I want to write something major about how the mortgage meltdown illustrates the wisdom of certain ideas of old economists that had, unfortunately, disappeared down the memory hole before the Housing Bubble.
'd like your help with this, both conceptually (I invite your suggestions of more ideas and criticism of ideas I outline below) and with helping me find short readings that specifically address these questions. (The classic works of economics tend to be way too long for me to read -- the summer when I was 14, I made it through the first 300 pages of The Wealth of Nations, but only by skipping Adam Smith's 75 page "Digression on Silver." I don't have that kind of time anymore.)
Here some ideas I have:
#1. Karl Marx would rattle on a lot about how under late-stage capitalism, the workers couldn't afford to buy their own output, which leads to economic crises.
Marx's argument was a major concern of Americans throughout the first three-fourths of the 20th Century, but then the idea just disappeared. For example, when Henry Ford invented the moving assembly line in 1914, he soon doubled the wages of his workers. His immediate goal was to pre-empt unionization, but he justified it to his fellow capitalists who were angry at him for changing the pay expectations of workers by saying that he wanted Ford workers to be able to buy Ford cars.
That was an extremely famous statement by Ford for decades, but in recent years, the Establishment stopped talking like that, or worrying about it. Thus, we see America recently importing huge numbers of low-skilled immigrants to build houses selling for $500,000. Marx would have asked: How can they afford their own production?
Well, oddly enough, they could ... for awhile. In the casino-like atmosphere of late stage finance capitalism (another concept of Marx's), they could just buy the houses on credit.
How's that working out for us lately?
Since the fall of the Berlin Wall 19 years ago, the general assumption is that we don't have to worry about anything Marx ever said. It's all discredited, 100%. Well, maybe, maybe not. Maybe the less attention we pay to Marx's critique, the more likely we are to blunder in to actual problems he identified.
2. Thomas Malthus: I want to update Malthusian concepts of scarcity and fertility. For example, why is the Total Fertility Rate in Mexico about 2.4 while the Total Fertility Rate of immigrant Latinas in California is 3.7? Why did the non-Hispanic white TFR fall from 1.93 in 1990 to 1.65 in 2000?
3. Henry George -- Henry George's criticism of investing in land as a way to get rich without actually producing anything seems extremely relevant in explaining the last decade, but nobody has talked about Henry George for decades.
4. Ludwig von Mises: The Austrian business cycle theory of misallocation of investment seems highly pertinent.
5. Some forgotten economist -- David Ricardo's theories of the advantages of free trade have triumphed so utterly that I can't even think of the name of a critic of his.
6. John Maynard Keynes: Obviously, Keynes's fiscal policy theories have a whole school of defenders, such as Paul Krugman, but what I'm interested in about Keynes is his one phrase in which he attributed much of the ups and downs of the business cycle to the "animal spirits" of businessmen. Having spent a decade or so around the executive suites of three corporations, that strikes me as spot-on. A lot of the things we did, we did because they seemed like good ideas at the time. Later, when the collective mood had changed, they didn't seem like such hot ideas. It's an interesting alternative to the mechanistic monetarist explanation of the business cycle advanced by Milton Friedman.
Did Keynes ever develop his "animal spirits" wisecrack further?
7. Milton Friedman: Uncle Miltie certainly doesn't lack defenders, or critics who are blaming him for the deregulation of the financial industry, but my vague recollection is that he advocated, at least at one point, the most stringent financial regulation imaginable: the abolition of fractional reserve banking.