WASHINGTON — Somewhere in his very interesting Journals
1952-2000, the late historian, Arthur M. Schlesinger, Jr. erupts
with the observation that history is unfailingly interesting.
Over the years I delighted in disagreeing with Schlesinger, but
on this I am in hearty accord. History is always interesting.
Even when not much is happening, history is interesting.
Today there is a lot happening and observing history now is more
interesting than usual, but even a few years back when
sophisticates were droning on about “globalization” history
caught my attention. The year was 2003, and I was sitting in on
symposia at the Yale Law School. A recurring topic was
“globalization,” and most of the soi disant liberal
intellects were for it. As globalization seemed to be a
capitalist tool, I was amazed by their sanguine acceptance of it.
It was sooo materialistic. Did the assembled
sophisticates not realize that there might be a downside to
globalization? I heard few caveats.
Well, the present globalized economic crisis suggests that there
has indeed been a downside, namely the worldwide freeze on
credit. It has led to recession in many of the world’s leading
economies. What will be done about it? Will the incoming American
president know how to take action?
President-elect Barack Obama is a man of many firsts, some of
them auspicious. One of his firsts, however, is not so
auspicious. Mr. Obama is America’s first motivational speaker to
be elected to the presidency. He has absolutely no executive
experience, though during the recent presidential campaign he
insisted that running a political campaign was an executive
position. Well, if that be the case, he has at the age of 47 only
really run one competitive political campaign, his race for the
presidency. His 2004 U.S. Senate race was against a stand-in
Republican candidate, Alan Keyes, a sometime radio host with no
roots in Illinois politics and no prospects for victory. State
senator Obama’s seasoned Republican opponent, Jack Ryan, had been
forced to withdraw owing to a sordid scandal. In earlier state
senate campaigns, starting in 1995, Mr. Obama had no competition
at all. And his effort to unseat Congressman Bobby Rush in 2000
was an abject failure.
Naturally our country’s first motivational speaker has no
experience with economic policy. All that we do know about him is
that he seems to be a man of the left, a community organizer
whose answer to economic setbacks is government largesse.
Economic growth, he says, “comes from the bottom up,” which is
not very reassuring when those at the bottom are broke. Who from
Mr. Obama’s leftish background might serve as a model to him in
this time of globalized economic crisis?
My candidate is Britain’s Labourite prime minister, Gordon Brown.
He has been a leader — some might say the leader in pointing the
way to worldwide economic recovery. Brown recognizes that the
major problem facing the world is a credit freeze. Banks and
other lending institutions need liquidity to resume lending.
Prefatory to last weekend’s G20 summit Brown had taken the lead
in persuading other countries, specifically the United States, to
do something to inject capital directly into banks and other
lending institutions. With that capital they can resume lending
to consumers and to businesses so global growth can resume.
Brown, who was the Chancellor of the Exchequer (comparable to our
Secretary of the Treasury) under Prime Minister Tony Blair, has
learned a great deal about international finance. Unlike the
wrongheaded measures taken in the 1930s to deal with economic
collapse, Brown’s prescriptions recognize that the present
problems demand globally coordinated fiscal and monetary
policies. He sees the need to help banks cushion their losses and
amass cash reserves to resume lending and economic expansion.
Such has been Brown’s example as leader of the UK’s Labour
government that there is reason to believe President Obama will
follow his exhortations as reiterated at the recent G20 summit.
Yet here in the United States there is another policy the Obama
Administration might adopt. Suspend the accounting policy of
“mark to market.” Because of this policy banks and lending
institutions have had to mark down their assets, thus devaluing
on their books the capital that they have available to lend out.
Many of these institutions have healthy cash flows. Yet because
they are faced with (hopefully temporarily) devalued assets they
are hindered from making loans, and the consequence is the
lending freeze that has put the economy into recession.
It will be interesting to see in the months ahead how the new
government endeavors to get the economy going again, but then
history is always interesting — right, Professor Schlesinger?
