Markets Forget Nothing, and Learn Nothing

David Bensman writing in the Dissent Magazine points to five major lessons from the impending collapse of US economy (link via Bookforum) and summarizes:

An earlier generation believed that the world learned its lessons from the Great Depression. Governments created regulatory agencies to rein in irrational exuberance and make sure that the fundamentals—a stable currency and sound financial institutions—served the needs of the real economy by making it possible to buy, sell, trade, and invest. In this chastened world, governments regulated banks so that investors could borrow to build new factories and inventors could raise funds to build prototypes.

Neo-liberalism turned this world on its head. By deregulating financial markets, neo-liberal ideology cast financial institutions as our primary innovators—the principal engines of wealth creation. America returned to the pre-New Deal days chronicled by Thorstein Veblen, when financiers hobbled engineers, when mergers and acquisitions (they were called trusts and monopolies back then) provided the fast track to profits and glory, when conspicuous consumption represented greatness.

More than a decade ago, James Tobin suggested that taxing global currency transactions would be a grand way to restrain speculation while raising money for development. Today, Dean Baker, chronicler of the real estate bubble, suggests a similar tax on stock transfers. Neo-liberals and their apologists will condemn this approach as a sure way to retard capital formation. Let’s hope that people have finally learned their lessons from neo-liberalism’s recurring fiascos. It is time to get real.

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