Two Triad Cities: Comparing Greensboro and Winston-Salem

I have spent most of my life in the Triad, and have become familiar with the three large cities that give it that name, as well as the many other niche communities. I grew up in Lexington, NC, and now commute regularly between Greensboro and Winston-Salem for work. So, when I had the opportunity to sit with my District 4 city council representative Nancy Hoffmann at Scuppernong Books, I was pleased that she was interested in my experiences with and impressions of both cities.

Background

In order to understand some of the current differences between the two cities, I will provide a little bit of historical context. I apologize in advance to scholars and lifelong residents of both cities!

Winston-Salem

The city was founded in 1913 as the result of the merger between the towns of "Winston" and "Salem". The town of Salem was a Moravian settlement and one of the oldest communities in the Piedmont (going back to before the Revolution). The area has retained its distinct identity with the popular historical attraction of Old Salem and Salem Women's College. Until the turn of the 20th century, Tobacco had the largest footprint in its economy. One of the features of its downtown skyline is the old RJ Reynolds tobacco headquarters and factory.

The city has a population near 250k, of which a majority are White, but there is also a large  (nearly 40%) African-American minority. It also has a council-manager form of government similar to Greensboro's (see my previous post). Today some of its notable features are that it is the headquarters of Hanesbrands and BB&T, continues to have a thriving arts culture with the NC School of the Arts, and is home to the private University of Wake Forest.

Greensboro 

Founded in 1808, Greensboro as a City is older than Winston-Salem, but in terms of settled communities it is actually slightly younger. Similar to the Moravian history of Salem, Greensboro's New Garden area has a history as a Quaker settlement, of which Guilford College is an example of that legacy. In terms of industry, Greensboro had a larger concentration of Textiles, with firms such as Cone Mills and Burlington Industries playing a large role in its economic development.

Greensboro is a slightly larger city than Winston-Salem, with a population near 300k, and is also majority White with a large African-American minority. I have discussed some of the distinctive features of Greensboro in my previous post.

Modern Comparison

As someone who lives in Greensboro and works in Winston-Salem, I have noticed some of the differences, pros, and cons, of both areas.

Road Systems

Anyone who commutes between Greensboro and Winston-Salem can opine on the differences in the quality of the road systems in certain areas.

• Winston-Salem
• Highway 52 intersects both Business and Interstate 40 fairly close to downtown Winston-Salem.
• The area where 52 intersects Business 40 is a known problem spot, and has been under continued construction for nearly a decade. 
• Winston has no urban loop, like what one finds in Charlotte or Raleigh, which may less necessary due to its smaller size.
• Winston has been experimenting with traffic circles in order to ease congestion in certain areas.
• Aside from Business 40, Stratford Road and Hanes Mall Boulevard are also hot areas for shopping and dining, but the traffic system has not kept pace with their development, and accidents as well as volume contribute to significant delays.
• Bonds passed in 2014 combined with DOT funding should continue to allow the city to improve its traffic situation.
• Greensboro
• Highway 40 passes under Wendover and Gate City Boulevard with relative ease, although there is some congestion in the northern party of the city where it meets with I-85.
• Greensboro has a partially completed urban loop, and DOT funding should allow its full completion before the end of the decade.
• Traffic congestion is possible on Wendover and Battleground Avenues, but it is normally brief and road capacities as well as stop light switching appear to be better when compared to Winston-Salem.
• There's considerable construction along Gate City Boulevard towards High Point, and at sites where the loop is being completed, but the overall congestion and delay is less than that experience in Winston-Salem around 52 and Business 40. 
• The downtowns of Winston and Greensboro both have a grid system, but the grid system is much more extensive in Greensboro and seems to go much further outside of downtown. 

Overall, I think the traffic system of Greensboro is ahead of Winston-Salem in terms of capacity and design, but both cities are making improvements.

Urban Revival

Both cities have experimented with reviving downtown life as a means of helping the whole city recover from the losses of their key industries. In these areas, both cities have shown some success while focusing on different areas. 

• Winston-Salem
• Winston has several large downtown convention centers that are excellent for large corporate gatherings. On several days out of the year I've seen the downtown flooded with employees from local and out-of town companies, which is good for business. 
• Craft Brewing: Downtown Winston is home to Foothills Brewery, which is a popular local restaurant and brewing company. Overall, craft brewing has helped revive the downtown bar and dining scene. 
• Innovation Quarter: This area is part of the former RJ Reynolds site. The City has spent a lot of time, money, and effort on recruiting technology firms such as INMAR, along with the University of Wake Forest, to fill this site with so-called New Economy jobs. I know several people who work in this area, and it has made a considerable amount of progress. Only time will tell, but this has certainly started to turn that section of the city around. 
• Downtown Living: Several developers have also spent considerable resources on refashioning older downtown buildings into upscale apartments for downtown living. As a strategy for keeping younger people interested in information-type jobs and convenient living, it seems like a necessary investment. 
• Greensboro





• Greensboro lacks the large-scale convention center capacity that Winston-Salem has, at least for downtown. However, the plans for building larger Hotels may address this shortcoming in the near future.
• Greensboro has ridden the Craft Brewing wave a lot further than Winston-Salem has thus far. With Natty Green's, the Pig Pounder, Red Oak Brewing, etc. it is in a similar league with Asheville in driving the Craft Brewing boom.
• Greensboro has also experimented with using historical tax credits as a means of reviving some of its older downtown buildings for young people and new economy jobs. In terms of creating a better downtown experience, this has so far been successful.
• The revival of Revolution Mills, is a hopeful story of success in the making analogous to the Innovation Quarter in Winston-Salem. 
• In terms of Parks and Recreation, the Greensboro parks and Greenway currently exceed anything like what Winston-Salem has near its downtown, and Greensboro plans to continue their expansion. 

I think the City Government of Winston-Salem has had more direct involvement with their downtown revival than the City of Greensboro. This has advantages in terms of power and resources, but can have drawbacks in terms of debt loads for taxpayers and the economic sustainability of projects. Greensboro has taken a more indirect approach, with the use of historical tax credits, partnerships with local developers, and the development of the Greenway as a way to create an atmosphere that will draw more businesses to the City.  

