Banking Bailout and Credit Crisis and Eye on the Pie and Banking & Finance and Opinion and Banking Regulations and Economic Development

Study American financial history

February 9, 2009

The phone rings. "Hello," I say.

"Hi. This is Dannae Deadline from the Denver Drought," a female voice replies.

"Denver, Colorado?" I ask.

"No," she says, "Denver in Miami County, north of Peru, near Mexico and Chili."

"What can I do for you Dannae?" I ask.

"My editor tells me you received some distinction recently and said I should call," she says.

"Your editor ," I say, "could be suggesting that my column, 'Eye on the Pie,' has become more relevant to the state of Indiana now that the sugar cream pie has been named that state's official pie. Hoosiers now know on which pie to keep an eye."

"Are you flattered by this?" she asks.

"No," I say. "I'd be happy with just the thought that we look at the whole of any pie, the totality of our state's condition, rather just our personal slices. But state pie selection is good for Wick's Pies of Winchester, famous for its sugar cream masterpieces."

"Also," she says, "my editor says you started a new organization. What is that?"

"Yes," I admit, "I have formed Economists Anonymous (EconAnon), a recovery group for forecasters and analysts."

"Is that going to be a large organization?" Dannae asks.

"Probably not," I answer. "The U.S. Bureau of Labor Statistics reported only 15,000 economists nationwide in 2006, but there are many people who pontificate about the economy. In addition, there are tens of thousands who say, 'I'm not an economist, but ... .'"

"Will EconAnon have a 12-step program?" she asks.

"Possibly," I reply, "but the details are not worked out as yet. Clearly, the first step for any member is to admit to having a problem, an uncontrolled urge to analyze or forecast economic trends.

"Although many people now claim to have foreseen the current problems, few did. Our country has a right to ask, 'What happened to our economy?'"

"What do you think happened?" Dannae asks.

"It was," I say, "ignorance of the past, or a wanton disregard of financial history. How many of those MBAs on Wall Street, LaSalle Street and other financial avenues ever took a course in economic history? How many business schools require knowledge of economic history from their faculty?

"Although history is never duplicated, there are patterns that are instructive and events that are cautionary. But if our bonus-crazed financial sector is populated with people who don't know why the Securities and Exchange Commission exists or why the Federal Reserve was formed, we are in trouble.

"This recession is not identical to the Crash of 1929, the Panic of 1907, the Panic of 1893, the Depression of the 1870s, or the Crisis of 1837, but there are important similarities. EconAnon will probably provide lessons in how healthy economic conditions turn sour."

"Are you talking about how greed destroys a good thing?" Dannae speculates.

"No," I reply. "Greed was part of it, but most of the problem was due to normal efforts to reach for success without adequate information about market conditions. Businesses that are doing well try to do better. The base runner trying to stretch a single into a double is not greedy, but enterprising and adventurous. Yet he does not know the strength of the outfielder's arm on that day."

"Then who is to blame for the distress of millions?" she asks.

"We will never know for sure," I answer. "However, EconAnon will be more interested in understanding than in blaming."

"Good luck," Dannae says.

"It is luck that we should avoid," I say. "Our emphasis needs to be on preparation, not on chance."
___

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com. 

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