The theme upon which Mackay launched his fame as a political journalist has since been referred to by the latter part of his title, "the madness of crowds." Another European author, Elias Canetti, won the Nobel Prize in 1981 for his book Crowds and Power, first published in 1960, which updated and extended Mackay's study to the early part of the twentieth century.
It seems to me, however, that both Mackay and Canetti have covered only half of the territory. There is a necessary prerequisite, I would submit, to all "madness of crowds," and that is first what I shall dub "the madness of politicians", or in other words, the tendency of politicians to throw all caution to the wind in their greed to be re-elected. They will promise anything, say anything---no matter how outrageous we all know it is---if they believe it has any chance of gaining a temporary advantage over their opponents in the election. And once they have thus gone out on their political limb, the "madness of crowds" takes over. The masses willingly suspend their disbelief in the candidate's promises so as not to interfere with the momentum of the campaign, the political bandwagon on which their favorite is for the time being propelled.
The child who spoke the truth that no one else dared to utter: "But the emperor has no clothes!"---could succeed in doing so only because the emperor had no opponents; he was supreme in his power, and therefore (paradoxically) vulnerable to the plainspoken honesty of a child. But the politicians running for office, who pander throughout their interminable campaigns to our needs and desires, do so as part of a now well-established social convention, which no amount of honesty can bring down. Instead, the pricks and barbs of an opponent are seen as partisan politics, which have no truth value precisely because they come on behalf of one who is equally desirous of being elected.
With that as background, I want to give you the opening paragraph of a recent article which I commend to your attention:
Fueled by easy credit, the real-estate market had been rising swiftly for some years. Members of Congress were determined to assure the continuation of that easy credit. Suddenly, the party came to a devastating halt. Defaults multiplied, banks began to fail. Soon the economic troubles spread beyond real estate. Depression stalked the land.Does this sound familiar? Does the author seem to you to be describing recent events in our land?
Think again. His next paragraph is just these four words:
The year was 1836.He continues with this overview of his thesis:
The nexus of excess speculation, political mischief, and financial disaster—the same tangle that led to our present economic crisis—has been long and deep. Its nature has changed over the years as Americans have endeavored, with varying success, to learn from the mistakes of the past. But it has always been there, and the commonalities from era to era are stark and stunning. Given the recurrence of these themes over the course of three centuries, there is every reason to believe that similar calamities will beset the system as long as human nature and human action play a role in the workings of markets.The article is from the current issue of Commentary magazine, and will be available for reading and download online only for a few more weeks. (After that it goes into the magazine's online archive, which you have to pay to access if you are not a subscriber.) So I urge you to download or print it out here, and to take your time in reading and absorbing its lessons.
The author, John Steele Gordon, has published An Empire of Wealth: the Epic History of American Economic Power, and is qualified to address his subject, which I am calling "the madness of politicians." For what you will read about is how the best intentions of statesmen---to keep the economy on a sound footing, to enable the people to prosper and grow wealthy---become subverted when those good intentions become instead a label with which to camouflage a desire to acquire, to wield, or to remain in, power for its own sake. In 1836, President Jackson thought he could curb the expansion of the very state banks whose creation he had encouraged, as a means of destroying the national bank which he had despised from the moment he entered office. He ordered that the United States Land Office accept only gold and silver in payment for the purchase of all the land available through the Western expansion. This cut off the ability of the land speculators to use paper bank notes, and the result was a collapse in real estate prices, followed (as loans were called in) by a "credit crunch" fully as severe as today's: there first occurred the Panic of 1837, in which many banks and businesses failed. Next came the longest depression the United States has ever endured to date, as the politicians tried in vain to restore confidence in the national monetary system which their ignorant misuses of power, and attempts to play favorites, had helped to destroy.
Similarly, Mr. Gordon explains how the current credit crunch grew inevitably out of the politicians' commendable desire, first, to see that more people could own their own homes, followed by the realization that if such a goal could be achieved, the new owners' gratitude could be converted into votes for the politicians' re-election. And such a coupling led to the refusal to impose any meaningful regulation on what mortgages could be underwritten, out of fear both that rejected home applicants would in turn reject the politicians who sought their vote, and that the spigot of contributions from those who were being paid to recruit the subprime borrowers would shut down.
Many historians recount the following incident about Benjamin Franklin:
At the close of the Constitutional Convention in Philadelphia on September 18, 1787, a Mrs. Powel anxiously awaited the results, and as Benjamin Franklin emerged from the long task now finished, she asked him directly: "Well Doctor, what have we got, a republic or a monarchy?"
"A republic, if you can keep it", responded Franklin.The intent behind Franklin's sage reply is the subject of another very worthwhile article in the current issue of The Claremont Review of Books. James W. Ceaser, a professor of politics at the University of Virginia, describes the founders' expectations in establishing the electoral college as an integral part of selecting a president, and goes on to show how the establishment of political parties completely subverted those designs after President Washington's initial two terms.
