When I saw the portrait of Andrew Jackson, I was expecting John Steele Gordon’s article, “A Short History of the National Debt,” to compare the national bank of Jackson’s day — the one he abolished — with the nationalized banks we’re getting now. (See “Bank nationalization gains ground with Republicans“)
Gordon didn’t go into that, but he did talk about the big real estate bubble that burst in 1837. And that made me think of another comparison between then and now.
In 1837, a real estate bubble burst, causing 6 years of economic contraction. The State of Michigan drew the lesson from it that it should never again get involved in running and owning private businesses, and even should draw back from public infrastructure projects. (It had lost the money it had invested in railroads and canals, not entirely unlike the way Fannie Mae an Freddie Mac have lost money.) When it rewrote its constitution in 1850, it included these provisions:
- The state shall not subscribe to, or be interested in, the stock of any company, association, or corporation.
- The state shall not be a part to, nor interested in, any work or internal improvement, nor engaged in carrying on any such work, except in the improvement of or aiding in the improvement of the public wagon roads and in the expenditure of grants to the state of land or other property.
So now in 2009 we’re having another economic collapse. Again, public investment in private business has turned sour. And again, there is talk of changing the role of government. Except this time, instead of doing less of the government activity that contributed to the collapse, we’re going to solve the problem by doing more of it.