Call it coincidence, serendipity, interstellar planetary alignment, whatever, but two events Oct. 13 proved again economics is the most refreshingly maddening subject (I cannot bring myself to say ‘science’) in the history of mankind.
First, after watching every major market index from Hong Kong to New York crack like pigeon eggs the week before, the White House’s step that day to — dare one say socialize? OK — nationalize a chunk of the American banking system boosted the Dow an incredible 936 points higher.
The move followed similar action by most European governments and served as the potent aspirin to stem Wall Street’s fever. It also set the price of the street’s loyalty to the free market, $250 billion.
Later that same day Princeton University economist Paul Krugman was awarded the Nobel prize in economics for his decades-long study of trade.
Despite his groundbreaking research, Krugman is probably better known for his twice-weekly, New York Times column that regularly torches White House economic policies, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
Thus the serendipity: Bernanke, once of Princeton and now up to his eyeballs in the bank mess with Paulson, lured Krugman to the university in 2000, suspecting the brilliant economist would pocket a Nobel someday.
And so he did — on the darkest day of Bernanke’s economic career.
Somewhere in that tale lies another Nobel; maybe for literature, maybe for chaos theory.
Either way, Bernanke could take a small measure of comfort in knowing his consent to buy into the banks “is not a new phenomenon to the ‘free market’ (American) economic system,” a New York Times reader correctly noted the next day.
For crying out loud, the writer continued, “The agricultural sector has been nationalized for decades, and it seems (that) won’t be ending anytime soon…”
True, American agriculture has had a long-time partner. That partner — usually shown in striped pants, a colorful top hat and a well-trimmed goatee — is necessary, farmers and politicians explain, because he provides stability to the nation’s food and fiber sector.
In turn, that stability provides abundant, relatively cheap food to the nation.
Until recently, the credit markets worked similarly. In their case, however, the partner wore a gun; a regulator that enforced rules to ensure market integrity.
As the regulator aged over the last two or so decades, however, the finance chiefs lobbied heavily to send him into retirement without a replacement.
It was a stupid move and it transformed the American dollar into “bad money,” writes Kevin Phillips in his short, bittersweet book titled (not surprisingly) Bad Money. (Viking, New York, 2008, 239 pages.)
From 1987 through 2007, Phillips relates, total debt accumulated by U.S. government, business and consumers quadrupled, soaring from $11 trillion to $48 trillion.
Of that sum, interestingly, government’s tab is $12 trillion; the vast majority, $36 trillion, is private or business debt.
Worse, that $48 trillion is 335 percent larger than today’s U.S. gross national product, explains Phillips.
At the height of the Roaring Twenties — which roared right until they hit the brick wall of the Great Depression — our cumulative national debt was but (but!) 287 percent GDP.
“Money is ‘bad,’ in a historical sense,” he adds, “when a leading world economic power passing its zenith” — like Hapsburg Spain and imperial Britain before World War I, he offers — “lets itself luxuriate in finance at the expense of harvesting, manufacturing or transporting things.”
That luxury is over; just ask Ben Bernanke, truly the nation’s banker now.
In the meantime, the nation’s food partners, farmers, will continue to harvest, then pay, their annual dividend.
Compared to the banking mess, it’s been a cheap investment.