Conclusion

I enjoyed the opportunity to meet Councilwoman Hoffmann (who set me off on this comparison). For those of you in District 4, I will have you know that she answers your emails at 3am, because she apparently requires very little sleep! Overall, I'm pleased to live in Greensboro and commute to Winston-Salem (although I hope the commute to Winston will improve in the near future!). I also applaud the effort both cities have made to find a new competitive focus and to revive their downtowns. One of my concerns is that, during a period of economic expansion, it is sometimes difficult to find out what approaches and organizations are truly profitable. To the extent that the City Government subsidizes or invests heavily in a private enterprise, it may not be until the next recession that we discover that our investment (a taxpayer investment) was a poor one. Hopefully this admittedly brief analysis will help others to organize their own thoughts, and to keep the revival going through the good times and the inevitable bad times. 

City Management and Economic Development in Greensboro, NC

I devote my time on this blog to interpretations of classic books related to economics. However, I think it is also important to focus on tangible applications of economics. After all, economics boils down to real people making decisions about real things (roads, buildings, i-phones, banks, etc.). To that end, I'd like to spend some time on my own town of Greensboro, NC. The current City Manager, Jim Westmoreland, was kind enough to sit down with me for lunch, where we discussed many of the recent economic developments in Greensboro. I'm going to combine our discussion with some information on the city's institutions to give an overall picture of how Greensboro is run and in what direction(s) it seems to be headed.

Some Institutions of Greensboro 

The Council-Manager Form of Government

The first characteristic of Greensboro's government than an ordinary citizen would need to understand is that there is a separation between political leadership and the city employee leadership. This is a specific style of city government called the "Council-Manager" system. Under this system, a city council and mayor are elected by the citizens, but this council then appoints a City Manager to oversee government services (water, sewer, roads, police, etc). This differs from the other common system, where the Mayor is both the political and administrative head of the city government. Mr. Westmoreland, in this case, is appointed by the Council and serves at their pleasure. 

The Greensboro City Council

The City Council is a unique governing body, which has been the product of decades of referendums and compromises. It currently consists of nine people. Five are elected from districts that span the city, while the rest (including the Mayor) are elected by the general population (which is called At Large). In the past, the entire council and mayor were elected by the At Large method, and it wasn't until the 1980s that a hybrid district/at large system was set in place. The question of the balance between district and At Large representation remains in flux to this day.

City Departments

Lake Brandt Reservoir

While this isn't meant to be exhaustive, the City has many departments under the purview of the City Manager. They are funded largely by user fees and property taxes, and I will list them by size according to the Budget. In 2016 it was about $488 millions dollars or about $1,700 per resident based on a population estimate of 290 thousand. 

1. Infrastructure: This is 53% of the budget, and consists of Water, Sewer, Road, Garbage, and Transportation expenses. It's funding comes primarily from user fees e.g. water bills.
2. Public Safety: 27% of the budget consisting of police, fire and 911. Greensboro's fire department has a Class I ISO rating, which translates into lower insurance costs for homeowners and landlords. 
3. General Government and Debt Expense and Other: The remaining 13% funds administrative functions and interest/principal payments on debts from bond referendums as well as other borrowing. Greensboro's bonds have a AAA rating, which means borrowing costs are low. 
4. Community Service: 7% of the budget, goes towards the library system, park system, human relations, and neighborhood development. Greensboro has a major library downtown and six satellite branches. Also funded are six major parks, three lake parks, and numerous neighborhood parks and greenways. 

Education

The city of Greensboro is unique it terms of the structure of the education system and the large number of higher education institutions. It should be noted that there is no separate City school system (it was absorbed by the county in past decades). In terms of higher education, there are two major public universities within the city limits (UNC Greensboro and NC A&T), and three private institutions (Bennett College, Guilford College, and Greensboro College). In terms of specialty educational institutions, Elon law school and Guilford Technical Community College also reside near or within the city limits.

The Community Foundation of Greater Greensboro (CFGG)

CFGG is a non-profit organization whose mission is to strengthen the Greensboro community. This mission sounds purposefully broad, because it engages in almost every imaginable area of Philanthropy. Education, the arts, hunger, women's health, parks and recreation, and many other areas are the target of this large endowment fund. 

Economic Development in Greensboro

The list of institutions certainly isn't exhaustive, and neither are the many projects designed to increase the wealth of the city residents, but discussing a few of them with Mr. Westmoreland left me with an impressive picture of what the next few years could bring. 

1. The Greensboro Urban Outer Loop: A North Carolina Department of Transportation Project: The Loop has been decades in the making, and its purpose is to complete a major four lane highway that circles the City of Greensboro. At present, major interstates I-40 (East-West) and I-85 (North-South) funnel a great deal of traffic close by downtown. During rush hour, this area can be come quite congested. Part of the loop has already been constructed, with another major round scheduled to be completed in 2018, and a final round sometime in the early 2020s. This will make Greensboro one of only three major cities in NC with a similar highway loop. It should ease overall traffic and make access to the airport and other areas of the city quicker. 



Greensboro Airport (GSO)

2. The Tanger Performing Arts Center and Lebauer Park: Two large adjacent projects are in the works downtown, the Performing Arts Center and Lebauer Park. The city is overseeing construction of the Arts Center, while CFGG is managing construction of the park. These facilities sit next to each other downtown near the bottom right of the image above. The Arts Center will increase the space downtown for large arts events such as plays and festivals, while the park will allow more space for community enjoyment in general. 
3. Craft Brewing and Burgers: I've personally been impressed with the number and quality of craft beer and burger joints that have been springing up in the city over the past few years. To name a few: Natty Green's, Gibb's Hundred Brewing Company, and the Pig Pounder have been some of my favorite breweries, with Hops Burgers and Burger Warfare some of my favorite newer burger spots. 
4. Downtown Development: Aside from the Arts Center and Lebauer Park, there are plans for continued development downtown. Some projects that Mr. Westmoreland mentioned included a Wyndham Hotel, which would dovetail nicely with the Wyndham Championship by connecting visitors with the tournament to downtown. There are also plans for continued construction of high-end apartments near the relatively new Grasshopper Stadium, as well as an additional hotel. With hotel occupancy rates near all-time highs, these appear to be wise investments. 
5. Airport Expansion: Outside of Raleigh and Charlotte, the Piedmont Triad International Airport (GSO) is another asset of the city that continues to receive attention. The completion of the loop should make it easier to reach, it is the corporate headquarters of HondaJet, and there are plans to add an expanded shopping and dining center close to its location. 
6. Say Yes to Education: As of September 2015, Guilford County was selected to be a Say Yes community. This will create an endowment to help provide after school activities for children and to provide last dollar scholarships for those accepted to institutions of higher education. Given the large footprint of higher education in Greensboro already, this should bode well for the community overall. 
7. Revolution Mills: I visited this location, which was a major manufacturing center of the Cone Mills empire. It was abandoned in the past several decades as manufacturing moved overseas, causing Greensboro to struggle as other cities did with job losses and a declining tax base. However, this large set of structures is being renovated for apartments and office space. Not only do I think the history of the space will give it a unique flavor, but it may also serve as an example of the ability of Mill towns to finally recover from the economic damage of the 1980s and early 1990s. 

