":597,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=\/wp\/v2\/posts\/562\/revisions\/597"}],"wp:attachment":[{"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=562"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=562"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/somewhatlogically.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=562"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}