I was teaching International Economics (BA) today. It occurred to me that the political economy of the corn laws and that of the Troubled Assets Relief Program (TARP) is very similar. Here is historian Eric Hobsbawm (quoted from: Industry and Empire: The Birth of the Industrial Revolution, 1999, p. 175, my highlighting)
The Corn Laws which the farming industry imposed on the country in 1815 were not designed to save a tottering sector of the economy, but rather to preserve the abnormally high profits of the Napoleonic war-years, and to safeguard farmers from the consequences of their wartime euphoria, when farms had changed hands at the fanciest prices, loans and mortgages had been accepted on impossible terms.
Let me just replace everything related to farms and farming with words related to financial markets (changes marked fat):
The TARP which the financial industry imposed on the country in 2008 were not designed to save a tottering sector of the economy, but rather to preserve the abnormally high profits of the Bush war-years, and to safeguard bankers from the consequences of their financial euphoria, when stocks had changed hands at the fanciest prices, loans and mortgages had been accepted on impossible terms.
Now I ask you: does that make sense? Sounds like a US history book from 2050 to me. Back in Ricardo’s days, the fight was free trade vs mercantilism (in the UK, of course). Ricardo argued that free trade would increase the wealth of nations. What would the discussion today look like?
Probably the point is not so different: free trade and competition increase the wealth of nations, whereas opaque financial transactions of a handfull of Wall Street financial institutions together with global imbalances in trade and capital flows benefit only the financial sector and, via crony capitalism, the political elite (see this graph to understand how campaign contributions to US senators and receiving funds from TARP relate.) Anyone for a new edition of “On the Principles of Political Economy and Taxation”?