The Bear’s Lair: Economic icons the Boomers broke

Helen Andrews’ book “Boomers” is a beautifully written indictment of the Boomer generation, similar to Lytton Strachey’s “Eminent Victorians,” by a Millennial social conservative who believes the Boomers broke U.S. social mores. On the economic side, it is also clear that somebody destroyed sound economic thinking but much less clear who did it – Maynard Keynes, after all, was not a Boomer.

Two hundred years ago, sound economic principles were understood by very few people indeed, but those people were running both Britain and the United States. Britain was on a Gold Standard, had balanced its budget despite gigantic levels of debt, far higher than today’s, and was a rock-solid believer in private property and the rights of savers to a decent real return on their money. The result was the Industrial Revolution.

That economic policy stance was not ordained by religious or cultural beliefs; it had been arrived at by several centuries of intellectual effort, and much policy trial and error. In the 1690s, for example, when the problem arose of creating a debt market to finance Britain’s newly bloated war expenditures, policymakers had been seduced by greedy money men into doing so by creating a succession of gigantic shell companies, which lent to the government and issued shares to finance their loans. The effect of this was to enrich exorbitantly the financiers involved and approximately double the cost of public debt – all at the expense of suffering taxpayers. Naturally, Tory squires railed against the wealth and corruption of the “monied interest.” They were right.

Moderns who examined the hyper-complex financial scams on Wall Street prior to the crash of 2008 will recognize this technique. However, the South Sea crash of 1720 and the invention of Consols in 1751 put an end to the scams, and Adam Smith taught subsequent policymakers better approaches to economic problems.

In the United States, Alexander Hamilton had learned from Adam Smith the dangers of a chaotic money market, so his program of assumption of state debts after 1791 put U.S. finances on a thoroughly sound basis. The Bank of the United States, and its successor the Second Bank, were not necessary as central banks – they did not set interest rates, for example – but were helpful to the financial system in a very large country with too little specie (gold and silver) and too few banks that were well-known and trusted across the nation. Only with Andrew Jackson did populism infect U.S. economic thinking and the country begin to go astray.

U.S. economic policy for the remainder of the 19th century was not entirely sound. The Morrill Tariff of 1862, proposed by the Lincoln administration, was only the first in a succession of tariffs that excessively protected U.S. heavy industry and de-stabilized much of Europe. (They also impoverished the U.K. and its Empire, hollowing out its industrial capability, but that was doubtless considered a “feature” by the U.S. high-tariff crowd.) Tariffs were increased further in 1922 and 1930 (Smoot-Hawley) becoming a primary cause of the miseries of the Great Depression, which affected the U.S. more than most other developed economies.

Then in 1913 Woodrow Wilson introduced the Federal Reserve System, a poorly designed attempt at a central bank that also bore considerable responsibility for the Great Depression and since 1995 has followed a Gosplan approach to monetary policy, setting interest rates without regard to market conditions.

In Britain monetary policy diverged from the optimal with the 1844 Bank Charter Act, a piece of meddling by the over-confident Robert Peel that led to three monetary crises in 20 years before being effectively repealed. Peel was also responsible for the 1846 Repeal of the Corn Laws, which destroyed British agriculture, and for much of the move to unilateral free trade, a process that was completed by William Gladstone and which was to hollow-out British industry because it increasingly diverged from other countries’ protectionist policies. Thus, even before 1914 British policy had moved quite a long way from the apogee of Lord Liverpool’s period in office. By the 20th Century, all British economic policy was a matter of choosing between inferior varieties of second-best.

There is one very good reason why we cannot claim the Boomers are responsible for all deterioration in economic policy: Maynard Keynes pre-dated them. His most important destructive activity was to legitimize the wish that all politicians have to overspend other people’s money. Even in Liverpool’s time, there had been a few who wanted to do this (the 3rd Earl Stanhope and the 8th Earl of Lauderdale, for example) but they were fringe figures, not taken seriously even by the Whigs. After Keynes, fiscal sobriety was always fighting a losing battle – only virulent inflation could enforce it, and then not for very long. Neville Chamberlain in 1930s Britain was the last politician to pursue it wholeheartedly and meet with economic success – but he only did so by forbidding Keynes access to his Treasury Civil Servants less he corrupt them.

To come down to recent periods, U.S. monetary policy is again not entirely the fault of the Boomers. Ben Bernanke, of the notorious “helicopter money” was indeed a Boomer, as was George W. Bush who appointed him Fed Chairman, but monetary policy had already gone off the rails under Alan Greenspan, his predecessor, who being born in 1927 was not a Boomer by any definition. Still, Janet Yellen and Jay Powell are both Boomers, so the monetary follies of today are mostly a Boomer product. Boomers can have one consolation, however: Modern Monetary Theory, the hyper-expansionist nonsense that could well make both monetary and fiscal policy even worse, is spearheaded by Stephanie Kelton, born in 1969 and therefore a post-Boomer product of Gen-X. This is a relief; the Boomers have to leave something for their successors to do in turning the global economy into smoldering wreckage.

On fiscal policy, the Boomers also cannot entirely be blamed. As remarked above, Keynes has given all governments since World War II an excuse to backslide, and neither Ronald Reagan nor George H.W. Bush, the original causes of the U.S. fiscal problem, were Boomers. Furthermore, and utterly unexpectedly, the first Boomer President, Bill Clinton, actually managed to balance the Budget for his last two years in office. He had a crazy stock-market boom to help him do this, but nevertheless, his fiscal rectitude was real, governed by an altogether excessive fear of the omnipotence of the government bond market. However, the appalling backsliding by Bush, Obama and Trump since then has got us into our present appalling state, and all three of those gentlemen are Boomers. Here, however, if Joe Biden either improvers matters or makes matters worse, it will not be a Boomer achievement; he is a member of the preceding Silent generation.

Poor fiscal and monetary policy will produce highly unpleasant outcomes for the American public within the next decade or so; they have not however done so yet. Two other shibboleths have been even more damaging to ordinary Americans’ living standards already: the globalization fetich and the climate change neurosis. Globalization has allowed excessive immigration, wrecked the living standards of low-skill Americans and outsourced most of the jobs that a reasonably qualified person might want to the Third World, notably China. It has resulted from a hopeless naivete about China, about outsourcing’s propensity to leak valuable intellectual property to unpleasant poorer countries and above all about the malignancy of international institutions.

Globalization is roughly the product of the years 1991-2008, when Boomers were in control of most political, business and financial power structures. Americans who have suffered from this delusory belief and will continue to suffer more from it in the years ahead, can thus blame Boomers as a class for their misfortunes. The “climate change” hysteria, which has allowed scamsters to take over large portions of the global economy and bids fair to worsen its effects, is also very largely a Boomer product. Its fraudulent projections were created by Boomer scientists and pushed by socialist Boomer propagandists seeking to take control of other people’s wealth. Only today are Millennials like Alexandria Ocasio-Cortez taking up the weapons of economic destruction from the aging Boomers.

Andrews makes an excellent case for Boomer responsibility for societal collapse. In the economic sphere, it is not quite as clear-cut – much damage had been done before the Boomers came on the scene. Nevertheless, Boomers have made their own substantial contribution towards making things worse, especially in their own very special areas of globalization and climate change. So yes, Millennials can blame us here also.

I proudly claim that I rejected the Boomer myth from the start, christening the 1960s the “Silly Sixties” at a family dinner party on December 31, 1969. A fat lot of good that skepticism has done me!

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)