THE BLOG

August 1912

08/09/2012 04:43 pm ET | Updated Oct 09, 2012

About a hundred years ago, all was supposedly right in the world.

Well settled in the predictable conventions of the 19th century, no one, it seemed, even contemplated the possibility that the century-long post-Napoleonic order could or would be rent asunder. European stability, coupled with attendant increases in trade and economic largess triggered by the greatest surge in labor saving gadgetry the world had ever known, seemed to have ushered in an unending era of relative peace and prosperity. The railroads, telegraphs and oceanic steamers that made the world a smaller place existed in an easy camaraderie with the elevators, refrigerators and now-available-on-a-large-scale "horseless carriages" that made it an easier one as well.

Sure, there were pockets of despair -- from the Irish nationalists demanding freedom from an imperial order that had unnecessarily killed millions of their countrymen in an if not created then certainly abetted famine, to the widespread poverty of an industrial order that produced a set of discordant notes running from Marx's manifesto to the Paris Commune to the nascent labor movement -- but things on the whole seemed always to be improving.

And then, two years later, a Serbian nationalist assassinated an Austrian prince and the world blew up.

For well over ninety years now, historians have sliced and diced the causes of World War I from almost every possible angle. They have lamented the failure of statesmanship that unnecessarily turned a crime into a cause. They have unmasked the fragility inherent in inter-related monarchies, where Kaiser, Czar and King all had the same grandmother and, perhaps, the same psychoses. They have plumbed the documentary record to expose the flaws in inter-locking treaty commitments that turned the heirs of Bismarck, Metternich, Gladstone and Disraeli into dominoes that mindlessly fell into their pre-assigned positions, as one after another erstwhile great nation mistook action for strength while dismissing thought as the province of the weak. They have condemned the leaders who ignored America's Civil War, a stark and recent example of how total war would become in the new industrial age.

But perhaps the most accurate assessment is this:

World War I happened because no one in any position of responsible authority really thought it could... or would.

And in that, there is a lesson for us in August 2012.

We are running around in circles today, and our arguments are often pointless, especially when it comes to the economy. Neither the temerity of the European Monetary Union nor the austerity plans embraced by various conservative and/or creditor friendly political parties or governments make any sense in the current economic environment. When interest rates are near zero, demand has imploded, and growth become anemic, deficits are irrelevant and fiscal stimulus on a massive scale is really the only solution. To pretend this is not the case, or to ignore the transparently obvious realities that make it so, is the rough equivalent of assuming in 1912 that a World War lasting four plus years -- and costing tens of millions of lives -- can never happen. To further assume that austerity will somehow create a recovery under these circumstances is equivalent to assuming in 1912 that the cavalry will be be relevant in the coming mechanized war.

Whether fiscal stimulus has to be administered through existing governments, as is the case here in the U.S. and in Britain, both of whom still control their currencies, or must first traduce the barriers of a monetary union that needs to somehow get itself to the point where its supposed central bank is allowed to represent everyone and not just creditors, as is the unfortunate case in most of Europe, is at this stage almost beside the point. If it is not done -- both here and there -- there will be no recovery in any significant sense of that word.

What if the opposite is done? What if Romney becomes president here and implements some version of Rep. Ryan's and the right-wing House of Representatives' budget? What if the European Central Bank continues to dawdle on having member states underwrite continent-wide bonds so that Germany can inflate as Spain, Italy, Greece and Ireland devalue (growing their economies by making their products cheaper and improving their comparative competitive position)? What if, in other words, everyone takes their assumed positions and, lemming-like, marches down the road to economic perdition? What if this all occurs and, as is likely, the consequence is Depression?

The answer is, unfortunately, simple.

One hundred years from now, a new crop of historians will have spent their careers puzzling over the mindlessness of a governing class that ignored reality and assumed the worst could never happen.

They will ask how it was that science -- in this case, economic science -- could have been so thoroughly discarded.

They will lament the lives needlessly ruined, the assumptions mindlessly made, the history casually ignored.

And some may even recur to an earlier time and a different world -- the world of August 1912.

Where a different hell was ultimately produced...

For the same reasons.