The new reality

Peak Oil presented the USA model of prosperity with a VERY unwelcome dilemma.  In any era where energy supplies are rising and prices are falling, big sprawling projects are possible.  Interstate highway system—no problem.  Urban sprawl—no problem.  A two-ton car for every adult in the land—a goal to be cherished.  But when energy prices rise, making big heavy things for a living becomes risky indeed.  Anything that was called a "heavy" industry had encountered a major roadblock.

So while major industries like steelmaking staggered under the new reality, the enterprises that made the small and light thrived—most especially those associated with the computer industry.  The daily output of an automobile factory required trains to haul away—the daily output of a microchip factory could probably be packed in a van.  And then there was software—a vital requirement for computers that was actually weightless.

In short, there was a real economy reason why the steel mills of Reading Pennsylvania were shut down and left to rust while companies like Microsoft became the darlings of the financial press.  But these changes were about to be accelerated by that ultimate in weightless enterprise—financial "services."

So what? you say.  Out with the old—in with the new.  Creative Destruction is a good thing according to various economic gurus and replacing steel mills with traders in the various manifestations of weightless electronic money is probably an environmental benefit.  What's not to love?  Well two things actually.

1. Just because there was a more reliable way to make money in the weightless enterprises, nothing had eliminated the need for doing heavy things like growing food and shipping it to cities or manufacturing vehicles to get all those people in sprawled out burbs to work.
2. Even though financial 'services' might be clean and weightless, they are also pointless unless they can extract wealth from the heavyweight industries.  The whole point of lending is to provide 'services' that are worth but a tiny fraction of what is charged.  Unfortunately, most of the money spent on finance in this new era became nothing more than another drag on industries already struggling to cope with a new energy environment.

Of course, the biggest problem with a massive shift in economic importance from the heavy industries to moneychanging is that industry had spent most of its history trying to minimize its exposure to the usurers.  As a result, the number of real investment opportunities was quite small.  So to accommodate the massive influx of people who sought to make their living off finance, whole new categories of new and ever more bizarre financial instrument would have to be invented.

In addition to the very real economic reasons for avoiding debt service, there is a long-standing cultural bias against lending.  All the major religions on earth contain teachings against lenders extracting too much wealth from borrowers.  So minds would have to be changed.  People would have to be convinced that betting on some currency spread was actually more important than how food was grown or how farmers prospered.  The economics of moneychanging would have rule economic discourse again.  There would have to be a pushback against the Progressive ideas that had come to dominate the economics profession.

Why ideas are important!

One of the most annoying things about a religious upbringing is that you get to meet people who live to split hairs over the most trivial subjects imaginable.  Calling such people "unpleasant" is about a charitable as I get.  But knowing how passionate people can get over ideas has proved to be a valuable bit of insight over the years.  It is especially useful when it comes to describing economics because ideas are the only currency a practicing economist has.  Of course, no one will ever top Keynes' classic observation.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Ch. 24 "Concluding Notes" pg.383. more quotes)

Milton Friedman was a general in the new war of ideas.  He had been preaching about the evils of the New Deal for most of his adult life and in 1963 published his magnum opus on monetary theory entitled A Monetary History of the United States, 1867–1960.  In 1970, I had a distinguished economics professor describe Friedman as an "ignorant crank."  John Kenneth Galbraith famously remarked "Milton Friedman’s misfortune is that his economic policies have been tried." Which was true enough. Unfortunately for the likes of Galbraith, being wrong never harmed anyone's reputation when the crackpot ideology is in the service of the moneychangers.

In 1973, Milton Friedman's "brilliance" is taken on a road tour into Chile courtesy of a CIA-engineered coup .  Friedman's ideas would be implemented by folks willing to torture their political opponents to death.  Under such circumstances, the fact that Friedman's theories were demonstrably insane didn't matter all that much.

Having impressed the world with his economic theories put in place at the end of a gun, Milton Friedman would win the Nobel Prize in economics (1976).  The economics prize is in itself a fraud.  Even though they give out the prize on the same night as the real Nobel Prizes, it has only been around since 1968 and is award by the Swedish Central Bank (riksbank).  It is a little known fact that Sweden has had a central bank for longer than the Bank of England has existed.  These guys have been around for a very long time.  In a Girl with a Dragon Tattoo, we see a fictionalized account of what the Swedish right wing might have been up to during their years in the wilderness during the 60 year period when the Social Democrats came to dominate political life.  But nothing in fiction has been as diabolically clever as a central bank getting to decide what is praiseworthy in economic thought.  And Friedman was far from the only crackpot awarded the Riksbank Prize  The 1997 winners (who won for some elegant math that purported to be able to accurately price derivatives) founded a hedge fund named Long Term Capital Management that was so inept, it triggered major finacial crises.

By 1980, Friedman's message that "regulations and collective decision-making was responsible for all our ills and that economic decisions should rest solely in the hands of the moneychangers" got him a 10-part series on PBS called Free to Choose.  Friedman may have been an ignorant crackpot but he was now an ignorant crackpot with a 10 part series on the supposedly "liberal" PBS.  (An interesting footnote to the career of one Milton Friedman.  He lived to be a very old man and in his dotage, essentially recanted his major theories.  Too bad he could not have done so in 1973.)

During the 1980s, there was spectacular growth in well-funded right-wing think tanks.  Perhaps the most important was the Democratic Leadership Council formed in 1985.  A guy named Al Frum came up with the idea that he could hit up Wall Street for big contributions and then fund Democratic candidates willing to sell out the economic principles of the New Deal.

Perhaps the biggest victory in the war against Progressive economics came when a right-wing Ayn Rand crackpot named Alan Greenspan became head of the Fed.  He would serve from 1987 to 2006.  Not surprisingly, the Fed becomes a neoliberal madhouse.  This is especially important because anyone who would have a career in economics had to serve a hitch with the Fed.

Once the economics profession was totally on board with the economics of the moneychangers, the next act was to eliminate all dissenting opinion from public discussion.  There were many elements of this ideological hegemony but none so important as the 1996 Telecommunications Act.  It accomplished a lot of things like legalizing monopolies but the practical side effect was that it made lying legal and fact-checking optional.  Not surprisingly, it essentially undid the New Deal-era Communications Act of 1934.

So did the neoliberal economists win the war of ideas?  Absolutely!  Totally!  In a clip at the following link, Bill Black claims there are but four schools left in USA that still teach the economics of the folks who brought this country its greatest prosperity—the prosperity that has been systematically looted and destroyed since 1973.