The Obama Presidency and Economic History

A Commentary written by Rich Marino

As an American living in London, I’m watching and listening to all the hoopla and fanfare of the oncoming presidential inauguration of Barack Obama on a television set inside the foyer of a London library.

Clearly, America has demonstrated to the world that it has come a very long way in terms of race relations, but the reality of it all won’t be when the President-Elect raises his hand and is sworn in by the Chief Justice, and it won’t be at all the gala events and dinners that he and his lovely wife, Michelle will attend. No, reality will set in the first time President Obama walks into the Oval Office and he closes his door behind him and no one else is in the room, and at that point, he will realize first hand the enormity of the task facing his Administration.

This year will be the year that determines the success or failure of his Presidency. Does he have the courage and the wherewithal to return the United States back to the basics? Will he take it upon himself to understand that America needs to enforce the laws and regulations which were enacted for specific reasons during the Great Depression? Unfortunately, some of these laws were terribly ignored by the so-called “free market Reagan Administration” of the early 1980s which established a dangerous precedent for the following administrations due to the inane popularity of President Reagan. For example, the Glass-Steagall Act was one law in particular which was completely ignored and eventually overturned. Glass-Steagall explicitly forbade the merger of commercial banks with investment banks and it was enacted in 1933 at the height of the Great Depression in order to prevent the type of world financial calamities which are taking place today. It’s readily apparent that the US and the rest of the world are incapable of learning anything from economic history.

There isn’t anything new about these aberrations and there certainly isn’t anything new about the world’s various and assorted attempts at globalization. In his presentation entitled World System History to the New England Historical Association held at Bentley College on April 23, 1994,  Andre Gunder Frank stated that:

“The thesis is that the contemporary world system has a history of at least five thousand years. The rise to dominance of Europe and the West in this world system are only recent and probably passing events. This thesis challenges Eurocentrism and offers a humanocentric alternative, which has important cultural, philosophical, social scientific, and political implications. The thesis also addresses concerns and controversies in historiography, civilizationism, archaeology, classicism in ancient history, medievalism, modern history, economic history, macro historical sociology, political geography, international relations, development studies, ecology, anthropology, race ethnic and gender relations, etc.”

More specifically between 960-1279, the Song Dynasty of China economically produced financial instruments and set the stage for the medieval world economy between China, Europe, Eurasia and the Indian Ocean. In 1300, the Ottoman Empire was created which included parts of Europe, North Africa, and the Middle East. In the 17th century, the expansion of the slave trade gave rise to the Atlantic Economy which enhanced the mercantile profits in Europe. The last half of  the 18th century ushered in the accepted alliances of military and business. Moreover in that same time period, the so-called economic interests of  their citizenry, and the never ending push for economic growth by the British, the Dutch, and the French created an economic growth in Asia underscored by an aggressive military and imperialism. In the 19th century, the Treaties of Berlin created a backdrop for the ‘age of high imperialism’ on the part of America and Europe.

My reason for shedding some light on this and highlighting some historical references is to remind the readers that President Obama will be faced with the unpleasant task of having to clean up a global economic mess. Historically, globalization in one form or another has had a vast and checkered history of some successes, but mostly failures. In my opinion globalization would have a better chance to succeed if the trade balances weren’t so lop-sided. For example, exporting countries  like Germany and Japan encourage a high rate of savings by offering less credit to their citizens, but at the same time, they turn around and buy debt instruments from countries like the United States so that the US can continue to buy their products. That’s how the German and the Japanese banks ended up with sub-prime toxic assets which originated in the United States. On the other hand if countries like the United States quit buying their products, those countries would have to create a completely new economic model which in the beginning could have dire financial consequences. It’s extremely unfortunate, but globalization in its current form is nothing more than an exercise in futility where there are no winners. It’s the same old economic story. An economy grows at an exceptional rate for a while, and then after a time, its growth begins to diminish (Oh, Horrors!) then we do the same things all over again: we have to find new markets, and we have to rearrange things so that (as in the case of the US) we can manufacture less, but consume more.

Hopefully, Obama will have the insight and strength to recognize a fantasy when he sees one! Moreover and even more to the point, all of us would be academically more enlightened if we came to the realization that without economic history, the discipline of economics as a social science would be extremely inaccurate. There’s only so much validity in the outcome of an econometric model.  From that point forward and to use an old cliche, the “proof is in the pudding” and for our purposes the “pudding” is in economic history.

One Response to The Obama Presidency and Economic History

  1. Ben says:

    Thanks Rich for this pudding recipe

    I am not sure I agree with you on globalization, in particular when you compare it with its alternatives. I mean I’m all in favour of the EU and other regional agreements but one has to admit they have little to show for themselves.

    In my opinion part of the problem comes from the overload of regulation in some sectors. In particular migration and other issues related to a country’s sovereignty tend to be destructive of wealth. The impact of this economic nationalism is terrible: for instance how come there is virtually no retail bank at the European level nor indeed lesser boutique-size ones?

    So I guess Obama has better things to do than closing all doors and windows and hoping that Ford Motor will suddenly start to produce decent cars.

    My 2 cents

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