My Lunch Lessons

I could describe my lunch with the City Manager with one word - formative. I don't mean that he covered every topic I've mentioned here in detail (some of it I've actually heard him cover at other events), but there was definite value in sitting down and listing all the things going on in the city. Some of my observations were the following:

• Notice that most, if not all of these developments are not the sole initiative of the City of Greensboro. They are composed of an entire orchestra of non-profits, private corporations, state entities, schools, churches, and private individuals. 
• Many of these projects have been decades in the making, and are the result of not one person or one career, but many people over many careers. 
• While some of the projects are complete or nearly complete, many are still under construction.
• They are not the only projects that are currently possible, nor should we forget what they will make possible for the city in the coming decades.
• Individuals in City Government will sit down and talk to you if you ask. 
• I wonder what Greensboro is going to look like in 2025!?

Mr. Westmoreland underscored the importance of communication between all these groups, and a hope that they will be able to work together to keep Greensboro moving in a positive direction. This brings me back to a fundamental economic lesson, which is that: real wealth is built among individuals freely engaging in mutually beneficial transactions of goods and services. Even at the small level of a City, one can see the incredibly complex structure of public and private entities that these individuals act through to make this wealth building possible (material as well as cultural). For those who participate in or lead these institutions, I hope knowing this will serve as a reminder that no one body or interest has all the answers or knows the whole story of the community, and that they are far more effective when they peak over the fence every once in a while to see how their neighbors are doing. 

Hazlitt in One Lesson: Or, How I Learned to Stop Worrying and Love the Market

Although this book may be a little dated (first published in 1946), let me first say that in terms of brevity and clarity, it is a wonderful introduction to Economics. You can purchase it here. For the casual reader, or the die-hard Econometrician that's gotten so far into proofs about the consistency of esoteric estimators under never-to-be-satisfied conditions, it's a nice reminder of why carefully reasoned economic analyses are important.

The book examines and unravels common economic fallacies by showing them to be violations of a common lesson, which is: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all group." (pp. 17). Some of these fallacies include the following:

1. The Broken Window Fallacy: This is the belief that destructive activities are necessarily beneficial to society, because they create business. Hazlitt uses the case of a child who breaks a window, which then must be replaced by the window-maker, who may use the proceeds to buy shoes from the shoemaker etc. etc. While this may seem like destruction creates business, what is ignored is what the window owner might have done if he hadn't been forced to replace the window. We could create the same chain of transactions, only these would be voluntary, and in all likelihood represent a more efficient chain of production. Thus, from burning crops to destroyed homes in the aftermath of WWII, he argues that those who see this as a boon for new business are mistaken, because they ignore what might have happened instead.


2. Forgetting that Public Works Require Taxes: This might fall under ignore the "There's no such thing as a free lunch," dictum. Government spending is usually thought of as being financed through two channels:
• Taxes: money taken directly from the public by adding on to the price of goods, charging fees, taxing income, etc. 
• Bonds: borrowing money through financial institutions.

Hazlitt points out that taxes must come directly from the public (reducing their choices of consumption). Furthermore, the bonds must eventually be repaid, and the only way to repay them is...some form of tax on the public. So we must remember, under normal circumstances, an increase in government spending comes at the cost of a decrease in private spending. It's easy to see the jobs, roads, bridges, etc. that this can create, but we also shouldn't forget those things other people might have chosen to build or buy if those resources had never been diverted. 


3. The Limited Work Fallacy: This fallacy shows up mostly on the employment side. In short, workers throughout the ages have been afraid of technology and machines, because they are afraid that as their jobs are automated or production becomes easier, that they themselves become less valuable or necessary. This had led to laws that can severely limit work hours, make the production of some goods purposefully cumbersome, or has led to outright violence where machines are destroyed. Hazlitt, however, reminds us that the purpose of economics is the study of scarcity, the simple fact that humans seem to have unlimited wants but limited means with which to meet them. It seems absurd then to think that there's some limited amount of work. If machines make work easier, then it seems more logical that workers would move on to other occupations where this isn't the case. There are also cases, as we commonly saw in the industrial revolution, where the machines required armies of workers to service them, and increased the demand for labor. Thus, while painful adjustments sometimes occur when new machines or technologies are implemented, there are no signs yet that production is so great as to satisfy mankind's unquenchable thirst for more stuff!


4. Forgetting that Prices and Profits are Signals: If you've kept up this long, I promise I'm going to wrap it up. This last point is my personal summary of a lot of his case studies. There is a knee jerk reaction in many circles to see "high" prices and "high" profits as somehow immoral. By "high" we often mean above what they have been in the recent past. Hazlitt makes an often overlooked and valuable point that before we judge a price or profit margin, we should attempt first to understand why it came to be this way. Rising prices usually indicate an increase in demand for a product, or an increase in the cost to produce it (limes may get more expensive if there's a bad crop harvest, for example). Rising profits can indicate the same thing, or that a firm or industry has found a more cost effective way of producing goods at the same price. While companies can use things like market power, government fiat, or asymmetric information to achieve high prices and/or profits in the short-term (and these are mostly bad), it is usually not a long-term phenomenon. So before we attempt to "fix" a price or levy a tax on "windfall profits", we should first try to understand why they currently exist. What are the prices and profits telling us?

There's a lot more in the book, so I would encourage you read it for yourself. Also, at the end, I'll insert my personal take which may explain my tongue-in-cheek title. While I enjoyed the book and think the arguments are important and meaningful, I think the author is often guilty of whitewashing some of the real world complications that occur while we fight our way towards the "long run".

