With the economic events of the last several months, but in particular last week, one has to wonder if what has become of our memories. Do we not learn history and thus become destined to repeat it?
If recent memory serves me correctly, in the late 90s and early 00s, we had a minor recession and stock market correction related most in part due to the "over exuberant" investment in speculative Internet and technology related companies. With the most recent bust, due to housing over-investment, the markets and companies have come crashing down. Do I detest that executives at these companies made stupidly exorbitant salaries? Yes, but those salaries pale in value to the combined wealth accumulated by the investors and the first and second level buyers. It was a giant Ponzi scheme which came crashing down. The irony is that in times of "wealth and prosperity," the economy is capitalist. It's the investors that gain, while those not wealthy enough to invest aren't able to share in the gains. But now, with large looming losses and an impending bail-out by the government, the losses become part of a grander socialist economy...we all get to pay the debt. Ironic.
In the 1970s and 1980s, the economy hit many speed bumps. In the early 70s, OPEC held back oil production and the price of gas soared to extremes. This happened again in the late 70s. In the 80s, Reaganomics took hold. The defense industry grew rapidly in response to the continuing threat of the U.S.S.R. However, this seemed to be the only growing sector in manufacturing and our economy shifted towards a predominance of service-related companies and jobs. Additionally, the once-proud American auto industry faced demise as competition from exports showed us that our production facilities and processes needed severe overhaul. Were Ronnie and Maggie sleeping together?
Furthermore, in the 1980s, the Savings and Loan industry suffered huge losses in poor judgment in real estate and related investments. Subsequently, many new laws and regulations went on the books to provide over-sight and prevent this from occurring again. A mere twenty-five years later and most of these regulations and over-sights have been repealed or worked around by "new" types of businesses that don't have these regulations apply to them. Oh, and the Keating Five...remember them? Although not charged, the 2008 presidential candidate, John McCain, was found to have been guilty of "poor judgment" in dealings with a major figure in the S&L failings.
So, the next question is, why do our government officials, of both executive and legislative branches of government, think they can write laws and regulations to prevent these occurrences from happening again? Our elected representatives and their staffs are generally career politicians, most trained in law or political science. They are not economists or financial advisers. This only leads to vague or mis-intentioned laws and regulations which must then go to the courts for interpretation, costing further confusion, time, and money. All the while, the judicial leaders are trying to figure out, "Just what exactly was the intent of the original law?"
It's an endless cycle...a few people identify a novel way to make money, then more people jump into the fray to make a quick buck. Next thing you know, everyone jumps on-board. Then people start to lose money. Everyone tries to jump ship...mayhem. Legislators and courts iron out the mess and invoke laws to prevent recurrence of the problems. Twenty to thirty years later, someone figures out a twist or method to circumvent the law to repeat the money-making scheme, either due to different opportunities or deregulation of previous legislation. We're right back where we started from.
It must be something in the water, after all, because we all paid attention in civics, history, and economics classes <sarcasm>, we know what the outcomes will be. Right?
