Political Scientist Mark Blyth spent five years examining the boom market times of the 1920s, the subsequent reactions and then, decades later in the 1970s, the counterreactions, which ultimately led to deregulation, the setting free of markets to boom during the 1990s and now to the brink of another bust.
And one thing he learned is that the prescriptions for making economic changes don't often emerge as the most rational or logical solution to problems, but are highly contested struggles of political ideas. He lays out his case in Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (Cambridge University Press, September 2002).
"Essentially, what I try to argue is that in moments of deep uncertainty, when economic crises hit home very, very hard," said Blyth, "there's no one-to-one diagnosis of, well, here's a bunch of economic theories, here's what's happening, therefore this is what we do. It's very open. It's very contested, since different economic ideas enshrine different distributional outcomes for competing groups. By making a particular diagnosis of a crisis the authoritative one, political entrepreneurs are able to significantly restructure who gets what in the economy. This is what happened in the 1920-1930 period and the 1970- 1980 period."
Like the 1920s, when financial scandals preceded the stock market crash, the leaders of business may now get blamed for the economic woes to follow. "And it may not be fair, but we've seen it happen once," said Blyth. "We could be entering a period in which we go from celebrating CEOs as rock stars to castigating them as squanderers of wealth and the despoilers of our future."
"The parallels with the '20s are not exact," Blyth continued. "Capital markets were not as deep. Stock market ownership was not quite as widespread. There weren't 401k plans back then, for example. And perhaps that means that the situation now may, in fact, be more urgent."
Because Americans do not save much any more, and instead run up large personal debts, the United States relies on infusions of foreign investment to keep things moving. With the bookkeeping scandals and the U.S. image as a safe haven for investment tarnished, what happens if foreign capital retreats?
To arrange an interview with Blyth, contact Glenn Small at 410-516-6094. To hear Blyth explain his research in a brief audio interview, please go to www.jhu.edu:8080/ramgen/news_info/realmedia/ blythbook.rm
For information on obtaining review copies of the book, please contact Kira Citron at Cambridge University Press at email@example.com.
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