• Maybe breaking windows and burning crops doesn't create prosperity, but what about that piece of property with the old gas station and ruptured gas tank under the ground? Who wants to buy it and convert it into its next best use? Should we charge the current owner for the cleanup, who only remembered that his father closed it 20 years ago? What if he/she can't pay?
• All government spending must eventually be paid by business. But when millions of people are temporarily unemployed and banks are unwilling to finance many business ventures because they're unsure how long the downturn will last, is leaving millions of hours of manpower and billions of dollars in capital idle while the private sector sorts its prices the best our public officials can do?
• For the time being, our projections may indicate that moving manufacturing to another nation will increase profits for shareholders and lower costs for consumers, while only a segment of the population will be unemployed and require retraining in another line of work. But what if the wages were kept low by pressure from a corrupt and undemocratic government? What if the manufacturing base were moved to a nation that later seized it and used it to make war on the nation that financed that very venture? Can we ask our own displaced workers to quietly accept the loss of their own earning power so their neighbor can buy what they used to make for a lower price? 

These situations are not hypothetical. They have occurred in the past, occur today, and will occur in the future. So, my takeaway is to return to Hazlitt's point of focusing on the long-term consequences of all involved parties, and to know when we can count on the time-tested rules of commerce to apply, and when we should be skeptical. 

A Primer on Money, Banking, and Gold

My Car was broken into, and all of my economics books and related journals were stolen. (Maybe that's why I bought Atlas Shrugged?) I started over with new journals, and purchased this classic book from the 1960's on Banking to give me some new materials to read. The book, written by Peter L. Bernstein, is called A Primer on Money, Banking and Gold. It covers: (1) the structure, history, tools, and purpose of the federal reserve; (2) the creation and destruction of the money supply in its many forms; (3) the role of Gold in the United States under the Bretton Woods system, and the relationship between Gold and currency in general. Some of the most potent lessons and observations are, in my opinion, the following:

(1) As long as monetary policy does not

actively finance an inflationary spiral when

full employment has already been achieved,

the productivity of an economy is the ultimate barrier to runaway inflation.

(2) The physical supply of currency sets a theoretical limit to the supply of money in the economy, but determining that limit is difficult, and the intermediate supply schedule shifts due to changes in liquidity preference, expectations, monetary policy etc.

(3) The largest portion of our money supply is locked up merely in numbers on balance sheets, and doesn't even merit the tangible existence of a federal reserve note.

(4) Aside from tangible currency and notes, most of our money is created by banks lending short-term deposits to long-term borrowers (and betting on reserves to cover the occasional withdrawal of those deposits). Some or all of the loaned money becomes a deposit at another bank, which allows that bank to lend more (but not as much as the first bank). The result is a potential multiplicative increase in the money supply by lending (but not without limit). The government and federal reserve can also influence the money supply with monetary and fiscal policy.

(5). The major tools of the federal reserve are: open market operations (buying/purchasing treasuries to increase/decrease the money supply), the discount rate (raising/lowering the rate on borrowing from the fed to decrease/increase the money supply), and the reserve requirements ratio (raising/lowering reserve requirements to decrease/increase the money supply).

(6) The government can effect the money supply by raising/lowering taxes and/or increasing or decreasing spending. Lowering taxes increases the money supply, while raising them decreases it. Increasing spending (by borrowing) increases aggregate expenditure, and the converse is also true.

(7) Gold is not as dissimilar from fiat currency as is imagined by some. It has some value in use, but it has little or no bearing on its value as currency. Its historical value as currency came primarily from its resistance to tarnishing, relative ease of transport, difficulty to counterfeit, and its undeniable beauty. In short, the demand for gold as a currency as opposed to fiat notes is mostly a subjective fascination shaped by historical experience.

(8) The major advantage of gold as opposed to fiat currency is the difficulty in increasing its supply. It's very difficult (although the Spanish Empire shows it is possible), to have problematic inflation with gold. Yet the difficulty in increasing the supply can also be a barrier to economic expansion (a bigger economy needs a bigger money supply). It is the opinion of the author (and I agree) that for these reasons the benefits of a fiat currency generally outweigh the costs (for a large and developed economy).

Discussion

All in all, I thought that this book was very well written. Although it has nothing to say about the large and complex world of derivatives and integrated financial structure that exists today, you might be able to guess from my past posts that I'm more of a (back to the basics) kind of person. The author also completely underestimated the potential for rampant inflation in the American economy (which actually occurred in the 1970s). However, he is quick to acknowledge the fact and explain himself in the introduction, and it really has no bearing on his analysis of how the banking world functions. Furthermore, given the zealous criticism of the Fed in recent history, I thought it was refreshing to get a description of the day to day workings of the Fed, and its imagined purpose, from the writings of someone removed from today's debate by decades of history. I could be imparting a degree of romanticism to the experience, but I feel that his book captures the American Financial System in a time that was much more hands on and realistic. It makes me resent the sometimes cold numerical detachment that I feel has sometimes made it all too easy to reach easy short-term conclusions that have hard and unexpected long-term consequences.

Lombard Street

Too Long to Read Summary: I read Lombard Street by Walter Bagehot. I learned that a powerful financial market requires a large amount of demand deposits. These accrue during times of political stability at institutions that specialize in monetary matters. The English Money Market (centered around Lombard Street and the Bank of England), was an example of such a powerful financial market. It's scale and efficiency allowed England to undertake great business ventures with speed and ease, and gave the entire nation a significant economic advantage. The cost of this power, however, was that a run on these deposits could utterly destroy all these financial institutions. Bagehot cautioned that all of this relied on the success of the Bank of England, a private institution that actually had a huge public role. In order to stay a panic, he urged that the bank of England lend freely to businesses and banks alike (perhaps at elevated interest rates). Failing to do so, or doing so hesitantly, would surely result in the destruction of the Money Market. Finally, he concluded that to run the bank in the interest of the public, the reserve should be kept above the public apprehension minimum (which can only be found by trial and error), and maintained by an experienced manager, who is overseen by a working committee of the board of directors, and supervised by a temporary but distinguished governor.

I first heard about Lombard Street while I was making my way through Friedman andSchwartz's "The Great Contraction" (something I've already posted about). Friedman referred to it as the seminal work on banking, central banking, and the money market. Naturally, I was curious. It was written by the 19th century English business analyst Walter Bagehot, and it is an exposition on the financial markets of Lombard Street in London, England (the 19th century Wall Street). Now, onto the book!

