Tyler Cowen: evaluation

Transcript context

…I’ll just go back to 1929 for a second in terms of, had there been bank capital requirements, for example, that would have changed some of this dynamic. Had there been restrictions on margin loans and maybe the amount of leverage people could capture. People were walking into brokerage houses all over the country, which had sprung up like Starbucks on the corners, and you’d give them $1 and they’d give you $10. I always wondered to myself, had somebody just stood up and said, “We’re not doing that anymore.” “Two to one, three to one — we’re good with that. After that, this is not allowed.” By the way, Carter Glass — in this book, he’s trying to impose a tax on trades. I’m not saying any or all of these things would have prevented it, but possibly there were measures you could have taken, and for lots of reasons, obviously, they weren’t. It’s hard to know how much to restrict credit, especially in a time when people are realizing the future will be much wealthier, because then, borrowing makes sense. I’ve had plenty of mortgages on houses, where the value of the debt was relatively high compared to my academic income. But I thought, well, my career will get better. It did. It worked out. I might have been wrong. But simply with deposit insurance or something like that, the money supply doesn’t collapse in the sense that Friedman pointed his finger at. You probably have a recession, but I just think you get through it and the exchange rate floats. You have no international transmission of deflationary pressures. Again, things are fine and you leave the credit market alone. I’m not opposed to bank capital requirements, but I don’t know how much capital these small, often non-branched banks could have raised in that environment, so I don’t think that’s the best answer. Interestingly, Carter Glass and Hoover, and by the way, even Roosevelt did not want to implement the FDIC. This idea of deposit insurance was super unpopular — both Republicans and Democrats — because they believed that it was going to effectively allow banks to almost become too big to fail in the context that you would basically be supporting everybody, and those that were weaker were going to have the same kind of support that the strong banks had. The other thing I was going to mention is, we all live with debt today as if it’s water. It’s part of our system. Prior to 1920, 1919, it was a moral sin for many Americans to take on debt. People didn’t do that. You were sort of the dregs of the universe if you were a debt holder. That really shifted, I think, in 1919 when John Raskob, who was running General Motors at the time, wanted more people to buy cars. He said, “How are we going to get people to buy more cars? We’re going to lend them the money to buy the cars.” That really shifted the mindset around debt. That’s why I think this whole period in the 1920s is such a remarkable decade, because it really was a shift in the way we did everything that, in so many ways, actually represents how we live today.…

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