Most Americans tend to believe that they’ve lived under the same form of government, more or less, since the country was founded in late 1700s. They’re mistaken.
It’s true that there have been important continuities. The American conception of what government should and should not do is deeply rooted in clear thinking at the start of the republic; the country has long preferred limited government and effective constraints on capricious executive action. But this persistence of core ideas (and the consistent use of the same buildings in Washington, D.C.) obscures the dramatic changes that have taken place within the governing institutions themselves.
In fact, formidable challenges at the end of the 19th century were met by fashioning a transformation so thorough it could effectively be deemed a “Second Republic.” This new republic came with significantly different economic and political rules — and, as a result, enabled the American system to survive and even thrive for another century. Today, faced with serious economic and political dysfunction, we are in need of another round of deep institutional renewal: a Third Republic.
The conditions that brought about the first transformation of American society are strikingly similar to those we see today. At the root of the problems confronting the United States by 1900 was a wave of innovation that sped up growth. The direct benefits of these new technologies accrued to a few, while many others became more uncertain about their economic future.
What is gold? Is it the essential bedrock of fiscal prudence? Is it a political football, with fortunes and importance determined by far greater forces? Or is it a mere distraction at the margins of the global financial system — attracting a disproportionate number of scams and oddball political characters?
Gold in the American economic system has been all of these and in that order. James Ledbetter weaves a highly readable tale, literally from the origins of the republic to the dubious sponsors of Glenn Beck on Fox News (a brilliant concluding chapter). Too often, this kind of economic history becomes dry and even soporific. But Ledbetter — the editor of Inc. magazine — has a fine eye for personality and ideas; each of the 12 chapters puts you on the spot at a critical moment on the American journey with gold, with anecdotes nicely blended to create the broader historical context.
You can read it in chronological order or you can dip a toe in at any point, almost the ideal summer reading. Or — my favorite for this kind of tale — watch the story unfold backwards; start with the modern and familiar, and see how far you need to go back in time before it feels like you are watching something straight out of Marvel Comics, with big characters and motivations that now seem strange. The most compelling material explains how President Franklin D. Roosevelt reluctantly yet effectively — and with very good reason — ended the way gold had operated over the previous half century. But Operation Goldfinger is also highly entertaining — a 1960s public policy escapade, inspired by the James Bond movie.
The broader plot line is this. The American republic was initially bankrupt, a point that the hit musical Hamilton made more effectively than any middle school history lesson. A monetary system subsequently modeled on that of Britain included gold as an anchor of value for paper money and bank deposits. This system provided sufficient stability in good times — along with plenty of opportunity for financial speculation and shenanigans — and could also be suspended when circumstances dictated, most notably during the Civil War.
Harvard Kennedy School Senior Fellow Antonio Weiss
One of the central pillars of financial reform, the Financial Stability Oversight Council (FSOC), is under political attack and at risk of coming undone.
In the past, the balkanized U.S. financial regulatory system has consistently failed to address risks that took root in its jurisdictional gaps. The FSOC was created to solve that problem, bringing regulators together to make sure they have the tools to protect the economy from financial crises. It is already making an important difference.
Unfortunately, earlier this month the House Financial Services Committee passed the Financial Choice Act (CHOICE Act), which threatens to reverse that progress. It would, for example, all but eliminate the FSOC’s ability to prevent the regrowth of an unsupervised shadow banking sector that might once again threaten our financial stability and economic resiliency. At the same time, the administration of President Donald Trump has signaled that it may use the council to pursue deregulation, rather than its core mandate of financial stability, and to reverse or limit its ability to designate systemically important non-banks for enhanced supervision. Meanwhile, MetLife Inc., the largest U.S. life insurer, recently asked the courts to delay ruling on an appeal filed by the Obama administration seeking to reinstate the firm’s designation as a systemically important institution requiring prudential oversight by the Federal Reserve. The Trump administration has agreed to put the appeal on hold.
After much speculation, President Trump has announced his pick to lead the Federal Reserve System: Jerome “Jay” Powell. How should we think about this appointment in the context of the overall Trump administration thinking on financial regulation?
Trump slammed Wall Street throughout his campaign, asserting big banks had “gotten away with murder.” The Republican National Convention platform even mentioned a new Glass-Steagall (the Great Depression-era restriction on banks’ activities). Still, many questioned whether the Trump administration, including Powell, was committed to implementing policies tough on global megabanks.
The answer is no.
There are actually two Trump administrations. One, which attempts to deal with issues that require legislation, like health care, is having trouble making progress. But the second, which can change the rules of regulation, is moving full-steam ahead. We can already see the ground being cleared for a major round of financial deregulation.
There are three important signs of intent when it comes to finance. First, the top people on economic policy in the White House and at Treasury have all worked on Wall Street — and mostly at one big bank, Goldman Sachs. Gary Cohn, the former Goldman Sachs president, is chairman of Trump’s National Economic Council, and he has brought in a team that apparently is running the show in terms of policy. Cohn has made his intentions clear: He wants to rollback regulation.
In American politics, the next election is all that matters. Despite the Republicans’ big win in November 2016, US President Donald Trump’s ability to pass legislation still depends on what congressional Republicans expect to see happen in the November 2018 midterm election. Owing to a major shift in public sentiment in the past few months, many Democrats are now convinced that they will win seats, and potentially reclaim control of the House of Representatives.
One can already see grassroots activism gaining momentum in congressional districts that would not have seemed competitive just five months ago. For example, in California’s 45th district (in the traditionally conservative Orange County), University of California, Irvine, law professor Dave Min is taking on the incumbent Republican, Mimi Walters. This past November, Walters was reelected with 58.6% of the vote, but her district favored Hillary Clinton over Donald Trump by two percentage points.
This kind of House seat can easily flip to the Democrats in 2018, if a candidate like Min can persuade voters that Walters is out of touch – and too close to Trump. So Min has highlighted Walters’ support for Trump’s attempt to “repeal and replace” the Affordable Care Act (“Obamacare”), as well as her backing for his broader budget-cutting agenda. Moreover, her positions on many social issues seem quite distant from those of her constituency.