Echoes Dispatches From Economic History

Since the 1890s, U.S. antitrust litigation had sought to protect consumers and competitors from concentrated business power and the rigged prices it often yielded. On Nov. 21, 1932, a consent decree signed at a U.S. district court in Delaware proved a "decisive step" in the efforts to enforce antitrust law.

The decree separated the Radio Corporation of America from General Electric Co. and Westinghouse Electric & Manufacturing Co., ending the lawsuit the Justice Department had brought against the radio trust in 1930 for monopolistic practices.

The financial meltdown of 2008 has been attributed to a pre-crash economy whose incentives and rewards resembled a freewheeling casino rather than a rational marketplace.

Sometimes knowingly, sometimes unwittingly, and almost always shortsightedly, banks, government entities and consumers joined forces to create an environment in which untrammeled speculation, unwarranted credit, and pyramids of foolishly assumed debt yielded the appearance of boundless prosperity while masking the inevitability of epic disaster.

The London School of Economics on financial centers in the 18th century
The University of Delaware on the original Operation Twist
The Exchange on Milwaukee's brewing history
History News Network on the accuracy of the film "Lincoln"
The Winthrop Group on the democratization of higher education
The New York Times on tax-reform lessons from Ronald Reagan

Read more from Echoes, Bloomberg View's economic history blog

"No sooner had the last U.S. ballot been counted, than Great Britain led France and other Debtor Powers last week in a free-for-all drive by press stories and diplomatic notes toward present postponement and future cancellation of what Europe owes the U.S."

Quick, when did the Cold War end? One obvious choice: June 1987, when U.S. President Ronald Reagan stood in front of the Berlin Wall that separated communist East Germany from capitalist West Germany and famously challenged the Soviet leader Mikhail Gorbachev to “tear down this wall.”

Yet at about the same time as Reagan’s telegenic dare, far from the glare of the cameras, a less sensational but perhaps more significant barrier was crumbling: the one separating communist China from capitalist Taiwan.

The American Prospect on economist Arthur Cecil Pigou's insight on inequality
The Institute for the Study of Labor on how the market rewards influential economic research
Barcelona Graduate School of Economics on the mean lifetime of famous people
The Big Picture on the worst quarter for corporate profits in three years
The American on how China became capitalist

Read more from Echoes, Bloomberg View's economic history blog

As President Barack Obama and congressional Republicans seek to resolve the so-called fiscal cliff, the combination of automatic tax increases and spending cuts scheduled for next year, a mutually agreeable solution is lurking in an unexpected place: the 18th century.

In the 1700s, Great Britain had a debt burden that was even more ominous than the $16 trillion the U.S. government now owes. In 1716, Parliament proposed an ingenious, and fairly uncontroversial, way to reduce this debt, called a sinking fund. The scheme was copied 74 years later by the U.S. Congress. And it could work just as well now as it did three centuries ago. The sinking fund was the brainchild of Robert Walpole, who was then the first lord of the Treasury and chancellor of the Exchequer. Its purpose was to chip away at a national debt that had swollen to 55 million pounds, which Parliament considered “insupportable.”

The “fiscal cliff,” a combination of tax increases and severe spending cuts scheduled to kick in next year, is a product of multiple deceptions. Both the expiration date on the Bush-era tax cuts and the trillion-dollar “sequesters” that were enacted as part of last year’s debt- ceiling deal were designed to cover up an overarching problem: the country’s out-of-control debt.

The U.S. government today owes $16.05 trillion to bondholders and creditors, more than $51,000 for every American. This debt is already larger than the country’s annual economic output and threatens to cripple the economy for generations.

“Ohio again is the big political state,” the Cincinnati Post said. “It may be pivotal as well as political. It may decide the election.”

It was June 1920, and the newspaper had good reason to boast. A few days earlier, the Republican convention in Chicago had nominated Ohio Senator Warren G. Harding as its candidate for president. And the Democratic convention in San Francisco was about to make its own bid for Ohio’s 24 electoral votes by choosing the state’s governor, James M. Cox, as its flag bearer.

As the 1932 presidential election neared, Benjamin Roth, a stalwart Republican and devoted diarist, was deeply discouraged.

"Business is at a complete stand-still and it looks like a tough winter," he wrote. “The national election campaign grows intense and people are very partisan."

