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Sunday, November 02, 2008

A Great System Theory of History

During an interview about his work, historian David McCullough outlined one technique for writing history termed "the great man theory" which uses an underlying assumption of greatness and/or destiny as a theme to keep the action moving. Any time actual events or decisions don't add up or aren't known or don't make sense, the historian can just fill in the plot and chalk it up to the "destiny" of the lead character moving steadily forward towards their inevitable greatness. It makes it much easier to tidy up a book or screenplay but it really reflects lazy work on the part of the historian and encourages sloppy thinking on the part of the reader or viewer.

In the 2008 race for President, we've seen media handlers and sometimes the candidates themselves use the "great man" approach to justify their election. Since elections are a key tool we use in making our history, the idea that voters can ignore what happens in their local, state and federal governments for years at a time then try to find a "great man" to pull the country out of a ditch after years of inattention is dangerous to say the least.

The Great System Theory

The Constitution begins with the words

We the People of the United States, in order to form a more perfect union.

The framers were famously meticulous thinkers and writers. It is no accident the very first sentence of our principle governing document not only focuses on We as a pluralistic society but explicitly acknowledges the purpose of their work was not to lay down the ultimate FINAL set of rules but instead to establish an orderly, stable process for continually refining our society. Note that nowhere in the Constitution does it state

Look, we won this time, here's the way it's gonna be for the next two hundred and thirty two years. If you don't like it, screw you. The Ohio Territory is thattaway.

America has the best system of government. Period. However, every system has its limits, beyond which it either grinds to a halt or outgrows its support systems and implodes. It's not difficult to argue our history over the past forty years has proven that case in spades.

From One Extreme...

After building our way out of a Depression by building the roads, bridges and electric grid needed for a modern industrial nation, America entered the 1960s with the wealth resulting from a decade long head start over the rest of the world in manufacturing prowess and one of the best educated work forces courtesy of the G.I. Bill. We also entered the 1960s with the confidence of a country that won a major world war and was succeeding at keeping our major foe at bay around the world.

In the 1960s, our confidence in our military abilities led to involvement in a minor proxy war in Vietnam which inexorably pulled us in deeper and deeper for months and years and eventually cost tens of thousands of lives over a decade. At the same time, recognition of long standing problems with race, injustice and poverty led to improved civil rights laws and government programs aimed at reducing poverty and providing improved healthcare for the elderly.

Unfortunately, few understood the actuarial costs of those new government programs. Even fewer understood some of the negative incentives some of those programs would create to actually counteract any supposed benefits. And absolutely no one felt any need to true up the numbers and actually PAY for such a great society and a (ahem...) great war. As a result, a decade of bad social, military and fiscal policy in the 1960s set the stage for a decade of stagnation and industrial decline in the 1970s.

…To the Other

After a decade-long hangover from the 1960s, America went from one extreme (guns AND butter) to another (guns AND deregulation). Like the 1960s experiment, the 1980s experiment looked promising at first. We came out of a deep recession that was imposed to kill inflation created not only by deficit spending in the 1970s but by spiking oil prices. By 1982, the recession combined with a convenient worldwide collapse in oil prices dropped inflation to manageable levels. Savings and loan institutions were deregulated, the stock market soared, leveraged buyouts using junk bonds to raise cash produced ever larger corporate conglomerates and it was sold as morning in America again.

However, warning signs did pop up. The deregulation of S&Ls threw those S&Ls into unfamiliar lending markets while falling energy prices led to falling real estate prices in many areas where S&Ls attempted to begin competing. The cascade of failed S&Ls cost American taxpayers over $124 billion dollars. By 1988, civil lawsuits and criminal charges were pursued against junk bond king Michael Milken for insider trading and racketeering and took his employer, Drexel Burnham Lambert, down with him.

Despite the warnings, the surprise ending of the Soviet Union with a whimper instead of a bang buoyed optimism and politicians' faith in lean, mean, minimally regulated financial markets and industries and the economy was off to the races for the rest of the 1990s. While vastly entertaining for all involved, the decade still managed to provide some danger signs. In 1997, distorted credit markets in Asia had produced a bubble in asset prices in those economies which eventually collapsed, producing a massive unwinding of debt, massive contractions in lending and collapsing currencies which brought those economies to a standstill. In 1998, a collapse in the Russian ruble caught a pair of Nobel Prize winning economists and their firm, Long Term Capital Management, by surprise and triggered an emergency bailout by the New York Federal Reserve Bank and others that cost $4.6 billion.

Despite the second round of warnings, the guns AND deregulation strategy remained in place past 2001 where it was used to sustain an otherwise struggling consumer economy hung over from dot com accounting frauds and spooked by a horrific terrorist attack. For another five years, until 2006, the American economy resembled a spaceship in a Douglas Adams novel, hanging there suspended in the air, much in the way that bricks don't. Now the brick is definitely headed to the floor and America's big toe.

A Return to the Middle

If you believe the worst about what you hear about Republican strategies for solving our problems, they involve even more de-regulation and even lower taxes to improve economic efficiency and increase incentives for individuals to make their fortunes. Of course, that approach will produce even more catastrophic bubbles and frauds while bankrupting the government on the revenue side.

If you believe the worst about what you hear about Democratic strategies, they involve everyone having a job, everyone having free healthcare and lazy teachers earning $100,000 to teach students who graduate unable to work at a McDonalds' without photos of the menu items on the cash register. Of course, that approach will bankrupt the country on the cost side, kill productivity and raise a generation of idiots.

A quick glance over the past forty years of history would seem to make it obvious that the best solutions to the economic and social problems we face lie back in the middle rather than on either extreme. We've already tried extremes which discount individual responsibility and we've more recently tried extremes which discount corporate responsibility. If you're reading this and still haven't decided how to vote on November 4, 2008, nothing I could write will convince you one way or the other. However, I would make the following points:

If you have any opinion whatsover either way THEN VOTE. The most damaging outcome of an election in a country fighting two wars and staving off a major economic meltdown would be for politicians to see the normal, pathetic 51 and 55 percent turnouts in prior Presidential elections. The more voters politicians have to address, the more likely they will have to avoid wedge issues and address core concerns.

The government isn't the enemy, the government is US. As such, the government is as dumb or smart as We The People are willing to become. If you want a smarter, more efficient government, educate yourself about the basics of finance, money and banking, the checks and balances built into our system and a bit of world history. It's amazing how many bad ideas keep returning because no one remembers them from the last time. It's also amazing how politicians can convince voters that taxing less and spending more can balance a budget.

Regardless of who wins, watch them closely and watch your pockets even closer. If politicians want to be trusted, they have to earn it by operating above board at all times and designing government programs with transparent accounting. At this point, none of them have earned that trust.

It's time to stop trying to find great men or women to govern us. We have a great system of government in America. It's time to use it. Properly.