First, let me apologize that I’m not addressing this in the comments of the original post. I simply am not able to participate in the discussion on the threads. However, I am pleased to see the amount of intelligent discussion that took place.
In particular, there was some back-and-forth about unregulated capitalism, what constitutes it, etc. There is one very important point I want to stress on this. It’s the crux of my argument.
I made the point that I’m not trained as an economist. That wasn’t necessarily deference, but an indication of my point of view. I am not terribly concerned to argue about econometric models that may–or may not–describe, or even resemble reality.
I am approaching this from an historical perspective. I am not concerned with what the models tell us may happen; I want to know what happened when certain conditions were in place.
Unregulated capitalism did exist. In real life. It was how the markets operated from the mid-1800s until regulations cleaned it up in the 1930s. This means we have what is called a ‘natural experiment’, in which conditions are not modeled, but put in place.
So we don’t have to ask what the various schools of economics tell us what will, or might happen should unregulated capitalism occur. We’ve been there. We’ve done that. We tried it. It didn’t work.
The result was a welter of vertically-integrated monopolies, or near monopolies. I quoted a source that had a contemporary description of the situation that existed. Whole sectors of the economy were controlled by single companies headed up by a single individual. This was described as a good thing because it ended ‘wasteful competition.’
In the process the economy was subjected to cycle of boom and bust, the busts getting progressively worse, until we were hit with the Great Depression. At which point, we started regulating the markets, the first step being to prohibit monopolies.
Again, this is not theory. It’s what happened the first time. There is absolutely no reason to believe it won’t happen again should we deregulate even more than we have. Corporations are getting larger. Intel and Microsoft have no effective competition. Banks are so large that the failure of one can bring down the entire economy.
Since we did that, the economy grew, and the recessions that occurred were generally much shallower and of significantly shorter duration than what occurred before the 1930s. This was called the great moderation.
Then we started de-regulating. We kept de-regulating. Banking in particular was de-regulated to a degree not seen since, well, the 1920s. After which, they went off on a spree based not on sound market principles, but speculative fervor. The result was a crash that was the worst since, well, the 1930s.
This is not a coincidence.
Unregulated markets? We tried it once. It didn’t work.
This is all really just an exercise in storytelling dressed up as economic and historical analysis. You start with a theory – free markets leads to monopolization and inefficiency – then you cherry pick only the time periods and individual examples that seem to immediately support the point, throw out all the counterexamples and time periods that don’t immediately support the point, and use the resulting scientifically worthless data set to conclude the original hypothesis. It’s not a natural experiment at all because it doesn’t have any of the controls that a proper scientific experiment would have.
I could just as easily come up with a counter narrative: throughout most of human history, technology and markets stagnated during periods of intense top-down government control and geographical limitations. As countries liberalized and embraced free trade, inventors were allowed to enjoy the fruits of their labor, and societies became more laissez faire with respect to their market economies, these societies began to prosper. The United States, as the most free market country to exist in its time, enjoyed the most rapid and consistent economic growth, outpacing its European, Asian, South American, and African rivals, which still experimented in failed forms of central economic planning and outmoded, top-down political systems. Between 1948-1973, the United States ended its crowding out Keynesian-wartime public spending and maintained a largely hands-off approach to its market economy. As a result, productivity grew at a quick and steady pace, standards of living greatly increased, and unemployment remained low. In the early 1970′s, the size and regulatory activity of the Federal Government entered a rapid expansionary period, triggering a sharp slope change in productivity gains as the private sector was burdened through newly enacted environmental restrictions, labor restrictions, intellectual property restrictions, antitrust restrictions, and other interventionist policies resulting in extreme deadweight loss.
Is this narrative accurate? Mine is as unfalsifiable as the next. The fact of the matter is that any attempt to reduce such complex systems to one or two root causes and trends is fundamentally flawed methodology and it just becomes a case of one narrative versus the next.
While I can’t comment specifically on the entire 1800′s, you still make some fundamental mistakes when it comes to both economics and history.
Whole sectors of the economy were controlled by single companies headed up by a single individual.
As RightToWork established in your last post, the existence of a monopoly is not a negative, nor is it evidence of a market failure or of a lack of competition. And again, a monopoly’s existence today is no guarantee (unless he enlists the help of government) the company stays a monopoly forever. Something inevitably changes and someone else enters the market to eat the monopoly firm’s lunch.
In the process the economy was subjected to cycle of boom and bust, the busts getting progressively worse, until we were hit with the Great Depression. At which point, we started regulating the markets, the first step being to prohibit monopolies.
1 — Where are you getting that the boom and busts prior to the Great Depression were getting worse and worse? Many of the longest recessions in history occurred during a time period in which we had a central bank.
2 — It seems you’re trying to suggest that monopolies caused the Great Depression. I hope that was not your intention.
3 — The Great Depression was caused by monetary policy, not unregulated capitalism or the stock market crash. Fed intervened in the 20′s with an expanded money supply and cheap credit, fueling a stock market bubble (hmm… coincidence? I think not!). Then the Fed, abdicating its core responsibility of acting as a lender of last resort (a responsibility it took from commercial bank clearinghouse associations), sat idly by and watched as roughly 12,000 (~50%) of this nation’s banks failed between 1929 and 1933 (when we hit 25% unemployment). If the Fed acts like the CHA’s acted during 1907-08, the Great Depression likely doesn’t happen.
Banking in particular was de-regulated
Surely you understand the difference between actual de-regulation and the failure to enforce banking laws? Oh, and HUD mandates and the CRA, were those instances of de-regulation?