Introduction

• The money market is not abstract or obtuse, it is concrete and plain. If it appears abstract and obtuse, it is a failure of communication on the part of the analyst or writer.
• In the 19th century, Lombard Street represented the greatest economic power and knowledge on the planet. Much more money could be raised and channeled than anywhere else in the world. Why? Because Lombard Street had the largest Money Market.
• Money in the market (deposited in the banking system), is more powerful than cash balances in the hands of the public, because it can be intelligently and systematically supplied to borrowers.
• Cash deposits lower the transactions costs of borrowing large sums of money to finance business undertakings.
• Diversification of funds and specialization in lending further lower the transactions cost of loans, ultimately resulting in a lower general price level.
• Easy access to financial capital makes it possible to seize business opportunities quickly, allowing for more competition in the economy.
• However, easy access to financial capital (when there is asymmetric information), worsens principle-agent problems such as moral hazard.
• Financial capital is much more mobile than other forms of physical capital, thus capital adjusts to more profitable trades quicker in nations that have larger amounts of financial capital.
• A powerful financial market requires large cash deposits in banks, but a bank run on these cash deposits can destroy any financial market abruptly.
• Bank reserves are meant to head off these panics, by reassuring the public. But the incentive of a bank is to keep as little of a reserve as possible, which may or may not be sufficient depending upon shifts in the public psyche.

A General View of Lombard Street

• The institutions that make up a mature money market are: the cental bank, the private banks, the joint-stock banks, and the bill brokers.
• Credit is loosely defined as a set of promises to pay resources loaned out, which are backed by the reputation of the party requesting the loan.
• There are infinitely many possible systems of credit, but the main test of any credit system is its "soundness", or how confident the lender and borrower are collectively on the successful outcome of their arrangement.
• In order to meet extraordinary and infrequent demands, such as bank runs or waves of loan defaults, banks must hold a certain amount of cash in reserve.
• Most English banks in the 19th century kept their reserve with the bank of England, which was a private bank.
• However, private banks have an incentive to keep their own reserves as low as possible, in order to maximize profits.
• Thus, in the 19th century, the entire banking reserve of the English money market was in the hands of a private bank, who did not have the clear incentive to maintain a large enough reserve to meet its obligations as a private bank, and the oblations of all the other banks during a panic.
• As the central bank, the Bank of England can use the interest rate it charges to control cash flows in the country. Higher interest rates slow business activity by making loans more expensive, lower interest rates speed it up by making loans less costly.
• To address a banking panic, the central bank should lend freely at elevated interest rates.
• To counter a drain on its cash reserve by foreign nations, a central bank should raise its interest rate, but also lend freely if there is a panic.
• "A good banker will have accumulated in ordinary times the reserve he is to make use of in extraordinary times."
• A panic generally starts with concerns about the solvency of minor businessmen and speculators. However, if banks refuse to lend to these parties so that the concerns can be addressed (if they are not valid), then the panic can spread to the banks.
• If all creditors demand their cash at once, it will never be possible to satisfy their demands, and the banking system must inevitably collapse, but this is unlikely to occur.
• As the holder of the banking reserve for the nation, the activities of the Bank of England are a matter of the public interest, although it is a private institution.
• The Bank of England, as a private bank, has not acknowledged its public role as keeper of the reserve, and this might prompt it to be hesitant to lend during a panic, as a private bank would be inclined to do.
• Lending hesitantly is the worst course of action during a panic.
• Fundamentally changing this system of credit in England is impractical, but adjustments can be made to make it better, such as:

1. Having the Bank of England (BOE) Acknowledge its role as the reserve publicly.
2. Ensuring that the Board of Directors of the BOE have special training for their responsibilities.
3. Taking steps to diminish the reliance of other banks on the reserve of the BOE.

How Lombard Street Came to Exist, and Why it Assumed Its Present Form

• To begin deposit banking, it is necessary for a large amount of people to come to trust a small amount of people with their money.
• Many of the large banks of Europe, including the BOE, began as organizations to make loans to governments, or as keepers of high quality currency, or as institutions for channeling funds abroad. Adam Smith has a good account of this in "The Wealth of Nations".
• Deposit banking also requires a large circulation of bank notes, which are seen as reliable. This requires a prolonged period of social and political stability, in conjunction with the other factors. This was the case in England after the Glorious Revolution in 1688.
• The status of the BOE as the government's bank, it's monopoly grant of limited liability, and its historical monopoly over the printing of bank notes conspired to make it the central reserve bank of England.

The Position of the Chancellor of the Exchequer in the Money Market

• If the government does not keep its own finances, and instead uses a bank, then the money market becomes vital to the public interest, and some form of government intervention is inevitable.
• Under a perfectly competitive banking system, where the government kept its own finances, there would be a great number of banks all keeping their own reserves.
• However, when the government favors one bank with its finances, it has natural advantages over other banks, and it generally becomes much larger than other banks, with greater security based on public backing.
• This is how the Bank of England, as a private bank, came to be the reserve bank of the English Money Market. Other banks rely on the BOE as their reserve instead. This generates a number of problems, namely:

1. Since the banking system is depending on a bank which can call on the state for aid, it is likely that this system will be taken advantage of more than a totally private system.
2. The total level of reserves is lower than under a totally private system, because the BOE only sees fit to keep reserves to secure their own losses, not the losses of the entire banking system.
3. The stability of the banking system rests essentially with one private board of directors, who are obligated only to their shareholders. There is no acknowledgement of the public role with the BOE has to play in monetary policy.

The Mode in Which the Value of Money Is Settled in Lombard Street

• The value of money, like other goods, is settled by the laws of supply and demand, only the particulars vary.
• Banks with monopoly power of the currency can alter short-term interest rates, but not average rates.
• If a bank with monopoly power of the currency increases the money supply, and thus lowering the short-term rate of interest, the consequence is a rise in prices, with three consequences;

1. It makes everyone want to borrow money (because it has become more expensive to perform the same level of business).
2. As asset prices inflate, people are able to borrow more money against them, in nominal terms.
3. If the price rise is confined to one country, it stimulates imports, as domestic goods become more expensive relative to foreign goods. Thus, currency is sent out of the country.

• Since banks can control short-term, but not average interest rates, they have some control over the volatility of the business cycle. If the banks manage the rate of interest poorly (by having a large standard of deviation from the mean), the business cycle will be more violent.

