Better Capitalism!

The economy is rather sucky right now. Even in Minnesota, it’s looking none too swell. And no one has a clear plan for dealing with it.

I don’t, and you shouldn’t trust me if I did. I’m just a humble citizen and a bit of an economic history geek. I don’t even look like an economist. But my amateur study of history suggests that there shouldn’t be a plan for the economy. Capitalism is too creative, and too unpredictable.

But it’s also clear that we can’t wait (as Jason Lewis is found of yelling—of course, he’s almost always yelling, like Mel Blanc doing Yosemite Sam) to “let the market take care of it!” The “market,” primarily in the financial services industry, helped get us into this mess.

On the other hand, the market has also given us a lot of wonderful things over the past six decades. But it has done so primarily because starting in the 1930s, we set a few boundaries for its operation.

In his magnificent Pulitzer Prize–winning history of the 1930s and 1940s, Freedom From Fear, David Kennedy notes that the fundamental idea behind the New Deal “can be summarized in a single word: security—security for individuals, to be sure...but security for capitalists and consumers, for workers and employers, for corporations and farms and homeowners and builders as well.”

The New Deal didn’t bring about recovery. For one thing, Franklin Roosevelt’s programs were too scattershot. He was trying to anything to see what would stick to the wall. By 1938, with the New Deal basically over, American business felt more confident that things in Washington had settled down, and it could begin to invest again without worrying about what FDR would throw at it next.

But the New Deal’s most successful programs sought to smooth out the peaks and valleys of the business cycle so that a Great Depression wouldn’t happen again. Take the establishment of the Securities and Exchange Commission, which unleashed a wealth of information about companies and how they're run, making the investment process more transparent. “This was less a reform than it was the rationalization of capitalism, along the lines of capitalism's own claims about how free markets were supposed to work,” Kennedy writes.

The “gilded age” periods of the 1880s, 1920s, and the 2000s have given capitalism a black eye. What’s needed is to make the market work for everyone—as it did in the 1950s and 1960s (and, to a more limited extent, in the 1990s)—not just for a relative few.

Think of regulation this way: The idea is not to put a rope around all the milk cows and direct them, but to put a fence around the pasture. The cows should still have plenty of room to roam, but they’ll stay within useful boundaries. Outside, perhaps, of a few asocial mavericks, everyone will do better.