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February 23, 2005

The Lessons of History

Chris Charuhas

The ancient Greek historian Thucydides described how Athens began treating its longtime allies badly, setting in motion a process that destroyed it. The ancient Roman historian Livy told how Rome's expanding military operations brought about the decline of the Republic.

The Renaissance thinker Machiavelli advised princes that when they conquered a country, they should either resettle it with their own citizens, or let its people rule themselves. The American historian Barbara Tuchman described how foreign policy realpolitik, unrestrained by collective institutions, sparked two world wars.

Does any of this sound familiar? It should.

Like Athens, the United States is treating longtime allies badly. Like Rome, we're expanding military operations that concentrate power in an "imperial" executive. Contrary to Machiavelli's advice, we installed a puppet government in a conquered country. Just as we rejected the League of Nations after World War I, we currently scorn the United Nations.

The current administration ignores the lessons of history. Professors who point this out are called "elitist" by right-wing pundits who parrot its talking points. These pundits are wrong.

How do I know? I studied history with an ex-Marine who fought his way across Guadalcanal in World War II. After he survived the war, he studied at Oxford, and then came home to teach. This Marine, Professor Alvin Z. Freeman, was no elitist. He was an ex-dogface.

Professor Freeman was my advisor in college. He died in 1994. He would, I believe, have thought the current administration's foreign policy is reckless, because he knew the works of Thucydides and Livy like letters from old friends.

I know he would have thought this administration's economic policies are foolish, because he said that about President Reagan's. And President Bush's are more radical.

I don't claim to be as knowledgeable as Professor Freeman, but I can see that the current administration - and the Republican Party in general - doesn't heed the lessons of history, not only in foreign policy, but in economics as well.

Republicans tend to believe that markets are inherently stable. They believe human economic behavior is always logical and predictable. Left to its own devices, Republicans say, business will improve, and so will citizens' living standards. Laissez-faire is the order of the day.

Democrats think the opposite. They believe that markets are essentially unstable. They think that a game as freewheeling as capitalism needs good referees, and a safety net to cushion players when they fall. Careful management, according to Democrats, is necessary for markets to function well.

Whose economic ideas are correct - those of Republicans or Democrats? It doesn't take a historian of the ancient world to figure that out. A study of modern history shows it clearly.

Laissez-faire Republican economics, exemplified by the monopolistic trusts, robber barons, and shoot-the-workers union-busting of the 1890s, were rejected by Theodore Roosevelt, who angered many members of his own party by regulating giant corporations.

Still, Teddy's reforms weren't enough to forestall the Great Depression. Fortunately, Franklin Roosevelt came to the rescue, saving capitalism from itself. Many Republicans warned that FDR's New Deal taxes and regulation would crush our economy. Instead, Gross Domestic Product nearly doubled between 1933 and 1941.

Heedless of history, Republicans still insisted on implementing their ideas about unregulated markets. During the first Bush administration, unregulated banking caused the savings and loan crisis that cost taxpayers $150 billion to fix.

Later on, Republicans' aversion to market management helped enable the meltdown of hedge fund Long-Term Capital Management, which cost taxpayers $2 00 billion to bail out.

Republicans in Congress blocked legislation that would have helped prevent the Enron, WorldCom, Adelphia, Global Crossing, and Tyco disasters that destroyed $300 billion in shareholder wealth.

In contrast with the dismal record of laissez-faire Republican economics, the Democratic program of managed capitalism works well. It worked under FDR, and it still works now. To see this, one need only look at the success of one man: George Soros.

Despite spending billions of dollars of his own money fighting communism in Eastern Europe, Mr. Soros is demonized by the Republican Party because he's (1) rich, (2) smart, and (3) Democratic.

He once wrote an article in The Atlantic Monthly magazine, entitled "The Capitalist Threat," that had GOP leaders hopping mad. In his article, Mr. Soros wrote that since communism had been defeated, the biggest threat to free societies now came from unrestrained capitalism - "market fundamentalism," as he called it.

Mr. Soros knows of what he speaks. When he started out in trading, everyone else was trying to create mathematical models that predicted the behavior of stock, currency, and commodities markets.

Mr. Soros thought this was silly. His study of history showed him that markets don't work according to Newtonian laws. Instead, they run on the hopes and fears of humans, who often exhibit a "herd mentality" when buying and selling things.

Mr. Soros applied this knowledge when he started his own currency trading outfit. He rejected the Republican belief in stable markets, and traded based on his Democratic vision of volatile markets that need oversight to function well. He made $9 billion.

You can't argue with success. History shows that Republican-style laissez-faire economics have failed time and time again. It also shows that Democratic-style market oversight succeeds. Democratic economic ideas enable everyone to make a ton of money, and protect them from losing it. Professor Freeman, who grew up during the Depression, could have told us that.

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