Why Lombard Street Is Often Very Dull, and Sometimes Extremely Excited

• Shocks to the economy, especially negative ones, can lead to an increase in preference for more liquid assets, which can freeze credit markets.
• Classical Economics does not emphasize the importance of the transactions costs of time in the market, namely that ideally:

1. Goods should be exchanged as quickly as possible.
2. Producers and consumers should be able to locate each other as soon as possible.

• However, as the number of market connections utilized and relied upon widens, the power of positive and negative shocks is magnified.
• A functioning credit market cuts down on the amount of time required for transactions.
• When deposits are long term, the bank can channel them to expand credit. This fuels business activity.
• Gradual inflation and good credit are associated with the expansion of business, while deflation and credit freezes are associated with contractions. However, growth driven only by rising prices is transitory.
• Business expansion based upon increases in productivity are real by volatile, and transitory expansion based upon higher prices ultimately only results in a redistribution of wealth to those who raise their prices first.
• Since the health of Lombard Street, the Bank of England, and the Money Market, are intimately connected with the health of business in England (even more so due to BOE's status as a reserve bank), the public should realize how their own fates are tied to the prudent conduct of these financial institutions.

How the Bank of England Has Approached It's Duty as a Reserve Bank

• The Bank of England, as of the publication of the essay, had never publicly acknowledged its role as a reserve bank.
• Furthermore, no public authority seems to have taken an interest in the BOE's role either.
• Finally, many economic scholars have preached the virtues of a hands off approach to the banks, which upon further consideration, is clearly against the interests of the nation.
• "Men of business have keen sensations, but short memories, and they will care no more next February for the events of last May than they now care for the events of October 1864".
• The supply of loanable funds is more sensitive, in the short term, to expectations about the future, than is the demand for loanable funds.
• In a panic, the goal of a reserve bank should be to loan freely to all businesses that would be otherwise considered sound during ordinary times, not just to the banks, because they will only hoard the funds.
• A board of directors is not usually quick to respond to urgent situations.
• Managers rely mostly on their experience, their knowledge of theory is often antiquated. Even without knowledge of theory, they must act on experience, because timid managers are often behind and ultimately ruined.
• Banks cannot replenish their reserve during a panic, and it is often impossible to raise more capital by selling stock.

The Government of the Bank of England

• Boards are often composed of successful capitalists utilizing their leisure time.
• The executive management in a bank should not be a rotating position, experience and consistent policy are important, although entrenched interests can be a concern.
• To counter the concern of entrenched interests, the governor of the bank should be appointed and rotated, but the day to day management should be undertaken by a long-term subordinate.
• In the end, banking should be more about caution (and less about risk) than ordinary commerce.

The Joint Stock Banks

• In banking, there is a premium generated by longevity in the business.
• Banking requires at the utmost: attention to detail, prompt decision making, and the ability to make decisions on a case by case basis.
• Far more money is often lost in banking due to errors and incompetence than fraud, because there are limits to the size of fraud.
• Joint stock banks are becoming more popular, and will be the ultimate form of banking eventually due to their ability to raise capital.
• A board that oversees a joint stock bank should have a fixed working committee that is always in session, for the purpose of reviewing the major actions of the management.

The Private Banks

• Private banks used to be dominant in England, but they are unable to achieve the scale of joint stock banks.
• Private banks also have more difficulty with finding good management, which damages confidence in their longevity.
• Thus, private banks have been and continue to be phased out by joint stock banks, and one day might disappear entirely.

The Bill-Brokers

• Bill-Brokers act as intermediaries between banking capitalists and borrowers, deriving a premium or profit from their proximity and knowledge (Coase Theorem).
• Credit is not a direct function of wealth, it also involves history and reputation.
• Bill-Broking was originally about the soundness of the bills being traded, as the industry has grown, it has become more about the credit of the bill-broker. Consequently, he/she must now pay interest on the funds they use to broker bills.
• Thus, bill-brokers now have a greater opportunity cost to maintaining their funds, which puts them in a precarious position during a credit freeze.

Principles to Regulate the Amount of Reserve Kept by a Central Bank

• The size of the reserve depends on the size of the liabilities, but also on the probability of withdrawals within certain time horizons.
• Rigid rules to the size of a reserve are dangerous in a dynamic business environment. They can hurt the profitability of banks, and even ruin them under certain circumstances.
• Publishing of Bank Balance Sheets can go a long way to promote prudent conduct and provide assurance to the public.
• There seems to be some variable "apprehension minimum" to the size of the reserve of a bank, below which the bank drastically increases the probability of a bank run.
• In the end, the reserve should be kept above the apprehension minimum (which can only be found by trial and error), and maintained by an experienced manager, who is overseen by a working committee of the board of directors, and supervised by a temporary but distinguished governor.

The Grumbling Hive

I'm not sure where I first heard about "The Fable of the Bees", but it was reading Keynes's General Theory that really prompted me to take the time to understand it. For those of you who are interested in more than just my take, the full text is available here. The fable is a long poem by the early 18th century intellectual Bernard Mandeville. It is, in my opinion, an elegant satire of the incompleteness behind the economic philosophy of capital fundamentalism. This philosophy, associated closely with the early classical economics, proscribed perpetual austerity as the best path to economic might. Despite it's incompleteness, this philosophy lives on (and is even being heard now from many prominent politicians and policy makers). Thus, teaching the shortcomings of capital fundamentalism is especially important today. Now, on to the fable!

Discussion

I will discuss the fable by picking out what I feel are relevant sections of the poem and then attempting to interpret them for the reader:

"Vast Numbers thronged the fruitful Hive;
Yet those vast Numbers made 'em thrive;
Millions endeavouring to supply
Each other's Lust and Vanity;
Whilst other Millions were employ'd,
To see their Handy-works destroy'd;
They furnish'd half the Universe;
Yet had more Work than Labourers."

This section appears near the beginning of the poem, and describes the initial state of the thriving hive. It is thriving, according to Mandeville, because the bees have an insatiable appetite for consumption that is coupled with the freedom and ability of other bees to supply the things all desire to consume.

Thus every Part was full of Vice,
Yet the whole Mass a Paradice;
Flatter'd in Peace, and fear'd in Wars
They were th'Esteem of Foreigners,
And lavish of their Wealth and Lives,
The Ballance of all other Hives. [160]
Such were the Blessings of that State;
Their Crimes conspired to make 'em Great;
And Virtue, who from Politicks
Had learn'd a Thousand cunning Tricks,
Was, by their happy Influence,
Made Friends with Vice: And ever since
The worst of all the Multitude
Did something for the common Good.

