Minor Thoughts from me to you

Alex Tabarrok, on Senator Warren's proposal to resurrect the Depression-era Glass Steagall legislation.

Separate commercial and investment banking? Please. The problem was that investment banking, in the form of shadow banking, become so separated from commercial banking that the Fed no longer had any idea where a majority of credit was being generated. Credit creation separated from banking as understood by the Fed, and moved into the shadows, hence, the term shadow banking.

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Glass-Steagall would merely shuffle around organizational boxes in the less important regulated banking sector. Indeed, why would anyone think that 1930s policy is the solution to a 21st century problem?

Indeed. Senator Warren strikes me as the worst kind of Senator: interested in sound bites that play well on TV and in blogs but have little relevance to actual problems and solutions.

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Gabriel Kolko reviews the history of the New Deal and shows how President Hoover laid the groundwork for everything that President Roosevelt did, during the Great Depression. Compared to Hoover, FDR was just an amateur at centralizing government control of the economy.

Hoover’s initiatives did not produce economic recovery, but served as the groundwork for various policies laid out in Franklin D. Roosevelt’s “New Deal.”  As Secretary of Commerce under the preceding Republican presidents, he had been particularly active in creating trade associations in hundreds of industries, and these associations were to become the backbone of the National Recovery Administration, the first New Deal.

... Roosevelt himself contributed little, perhaps nothing, to the formulation of the New Deal, most of which had existed in an early form in the trade associations. Trade associations wanted federal governmental protection from other members of the industry who competed too energetically—which classical economic theory declared was a good thing. Labor costs are equalized when labor is organized or child-labor outlawed; this became an issue when some codes, particularly in textiles, were formulated.

All this just shows what has been known for a long time: there is no difference between the parties and firms’ use of federal regulations to make money. Labor unions can therefore emerge as many things, including as a form of intra-industry struggle. The coal, apparel, and textiles industries are good examples: Northern textiles were for limits on child labor, the Southern textile industry (which used children as cheap factory hands), against federal control of it.

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