Tag Archives: Economic history

Keynesianism and Monetarism

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Accepted truth from 1776 to 1929: the “invisible hand” of the unrestricted free market is the best regulator of the economy.  The economy expands, contracts, expands in natural cycles.  Government should stay out of the way, balance its budget (no deficits), and keep taxes low.  This is called “laissez faire” (pronounced lay-zay fare).  These ideas are most associated with the British economist Adam Smith who wrote a book called The Wealth of Nations (1776).

Then came the Great Depression from 1929 to various points in the Thirties.  Thousands of bank failures, tens of thousands of bankrupt businesses, millions of unemployed people, and year after year of hardship with no hope in sight.  The “invisible hand” seemed too invisible for most people’s liking.

Accepted truth from 1933 to 1973: Recession (bad) and Depression (worse) result from a shortfall in Demand (people wanting to buy stuff) compared with what the economy can actually produce.  Government should make up the difference by spending money to buy stuff.  Also, if a government ran a budget deficit in the process of reviving the economy, it was all right and not the end of the world.  So, the government could manage the economy, do lots of things for citizens, and let the politicians decide how much to spend on what.  These ideas are most associated with the British economist John Maynard Keynes (pronounced Kanes) who wrote a book called The General Theory of Employment, Interest, and Money (1936).  So this is called “Keynesianism.”  By the mid-Sixties everybody was a “Keynesian.”

Then came the Seventies.  The “oil shocks” of 1973 and 1979 caused world-wide “stagflation”: a combination of high inflation and high unemployment.  In economic theory, this could not happen.  In economic reality, it could happen.  People observed that big government deficits dumped gasoline on the fire of inflation, while lots of government control of the economy blocked adapting to new conditions.

Accepted truth from 1973 to 2008: the money supply and interest rates really govern the economy.  Deficits are bad because they either dump excess money into the economy (fueling inflation) or “crowd out” businesses that want to borrow money (smothering economic progress like a wicked step-mother).  The government should balance budgets, cut spending, cut taxes, keep interest rates low, and let the natural economy function.  These ideas are most associated with the American economist Milton Friedman who wrote a book called The Monetary History of the United States, 1867-1960 (1971). So this is called “Monetarism” (rather than “Friedmanism”).

Then came the “Great Recession” of 2008-201_ (fill in blank when you get a job).  Unregulated bankers did a lot of, you know, silly things.  The world financial system almost collapsed.  We’ve got seven percent unemployment.  Monetary policy isn’t working: the interest rate is at about zero, but the banks still aren’t lending; my 401(k) is only now back to where it was in 2008.  So, what is to be done?  Ask Keynes.

The Majestic Blue

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I say “tuna” and you think “little cans of cat food.”  Not true: blue-fin tuna is light years better than yellow-fin or albacore or skipjack tuna.  Those other kinds end up in tuna-noodle casserole with little bits of potato chip crumbled on top and baked in the oven.  (Or so says Tom Tuttle from Tacoma.)  Blue-fin tuna can grow to be 12 feet long and weigh in at as much as 1500 pounds, although mostly they don’t.  The underbelly on blue-fin yields this yummy meat known as “toro.”  The Japanese use “toro” from blue-fin tuna to make sushi.

I say “sushi” and you think “it’s like eating live bait.”  Not true: sushi consists of fish, vinegared rice, and vegetables.  You can think of it as a rice-and-fish sandwich.  It started out in south Asia, was introduced to south China, and was borrowed by Japan.  In Japan sushi began out as a fast-food sold on the streets.  People going to the theater in the Edo Period often bought sushi from a stall to take to the theater with them.  A sushi-chef (which is different from a sous-chef) made sushi from whatever fish were caught locally.  The main tuna fisheries were off Honshu and Okinawa.  After the Second World War, those clever Americans figured out how to freeze-dry new-caught tuna.  It didn’t lose its flavor sitting on layers of ice in the hold of a fishing boat for weeks before it got back to Japan.[1]  “Toro” became the mainstay of sushi.  Japanese sushi-eaters went wild.

By about 1975 sushi started to become popular in certain quarters of the United States.  OK, you won’t find it on the menu at Appleby’s and you can’t get a McSushi (yet).  But the very sophisticated Don Rumsfeld took General Tommy Franks out for dinner to a sushi place in DC before we invaded Iraq.  It was Rumsfeld’s idea of making nice with the guy he had ordered to invade another country on a sketchy—as you young people say—justification.  Take the Japanese sushi market and add in the American “I-wanna-be-sophisticated” market, you end up with a HUGE demand for tuna.  Now, a big blue-fin fresh offa da boat can be worth $100,000.

I say “tuna” and you think “guppies with a thyroid condition.”  Not true: they’re big fighting fish.  Drag you out of the chair on the back of a 25-foot Bartram sports-fisher if you aren’t strapped in.  It’s OK with the fish if you drown in the Gulf Stream and what’s left of you washes up months later in Plymouth, England.  (It’s kind of like casting for pit-bulls from the back of an F-150 in North Philly.)  So, fishermen started seining for them with big nets.  In 1953, a refugee from Croatia named Mario Puratic[2] invented an improved system for setting and hauling purse seine nets.  (It’s called the “Power Block.”)  Seining fish, including blue-fin, became much easier.  There used to be a lot of blue-fin tuna.  In the 1940s there were 20 times as many Atlantic and Mediterranean tuna as today.  Also, now they’re runty when they get caught.  Tuna caught in the Atlantic and the Mediterranean are only about half the weight of tuna caught in “the old days.”  Pretty soon, no more Atlantic blue-fin tuna.  (Pacific blue-fin stocks seem to be holding up alright for the moment.)  Once they go, there will need to be 12-step programs to help people suffering from sushi-withdrawal.  What do the Japanese think of 12-step programs?

[1] Also, the Americans stopped testing atomic weapons on Pacific atolls, so the fishing boats didn’t have to pass through clouds of radiation on their way home with their holds full of irradiated fish.  See: “Fishzilla.”

[2] Puratic was born in 1917 on the incredibly cute little island of Brac.  If you retired to the town of Supetar on Brac you could sit under the grape arbor beside your old stone house in the afternoon, sipping wine and watching the ferry from Split arrive.  A developer near Dallas is building a resort modeled on Supetar.  The signs at the garbage dump will be in Croatian.  Puratic left in 1938 and wound up working as a fisherman in San Pedro, California.