Annals of the Great Recession X.

Jeff Madrick, once a New York Times economics columnist, argues that America’s economic decline can be traced to the 1970s.[1] Beginning with the Great Depression, governments had imposed tight controls on American financial markets. These controls had made banking boring. That was a good thing for anyone who had ever lived through a financial panic (or watched that scene in “It’s a Wonderful Life” where Jimmy Stewart abandons his honey-moon to save the savings-and-loan when the town bank collapses. However, it also restricted the opportunities for profit in one sector of the economy. Economists at the University of Chicago, inspired by the writings of Milton Friedman, pushed an “extreme free-market ideology.” Embraced by greedy financial industry leaders, then by the Republican Party in the era of Ronald Reagan and later by Democrats as well, these ideas led to the de-regulation of the American financial industry. “And Hell followed with him.”[2]

Reckless lending became progressively ever more deeply entrenched among bankers. Successive crises of ever greater severity sprang from these practices: wild real estate speculation in the 1980s; the Latin American lending binge; the “” bubble; and then the nightmarishly complicated real estate investments that ended in the financial crisis of 2007-2008. The government repeatedly had to step in to bail-out reckless bankers in order to avert an even worse disaster for the whole economy. Thus, profits were privatized while losses were socialized. Not exactly what Milton Friedman had in mind.

To a historian, some of Madrick’s argument appears kind of rickety. He, among others, appears to believe that the American prosperity and global economic domination of the period from 1945 to 1975 was somehow “normal.” However, it is at least equally possible to regard this situation as “abnormal” and bound to end. The financial industry (or just “greed”) can hardly be blamed alone for the complex changes that have undermined America’s position.

Then, for purposes of analysis and argument, he separates out free-market thinkers and financial industry leaders. However, in real life they existed within and responded to an evolving context of beliefs and influences. Thus, the inflation of the Vietnam years intersected with government regulations on the interest banks could pay depositors. People wouldn’t keep money in banks unless they could get a higher rate of interest. So, the interest rate regulations had to be relaxed.

Then, he appears to believe that “greed” drives the elite, but that the same behaviors by people lower on the income pyramid are unexceptionable. In 1970, 381 major strikes hit American companies as workers drove for higher pay and benefits at a time when foreign competition had begun to exert heavy pressure.[3] Why is one act greed, the other not?

Then, a lot of the American economy was deregulated from the 1970s on. Takes airlines as an example. Between 1980 and 2009, inflation-adjusted air fares fell by fifty percent.[4] Air travel increased, but crashes did not increase. (I’ll grant you that the air travel experience now reminds of a trip I once took on a Mexican bus.)

So, the part is not the whole. Blanket statements about regulation don’t get us very far.

[1] Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knopf, 2011).

[2] Revelation, 6:8.

[3] See: “American union, stay away from me uh.” March 2015.

[4] See:


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