Maybe We Should Listen to This Guy

The New York Times is reporting on the Obama Administration's rejection of Paul Volcker's advice to go back to something like the Glass-Steagall separation of normal banking and investment banking. Volcker is the guy who ended the out-of-control inflation of the late 1970s. I think he knows what he's talking about. What happened last year to the economy is the result of an out-of-control financial sector taking outrageous risks. Putting a firewall between the inherently speculative area of investment banking and everyday banking that we all depend upon seems extremely sensible to me. Why is Obama listening? Perhaps it's because both parties are controlled by Wall Street and the financial industry. It was Clinton was signed the repeal of the Glass-Steagall Act in 1999. Volcker was appointed by Carter but worked with Reagan to usher in the prosperity of the 1980s. He's the guy I would trust.

Harding was Right

Mona Charen very correctly points to Warren G Harding's administration as the alternative to the Bush/Obama approach to saving the economy. Paul Krugman would call Harding's approach the type of bad idea that caused the Great Depression. I have to agree with Mona and Warren. The critical point though is that the depression of 1921 ended quickly and the economy boomed throughout the twenties. The Great Depression dragged on up until World War II despite the New Deal. The Fed of the 1930s did do things that most modern economists would never support such as tightening rates during a massive downturn but the massive fiscal stimulus of the New Deal did not really work. Japan in the 1990's also had massive stimulus but they had ultra low interest rates and their economy remained sluggish for a decade. It think that's what we're in for, if not worse.