Quartz on the most successful rogue trader of all time
Sapping Attention on what data visualizations from the 1990s reveal about the past
The New York Times on remembering historian Thomas K. McCraw
The Guardian on lessons learned from Hurricane Sandy
The Center for Financial Stability on the Bretton Woods transcripts
History News Network on what the founding fathers thought about campaign finances

Read more from Echoes, Bloomberg View's economic history blog

This week, President Barack Obama won re-election in a victory that so surprised many of his ideological opponents that they have spent the hours since wailing that the country is going to wrack and ruin.

With a divided and polarized government, and a battle looming over a “fiscal cliff” of more than $600 billion in tax increases and spending cuts scheduled for next year, Obama faces a rocky term ahead -- even assuming his Republican opponents negotiate in good faith.

Whoever prevails in today’s election, the 2012 presidential campaign should go down as a referendum on the long conservative fascination with Ayn Rand, the controversial libertarian novelist and philosopher.

Mitt Romney, the Republican candidate and former titan of private equity, embodies Rand’s belief in the moral rectitude of free-market capitalism. A secretly videotaped speech Romney gave to a private fundraising audience -- in which he asserted that 47 percent of Americans were “dependent upon government” -- was an excellent distillation of this worldview.

By 1932, the U.K. had been running a national unemployment insurance system for more than 20 years. But no amount of experience could prepare the government for the demands of the Great Depression.

The National Insurance Act of 1911 provided health-care coverage and industrial unemployment benefits to the unemployed. Workers, employers and the government contributed to the fund.

Even as global financial turmoil induces some to advocate for freer markets, the heavier hand of Keynesian macroeconomic policy is also experiencing a resurgence.

Yet John Maynard Keynes was far more than the Ivory Tower academic economist we think we know. He was, above all, a practitioner and student of high finance. Investment and finance were his vocation, and political economics was his avocation.

History News Network on a brief history of New York City and hurricanes
Foreign Policy on the decline of U.S. prosperity
University of Geneva on the importance of League of Nations loans in the 1920s
Munich Personal RePEc Archive on economic development in Iran
University of Alberta on how sport rivalries form
The Winthrop Group on the democratization of higher education

Read more from Echoes, Bloomberg View's economic history blog.

In 1780, Benjamin Franklin commissioned a large mahogany box from a London craftsman. His instructions for this custom-made item, intended to house a delicate scientific instrument, were unusually precise. In particular, he urged that special care be taken in selecting the mahogany because, in his words, there was “a great deal of difference in woods that go under that name.” He desired the “finest grained that you can meet with.”

Franklin’s suspicions about what passed for mahogany suggest his awareness of a growing problem at the time: The precious trees were being rapidly depleted. Consequently, the size and quality of available mahogany was becoming increasingly erratic.

President Barack Obama promises to “make education and training a national priority.” His electoral opponent, Republican Mitt Romney, favors using federal funds to reimburse private companies for hiring and training new employees.

This issue -- what role the federal government should play in developing a skilled workforce -- first became campaign fodder a century ago. Debate over whether the government can promote national competitiveness has raged inconclusively ever since.

For me, a magazine advertisement in 1984 explains where it all went wrong. In a bizarre ad in the American Bankers Association journal, the chief financial officer of Freddie Mac, Leland Brendsel, appears to be consulting with gnomes on how to oversee America’s mortgage- backed securities markets.

According to the advertisement, “the gnomes of the secondary market, our omniscient associates” had brought the secret of securitization to Freddie Mac, the government- sponsored housing-finance company. Although clearly the result of an advertiser pulling an all-nighter, the gnomes reflected the supernatural aura of the collateralized mortgage obligation, which seemed to violate the rules of nature. Even to bankers, the system was mysterious. Yet its history was entirely conventional.

In late August 1932, George Foster Peabody, a major figure in railway and electric-power development, wrote a letter to the New York Times, criticizing President Herbert Hoover's response to the Great Depression. Peabody’s conclusion was stark: “I am thus thoroughly convinced that Mr. Hoover is incompetent.”

Meanwhile, support for New York Governor Franklin D. Roosevelt, the Democratic presidential candidate, was growing. The Economist wrote: “Mr. Roosevelt has plunged boldly into the trenches and is arousing enthusiasm by the energy of his personal raids on the enemy's lines.”