This is an early reference to the general moral of the poem. It was the insatiable need to consume (a vice), that was the source of the colony's power. In fact, this vice made the colony an object of envy by outsiders, leading to the outcome envisioned by those who proselytize virtue.

How vain is Mortals Happiness!
Had they but known the Bounds of Bliss;
And, that Perfection here below
Is more, than Gods can well bestow,
The grumbling Brutes had been content
With Ministers and Government.
But they, at every ill Success,
Like Creatures lost without Redress,
Cursed Politicians, Armies, Fleets;
Whilst every one cry'd, Damn the Cheats,
And would, tho' Conscious of his own,
In Others barb'rously bear none.

The seeds of the downfall of the hive are revealed here. The bees want to "have their cake, and eat it too." Since the vice of insatiable consumption is frowned upon by moralists, though it is the basis of the society's power, there is a kind of cognitive dissonance. According to Mandeville, those who fall behind in this competitive and fast moving society are likely to condemn the vices practiced better by others. This may or may not undermine consumption in good times, but it seems much more likely to prevail when the chips are down.

No Honour now could be content,

To live, and owe for what was spent.

Liveries in Brokers Shops are hung,

They part with Coaches for a Song;

Sell Stately Horses by whole Sets;

And Country Houses to pay Debts.

Vain Cost is shunn'd as much as Fraud;

They have no forces kept Abroad;

Laugh at the Esteem of Foreigners,

And empty Glory got by Wars;

They fight but for their Country's Sake,

When Right or Liberty's at Stake.

Now mind the glorious Hive, and see,

How Honesty and Trade agree:

The Shew is gone, it thins apace;

And looks with quite another Face,

For 'twas not only that they went,

By whom vast Sums were Yearly spent;

But Multitudes, that lived on them,

Were daily forc'd to do the same.

In vain to other Trades they'd fly;

All were o're-stocked accordingly.

The Price of Land, and Houses falls

Mirac'lous Palaces, whose Walls,

Like those of Thebes, were raised by Play,

Are to be let; whilst the once gay,

Well-seated Houshould Gods would be

More pleased t'expire in Flames, than see;

The mean Inscription on the Door

Smile at the lofty Ones they bore.

The Building Trace is quite destroy'd,

Artificers are not employ'd;

No Limner for his Art is famed;

Stone-cutters, Garvers are not named.

Now, we have the state of things when virtue finally triumphs over vice. Everyone, from the richest to the poorest, decides to swear off their consumption of that which is not necessary. They choose, instead, to pay off their debts and take on no more, and charge no interest (in keeping with the good books). The result: rather abrupt and self inflicted impoverishment. Why? The economy is an interconnected and interdependent system. Goods and services in one sector are dependent and contingent upon goods and services in another sector. It's an often overlooked and rather complicated truth that everyone simply can't all save for the future at once.

MORAL:

Then leave Complaints: Fools only strive

To make a Great an honest Hive.

T'enjoy the World's Conveniencies,

Be famed in War, yet live in Ease

Without great Vices, is a vain

Eutopia seated in the Brain.

Fraud, Luxury, and Pride must live;

We the Benefits receive.

Hunger's a dreadful Plague no doubt,

Yet who digests or thrives without?

Do we not owe the Growth of Wine

To the dry, crooked, shabby Vine?

Which, whist its neglected flood,

Choak'd other Plants, and ran to Wood;

But blest us with his Noble Fruit;

As soon as it was tied, and cut:

So Vice is beneficial found,

When it's by Justice, and bound;

Nay, where the People would be great,

As necessary to the State,

At Hunger is to make 'em eat.

Bare Vertue can't make Nations live

In Splendour; they, that would revive

A Golden Age, must be as free,

For Acorns, as for Honesty.

The moral of this poem is a subtle but important distinction between the immortal words of the infamous Gordon Gekko from the movie Wall Street "Greed, for lack of a better word, is good." The moral of this story is: Greed can be good.

Too Long to Read Summary: Greed can be good.

Galbraith on the Crash of 1929

From looking at my previous posts, the reader might think that I have a preoccupation with the Great Depression. This is not really so. The fact is that during and shortly after the Depression, a flurry of good economic work was done on both the Micro and Macro level. That such a catastrophic economic collapse could take place under a regime that was much more along the lines of what the classical economists would refer to as "business friendly", opened the door to some fundamental changes in economic theory. By my estimates, it took about forty years to forget a lot of what economists learned from the Crash of 1929 and the subsequent
Depression. I think it is still an open question as to whether contemporary economists have the capacity to respond to our current difficulties as creatively.

But I digress. The point of this post is to present a play by play of the Great Crashof 1929 according to the famous Institutional Economist John Kenneth Galbraith. From his book, we learn a great deal about the psychology behind booms and busts. We are also privy to a laborious account of how institutions in the United States responded to the collapse. I think this is a good addendum to the post on Milton Friedman, as it acts as a sort of prequal. Now, to the book!

Vision and Boundless Hope and Optimism

Galbraith opens up his book with a section on the Roaring Twenties, a time familiar to most students of United States History. In hindsight, it seems obvious that the spectacular growth of the twenties was too good to be true. Still, the issue is raised as to how some of the more obviously unsound or unprofitable practices were allowed to continue for so long, with little or no notice by voracious speculators.

The first point that Galbraith raises is that mass delusion of this sort usually does not take place on such a large scale, and it requires some considerable time to build up. Essentially, at some point in the early twenties, enough people became convinced that they could get reasonably rich fairly quickly, because modern financial genius had changed the rules of making money. Convinced that they could benefit from rising prices, individuals and firms became more willing to take on debt, and lenders (also noting the rising prices) became more lax in their standards. And, as more people and more money poured into financial markets, prices rose. Rational Investors, Galbraith notes, might recognize the transience of this kind of price increase. But, he points out that many well respected businessmen and political figures "talked up" the market, leaving investors assured that greater forces were protecting their fortunes.

Something Should be Done?

By 1929, Galbraith asserts, some learned individuals in business and policy recognized that a correction in financial markets was imminent. Easing the pain of this correction was the responsibility of:

1. The President of the United States
2. The Secretary of the Treasury
3. The Federal Reserve Board
4. The Governor and Directors of the New York Fed.