(Something similar has occurred in the evolution of The Episcopal Church. I have already published two studies [here and here] of how its institutions have in recent years deviated markedly from the original intent of its founders, with results that are devastating to its vitality and sustained membership. I hope to put up another post in the series soon, as I complete my research on the fascinating history---and devolution from its original function---of the Church's General Convention.)
Exactly as The Episcopal Church is now risking its own future, I daresay that we are engaged in an experiment that is vital to the future of this country, and to whether it will survive as the republic that our founders handed to us after that Constitutional Convention of 1789 (the same year in which, only weeks later, the "Protestant Episcopal Church in the United States of America" adopted its own Constitution). President-elect Obama, being no fool, is not unaware of the dimensions of the crisis which he stands to inherit on January 20. In an effort to avoid being tagged with its consequences---and so ending up, like Jimmy Carter, a one-term failure as a president---he is floating balloons of new federal schemes on a scale that will dwarf the New Deal of 1933 to 1941 under President Roosevelt. The question is not whether such plans can succeed, but whether they can even be implemented on the scale that is contemplated.
Just as there is a limit on the ability of The Episcopal Church to attract new members by championing the non-existent "right" of active homosexuals to be ordained, in plain violation of Holy Scripture (there are only so many gay activists out there, after all, who along with their enablers can be recruited to replace the orthodox who leave), so there is, after all, a limit even to the almighty power of the Fed to print paper money---it has to find willing buyers for its bonds. In a depression---for that is what the previous madness of the politicians is about to deal us---the investors will first rush to the Treasury as presenting the only supposedly "safe harbor" in a world of constantly shrinking capital. Demand for bonds will at first rise, leading to lower and lower interest rates. But as the sheer volume of money created rises without apparent limit, when the Treasury floods the firms of the insiders and the well-connected with new capital to replace that which is continually disappearing (and which in the process of replacement is multiplied ten times and more), the creditworthiness of the United States itself will be increasingly called into question. At some point, inflation will run out of control, the game will be over, and government paper will sink to the low repute it enjoyed at the end of the great depression of 1837-1843. (As Mr. Gordon reminds us, it was in 1843, when Charles Dickens published his immortal A Christmas Carol, that his equally immortal character Ebenezer Scrooge---who knew his financial paper---could speak witheringly of "a mere United States' security.")
We have already seen the madness of politicians set the stage for what is to follow, in their crazy rush to approve a completely undefined and unsupervised bailout of Wall Street insiders to the tune of $700,000,000,000.00. Such a mad dash to appropriate your taxpayer dollars in a useless effort to stave off catastrophe has thus far resulted only in a further collapse of the investment markets, which see that there is no vehicle of recovery in place, but only a great deal of smoke and mirrors trying to hide what is the granddaddy of all insider-rigged games.
Indeed, it is only fear of the public's reaction to even more failure that has kept the lawmakers from voting a further bailout to the automakers, in an effort to save union members' pensions that will do nothing in the long run to keep the automakers themselves in business. It is perhaps ironic in the extreme that the millionaire CEO's of the Big Three could not, in their pure capitalistic simplicity, provide Congress with enough cover to vote the money which the unions sent them to get. Even a drowning man, however, knows that it will do no good to throw him a new coat, so that he can go down in style. The CEO's simply could not mount a coherent lie that the bailout funds would serve any better purpose. But our politicians, being focused only on the short term, lack even the common sense of a drowning man, and so they are determined to launch the idiotic scheme yet again, early next month. So what if the Big Three go under in 2009? The Democrats can always blame the bankruptcies on the refusal of President Bush to go along with their bailout earlier. But with President Obama's prompt approval of a bailout upon taking office, the unions' pensions will be funded, and that means a big gain in votes for the Democrats in 2010.
President-elect Obama has only a slightly longer horizon in mind---until the 2012 presidential election. Since he has been handed virtually a blank check with confirmed majorities in both Houses of Congress, he perceives at this point no restraint on his powers. We are about to pay the ultimate price for the madness of our politicians, a price that comes from the total and utter subversion of the founders' firm convictions, grounded in years of practical political experience with factions and parties, of how best to elect a president.
We are now a country totally at the mercy of factions and their enablers in the media, who with their selfish and short-term perspective are simply incapable of focusing on the longer-term interests of the republic that we have inherited. Those factions, united for the time being, now control the Congress and the White House. They and the politicians they have put into office have one, and only one, object in mind: to ensure those politicians' re-election, at whatever cost to the republic---even if it should turn out that there will be no more elections. (As in the fable of the scorpion and the frog, they will still be priding themselves on their ability to "be true to their nature", i.e., to remain in charge of dole-outs, even as they sap the lifeblood of the republic.) The madness of politicians is once again setting the stage for the madness of crowds that will surely follow, as the night the day, and as with each such mania in the past.
Karl Marx once observed: "Hegel remarked somewhere that all facts and personages of great importance in world history occur, as it were, twice. He forgot to add: the first time as tragedy, the second as farce." To which I would add: "and if it should be---God forbid!---for the third time, as an orgy of self-destruction."
Pray for your republic, that it survive the coming stings of the scorpions crowded on its back, who after all are being true only to their nature.