You might as well settle back. This could be a long post. But it should offer some tools for those of you who teach American History as well as economics.
The seeds of this post were planted last weekend. As usual, I was the first one up (not counting the cat) and I went to the kitchen to make the coffee and await the arrival of the Saturday morning newspapers. When they arrived, I quickly perused the local paper and then opened The Wall Street Journal. Inside I found this piece by James Grant. Titled "Why No Outrage?", it seeks to answer a question. In a nation with a long history of populist rage against the moneyed interests, why was there not a more vocal grass-roots movement to 'turn the rascals out' - the rascals being the heads of Wall Street firms, mortgage lenders, as well as central bankers, regulators and other denizens of the world of high finance?.
The article was by James Grant, author of a favorite book of mine, Money of the Mind. (It's a history of the democratization of credit from pre-Civil War era to the junk bond days of Michael Milken.)
In the WSJ article, Grant suggests linkages between Wall Street and both ends of Pennsylvania Avenue as a possible reason. But I think the truth in that is related to an earlier portion of the article when suggests that the link between Wall Street and Main Street may be part of the answer.
Grant takes us on a historical examination of the many ways the populist movement changed the nature of the economy as a whole and the financial system within it. (Indeed, in this I think he is drawing a parallel to his work in Money of the Mind.) The periods of economic and financial upheaval the U.S. experienced in the 19th and 20th century, helped shape the rules and agencies that police the financial market - and, if I may point out, that indirectly drive innovation. For as rules are promulgated and agencies incarnated (witness the proposed establishment of a new Federal Housing Finance Agency to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks - all creations of government), the market develops new ideas and products not covered by those rules and agencies. And many of the folks on Main Street take advantage of those new ideas as depositors, investors and borrowers.
Now, let us open today's issue of The Wall Street Journal. On the front page of section one, we see an article on how the "Economy Spurs Government to Grab Bigger Oversight Role". This article, by a number of Journal reporters, also provides historical insights linking the expansion of government to financial upheaval, although not restricted to that industry. (They mention a desire by many in the food industry for increased oversight.) And again, the connection to Main Street is clear. Individuals, citizens, consumers are looking to Washington to solve problems. Those same people are, by their activism, determining the size and scope of the role of government in the economy. And regardless of where you stand on that question, the connection is one that students need to understand.
As members of society, the economy and the policy, our students will make choices. They (and we) can choose to increase the size and scope of government. That will reduce the number of choices (freedoms) they have to make, and will increase the costs of government. They can also choose to decrease the size and scope of government. That will reduce the costs of government, but it means they will increasingly have to bear the risk and direct cost of those choices. After all, as we say here at the Powell Center, "There ain't no such thing as a free lunch." Furthermore, they need to understand that choosing not to choose means they are wiling to accept whatever happens - with size and cost of government and with their personal decisions.
I think the articles can provide a history teacher with additional information and an interesting way to tie the lessons of history to current events in the economy. I think the articles can help the economics teacher who is trying to help students understand the role of government in an economic system, and the ways that rules and agencies (institutions) impact decisions with that system.
I'd be curious to hear your thoughts on this.