However, none of the people wanted (or perhaps even knew how) to rock the boat. The President and the Secretary of the Treasury didn't have the expertise to understand what was going on, and the factions in charge of the Federal Reserve system were overall opposed to direct intervention in the market. To their credit, Galbraith argues that their attempts to use Open Market Operations or Discount Rate hikes wouldn't have frazzled speculators, and only would have harmed sounder business transactions. After a failed attempt at "moral suasion", or essentially trying to warn speculators to slow down, he asserts that the Fed chose the course of letting the bust play out.

In Goldman Sachs We Trust

In this section, Galbraith discusses the role that investment corporations and banks (like Goldman Sachs) played in fueling the speculative bubble. It has already been noted that investors were given the added comfort of assuming that powerful forces were working to keep the market moving in their favor. One such source of comfort came from investing in large scale funds headed by financial "experts". These "experts" used the power of increasing the leverage of their funds to take advantage of rising prices. On paper, modest price increases to a hugely leveraged company appear to be vast increases in wealth. But Galbraith notes that a slight decrease in price to the same leveraged firm can just as easily wipe them out. This is what ended up happening.

The Twilight of Illusion

When reading the title of this section, one cannot help but think of Nietzsche's "Twilight of the Idols", and the similarity of the message leads me to believe that this is intentional. It begins by noting two of the more familiar aspects of a runaway bubble in financial markets:

1. Prices rose daily, almost never falling.
2. The volume of trading was consistently heavy.

Galbraith then goes on to talk about another element in the psychology of the boom. The first, we have already noted, was a faith that some greater forces were at work to keep the market tilted in the favor of the investor. Another element to support the boom was the spread of supposed market "experts". Sailing past reality for a boom essentially means that the money being poured into the market comes from taking on debt in an effort to profit from price increases that are solely based on increases in demand prompted by other people taking on similar debt. While this can only last while the expectations and utility functions of borrowers and lenders stand in a particular relation to one another, it is still the case that prices will rise. People who know people that benefit from this, or who benefit from it themselves, are only too eager to attribute the gains to their own genius. They make idols of themselves or others, and imbue them with similar powers to the other great forces at work in their favor. Galbraith thinks this lasted until around September 3, 1929 when these previous relationships began to reverse themselves.

The Crash

Galbraith begins this section by pointing to the peculiar relationship that businessmen and politicians tend to have with the meaning of movements in the stock market. One such view is that the stock market is a slightly delayed indicator of the situation prevailing in the economy as a whole (in this case, the crash just reflected a reality check). An opposing view is that the stock market is, in fact, the canary in the coal mine (where the crash actually told us where the market was going). Still others think that the stock market confounds both of these views all the time, and is thus a poor measure of any economic "fundamentals". A final view is that the stock market does, in real time, represent the actual state of the economy. Furthermore, each of these views seems to have its own day in following the business cycle. During a boom, many people believe the stock market has it right. During the bust, the foreboding and the correction camps fight it out. Near the bottom, it is usually the sense of disillusionment that dominates. Then, back to the foreboding and correction camps on the way up, until people decide again that the market is "right".

Things Become More Serious

Galbraith opens this section up with a marvelous quote describing what followed the crash of 1929: "The singular feature of the great crash of 1929 was that the worse continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune." (Galbraith 180). Indeed, one of the features that distinguishes our Great Recession from the Great Depression is that there are notable sections of our population who seemed to be missing out on the misery, or actually profiting from it.

During the period following the crash, investors and speculators seemed to realize in great numbers that not only were they wrong in believing that the price of their holdings could only go up, they were wrong in believing that they had the slightest idea what the prices of their holdings actually were. Panicking investors, banks, and other financial entities tried to dump their assets only to find that there was no one to dump them on. Attempts at organized support, by asserting that corrections had been made and the market was now sound, failed at every turn, taking public confidence to new lows each time.

Aftermath I and II

In this section, Galbraith turns his attention to some of the socio-political phenomena that followed the crash, discussing how they related to modern society in general.

1. The tales of mass suicides by wealthy businessmen was more rumor than anything else, but it says something about the effect of the crash on the country's imagination.

2. There seems to be a cycle of embezzlement that is related to the business cycle. During booms people are freer and less careful with their money, so the supply of embezzlement or "bezzle" increases. When a crash comes, and people start to look to their funds, people uncover the previous fraud, and the supply of bezzle shrinks. This was particularly evident in the boom and bust of the Great Depression.

3. A classic political method designed to restore confidence is the "no business" meeting. Here, officials meet with no real agenda, besides portraying an image of action and control to the public.

4. In the great congressional circus that sought to get at the cause of the crash and the depression, many of the former captains and titans of industry found themselves suddenly unable to recall any particular transactions that they engaged in prior to the crash.

Cause and Consequence

In an effort to help understand the causes and consequences of the Crash and the following Great Depression, Galbraith first takes note of five weaknesses in the American Economy around 1929.

1. An unequal distribution of income that was quite large by historical standards.

2. Inadequate oversight of corporate investment practices.

3. A fundamentally unsound banking system.

4. Predatory trade practices i.e. high tariffs meant to encourage positive trade balances.

5. Poor economic knowledge on the part of policy advisors.

All of these factors could have conspired together to make what would have been an ordinary market correction into something worse. The unequal distribution of income might mean that the sudden collapse in demand due to uncertainty from the crash battered businesses harder than usual. Many of these businesses were already battered by their own speculation in the market. Furthermore, as both individuals and businesses tried to hold more cash for security, they helped bring about a collapse of the banking system (which could not handle such a large demand for currency). During all this time, policy advisors wrongly advocated austerity measures (balanced budgets etc). The result of this: a decade or so of misery.

Too Long to Read Summary:

Galbraith's book "The Great Crash", discusses the stock market crash of 1929 and its connection to the Great Depression. He argues that individuals and firms got carried away with economic growth in the roaring twenties, and started taking on risks they did not fully understand. For years, it seemed validated by rising prices. When it became evident that something had to give, most institutions and political figures were hampered by doctrines of austerity or fear of causing a violent correction. When prices reached a point that too many individuals wanted to take their profits, the market collapsed. Prices went from certainly increasing to unknown. Overleveraged firms and individuals quickly became insolvent. Attempts by politicians and businessmen to support the market by declaring the correction completed, failed at every turn. The general destruction of perceived wealth helped destroy projections of demand by businesses, and preference for liquidity lead to collapses of the banking system and credit markets. This resulted in a decade or so of misery.