The problem I see with people like Ron Paul is that they believe history began in 1929. It did not. Classical liberal economics was implemented, put to the test during the 18th and 19th centuries, and it proved as big a failure then as Communism did in the 20th century.

Why do we have to keep re-inventing the wheel?

Adam Smith, Ricardo, Malthus, Nassau Senior, J.B. Say, Bastiat and J.S. Mill all proclaimed the dogma of "laissez-faire," the free market as the regulator of supply and demand. And by the beginning of the 19th century this was the dominant economic phiosophy in Europe.

And its adherents did not then, as Ron Paul does not now, advocate that their economic prescriptions be applied inconsistently:

It is a mistke to suppose that its creators and proponents were hypocrites moved by the desire to justify their friends, the captians of industry, while callously disregarding the sufferings of the workers. The science disregarded equally the sufferings of the factory owner who failed when overproduction periodically caused a string of failures.

Jacques Barzun, From Dawn to Decadence

But this did nothing to make the theory workable in the real world, for your "TRULY free market" is something that only exists in the minds of the disciples of market fundamentalism.

Simonde de Sismondi was perhaps the first heretic among Smith's disciples. As Barzun goes on to explain:

He had visited England and had been struck by the misery resulting from industrial progress. Why did the seemingly beneficial production of goods by machinery bring on "poverty in the midst of plenty"? The answer was: free competition keeps wages low, free enterprise makes for overproduction, which leads to recurrent "crises"--shutdowns or failures entailing unemployment and starvation.

His detailed criticism of the new society includes the observation that it splits labor from capital and makes them enemies, with the power all on one side. The idea of their "bargaining" over wages is absurd. Tyrant and victim describes the relation, yet without cruel intent of the one or knowledge by the other of who his oppressor is...

Sismondi does not oppose machinery; he rejects the idea that the economic situation is the inevitable effect of a law of nature, as the orthodox then affirmed. He saw the evils as the result of social and legal arrangements that could be changed.

Sismondi was of course only the first of a multitude of critics of market fundamentalism, and by the end of the 19th century liberal economics was discarded into the trashbin of history, where it should have stayed. But unfortunately, and especially unfortunately for the United States, Milton Friedman and the Chicago school went and doug it back out in the 1960s. It didn't work back in the 18th and 19th centuries. It hasn't worked since the 1980s when it was implemented anew in the United States. It has never worked.

What is the object of human society? Is it to dazzle the eye with an immense production of useful things? Is it to cover the sea with ships and the earth with railways? Is it, finally, to give two or three individuals out of each 100,000 the power to dispose of wealth that would suffice to maintain in comfort those 100,000?

Sismondi, Studies in Political Economy (1818-36)

What you're missing as well as Roubini and co is that we wouldn't really need regulation if weren't for Central Banks determining the rate of money i.e. interest. Nearly all forms of Government Intervention backfire. The FDIC insurance encourages people to engage in risky practices knowing full that government will come to the rescue.

The central problem is Fractional Reserve banking, unsound currency not backed by gold and silver and the ponzi scheme that is fiat money and leverage.

But that is not what you said at the beginning. You just said "more regulation isn't the answer" when what you meant was "The system is untenable. We need zero regulation in the sense of no banks, no fractional reserve system."

Had you said that in the beginning, you'd have gotten different responses.

Cheers

puhkawn,

You are absolutely correct that the drive to deregulation has been bi-partisan.

As for as those most culpable, you might start with Phil Graham:

http://www.cnn.com/video/?/video/politics/2008/10/14/foreman.gramm.most....

Then, as noted above, there's Greenspan, who served under both Republican and Democratic presidents.

Barry Ritholtz over at The Big Picture has been writing on this subject almost daily for the past month or two, this I suppose being his latest post:

My beef is not political, its evidentiary: There are no facts shown, no regulatory historical record dissected, no comprehension of what actually occurred -- just how to duck resposibility.

http://bigpicture.typepad.com/comments/2008/10/smart-people-sa.html

...and over the past couple of months in numerous posts he has pretty much hammered together the "evidentiary" case he refers to and you are requesting.

And if you're really interested you can pick up a copy of Kevin Phillips's Bad Money and read the three chapters "Finance," "Bullnomics" and "Secutitization" where he lays out much more of the sordid history in all its inglorious detail.

aangel, I agree completely. I'm sure it would be possible to go to Russia and find an old-school communist who would insist that the only reason for the collapse of the USSR was that communism wasn't practiced in a pure enough form. Same is true of any 'pure' ideology.

Let's get practical. Lately I've become extremely averse to speaking in terms of 'solutions' to any social problems. Rather, I like to think in terms of 'strategies'. This seems to be more open-ended in how one reacts to unpredictable developments along the way, while a 'solution' seems to imply a set plan that must not be altered.

BobE,

Thanks for the link. Great stuff.

If you haven't already seen it, here's a video that shows Fuld and his some of the lavishness of his lifestyle:

http://www.cnn.com/video/?/video/business/2008/10/10/ac.10.most.wanted.f...