May your children live in interesting times – That was an ancient curse, not a cheerful wish. Wars and revolutions are exciting stories. Peaceful, prudent prosperity is oh-so-dull.

That’s the way macroeconomics seemed to evolve between 1980 and 2005, both in America and globally. How deceptive. Inflation allegedly had been tamed at the cost of only two short back-to-back recessions in the 1980-81 period, when Paul Volcker ruled at the Federal Reserve.

This was followed by the salubrious Wall Street stock market bubble that Merlin the Magician, – the wily Alan Greenspan, allowed to fester in its happy way. “After all,” Greenspan remembered from his day in the Ayn Rand litter, “if prudent people invest in appreciating stocks or bonds, who are we to second-guess them by lowering permitted margin leveraging or by jacking up Fed interest rates?”

The inevitable
The inevitable happened when George W Bush became president in 2000, and  “compassionate conservatism” translated into compassionate tax giveaways to the plutocrats, along with new deregulating of corporate accounting.

Cynics on Wall Street called it the new age of Harvey Pitt who was appointed chairman of the Securities Exchange Commission who in his  first speech proclaimed the new day of a “kinder SEC.” Lawyers, accountants and CEO’s caught Pitt’s innuendo: Reach for that dubious tax-avoidance loophole, and the IRS will not mind. Conceal losses and exaggerate profits by various off-balance-sheet devices that violate strict accounting rules legislated in the pre-Bush years.

Today’s global bankruptcies and macroeconomic quagmires trace directly to the financial engineering shenanigansof the Bush era. The Bush-Rove version of plutocratic democracy accomplished the singular alchemy of converting a usual plain-vanilla boom-and-bust in housing into an old-fashioned, hard-to-manage, worldwide financial panic.

This time America was the Eve in Eden who tempted Swiss, German and British bankers into eating the evil apple of non-transparency and unconscious gross over-leveraging.

Did Ayn Rand or libertarian Milton Friedman ever anticipate that Adam Smith’s marketplace Eden would come to the present disorder? Where were Bank of England Governor Mervyn King and the heads of the European Central Bank and the Bank of Japan while the disasters were unfolding? Just like the usual mediocre CEOs, world leaders never focused on the dangerous winds that were beginning to blow.

Last resort
Central banks, as Walter Bagehot in the 19th century and Charles Kindleberger in the 20th taught, are primarily the lenders of last resort. When stocks and bonds are burning up or freezing down, preoccupation with inflation targeting – Bernanke’s initial mantra - is not nearly enough.

Main Streets everywhere on the globe are waiting anxiously to see how governments cope with the whirlwind that excessive deregulation sowed: lost jobs; depleted saving nest eggs; high energy and raw material prices; negative capital gains on homes and diversified portfolios.

Some of these trace to one’s own sins of omissions and commissions. Some do arise from supply shocks: from interruptions in Mideast oil drilling, and from inflation of raw materials and foodstuff arising from new Chinese demands for better living standards. But more stem from the faulty social housekeepers who voters, rich and poor, elected to the highest offices in the land.

On schedule,  President Bush seriously proposed making permanent the rash tax giveaways and deregulations that have brought on today’s economic scandals. Discredited, radical-right supply-siders from President Reagan’s first-term circus came out of retirement to ask again for no taxes on the earnings of capital in favor of reliance for vital government services on flat taxes for wage earners.

When fear of risk stifles both investment and consumption spending, sensible and measured fiscal budgetary spending is the prescription to augment central banks’ lowering of interest rates. What follies electorates perpetrate can be offset in future elections. However, it is a commonplace that today money buys votes legally. Therefore, realists will temper their optimism with guarded caution.

– IHT (The writer is a Nobel Laureate in  Economics)