There was a time, a very long time ago, when business people were regarded as “captains of industry”. They ran the economy because they had the imagination, decision making abilities, financial skills and/or technical knowledge, to establish or perfect a new product, or just manufacture and market it effectively and efficiently, or in some other way serve the industrial system, such as by managing its money, and so were entitled to the huge profits they made in doing whatever they did. Rockefeller and Carnegie and J. P. Morgan were also philanthropists or at least art collectors, and so were and acted as the new set of aristocrats that had replaced those that dominated pre-industrial society, living, as those had done, in stately mansions and acting as advisors to kings and Presidents.

That era lasted, let us say, from the end of the Civil War to the time of the Great Depression, when it became clear that these people had not been minding the store, had not policed themselves, and had engaged in behavior that was both rash and deceptive. They were collectively responsible for having sent the American economy into the tank. The New Deal was going to save the capitalists from themselves. FDR put in the institutional controls that would hedge in what he called the “economic royalists” so that their selfishness would indeed be turned to a public good. They had to be watched, their greed supervised. There is no such thing as a free market; there is only a constructed market, full of checks and balances, to insure the flow of money to where it will do the most good and that the functions overlooked by the capitalist system would be performed by government.

The heroes of the New Deal were the government bureaucrats and long serving politicians who put into place and ran these institutions that would supervise capitalism and compensate for the shortcomings of capitalism. These included Harry Hopkins, the social worker turned government administrator turned diplomat, and Claude Pepper, a Florida politician who got the intricacies of the new Social Security system and defended it over some three decades as Congressman and Senator, down to Molly Orshansky, who devised the cost of living index in the early days of the War on Poverty (which started under Kennedy, not Johnson). That allowed a calculation of the standard of living of poor, working class, middle class and rich, so that one could know what groups needed money and services and how much.

The pendulum swung again with the inauguration of Ronald Reagan, who went back to the old, pre-New Deal rhetoric that had already made Barry Goldwater, in the liberal mind, a throwback rather than a prophet of a new dispensation. Yet business took on a mantle of heroism one more time, and this was reflected in institutional changes and in popular culture and not just in politicians and their policy of allowing businessmen to be free to be businessmen. The rich were not just an escape from reality, as they were in Thirties comedies; Dallas presented them through what was taken to be an only slightly exaggerated portrait of the way the real world worked: full of conniving, greed, lust, and all the other things that ordinary folk don’t have the means to do or are too inhibited to do. I knew people in the Eighties who thought that the petty Machiavellianism of Dallas was the secret of the universe, just as I knew radicals in the Fifties and Sixties who thought that the Soviets always saw five moves ahead of the rest of the world.  It did no good for Tom Wolfe to satirize such a view of capitalism; people took the satire to be an accurate picture of those who saw themselves and were seen by others as the masters of the universe because they could squeeze giant profits out of the crumbs they accumulated from the big deals they managed.

The glamour of business was not just a cultural thing, as that was witnessed in some movies and the development of a new television genre, the business report, which showcased some new product and so entertained by exhibiting another facet of American life, whether gems or the products of the rag trade, or the new gadgetry of computers, while also providing an interviews with gurus of finance and production, and  a tip or two on the stock market that no one could take seriously for its substance but gave the viewer an opportunity to get the feel of what it was like to play at that game. There was also the large scale expansion of business schools, loosened from their moorings in economics and accounting, so that people could learn the arcane of marketing and organizational management and how to trade stocks. MBAs became the entry card into business simply because it was easier than getting a PhD in economics or in electrical engineering though at the higher levels of business people with fancy degrees created the fancy programs that analyzed how to play the stock market (rather than the economic forces that went into creating a healthy economy). Fancy mathematical models have got us into trouble before and they did again this week, investors having confidence in instruments invented so as to cover up the real value of assets.

The last week, I think, is the beginning of another swing of the pendulum. Those smart Wall Street people really don’t know what they are doing. They are not good stewards of the economy. The initial rejection of the bailout plan was based on that insight. Why should we think Secretary of the Treasury Paulson knows what plan to devise given that he had not denounced these trends towards economic disaster when they were already well in motion and recommended interventions to alleviate the disaster? And why pass a plan that lets the rich get off on the excuse that we need a clean plan to take care of the emergency? Why do the poor and the person up for foreclosure have to get at the end of the line, as usual? According to the Times, Wall Street people sighed at the shortsightedness of the Congress as they reached for their phones so that they could sell stock. That took a lot of arrogance. Who, after all, had got the economy into so much trouble anyway?

Obama will be free to create an up to date regulatory regime. The sense that government had come to the rescue has not yet sunk in, in that the legislation is not yet passed and signed and there is the residue of confidence in business. But when sentiment catches up to reality, Obama may well be freed up to use the resources of government to deal with a number of pressing issues that are not financial but which have languished for a generation or more because no one had confidence in government remedies, however successful they proved during the last Great Depression and up until Reagan became President.(Remember that Nixon, from the present conservative perspective, would be regarded as a raving liberal, in that he, among other things, put the government into the environmental protection business, and even tried his hand at wage and price controls.)

The mechanisms available to the government have not changed very much over the past hundred years; they have just remained unused for the past generation. The government is a big buyer, and so can effect the market, whether that means the price of steel, as was the threat Kennedy used to jawbone the steel industry into reducing already announced inflationary price hikes, or the price of autos, should the government now insist on buying only very fuel efficient cars. The government is a source of regulation, and so can mandate car efficiency. The government is the major taxing authority, and so it can shift wealth from one sector of the economy and the population to another, providing tax breaks to wind industries and not to biofuel industries as well as through fiddling with tax deductions for those who hold mortgages. The government is the employer of last resort, which can mean college stipends rather than college loans as well as a national service program that provides jobs to the poor, as the CCC did, as well as create incentives for young people to join the military. The government can even nationalize certain key industries, such as financial services, not because that is socialism but because the control or at least the regulation of the money supply was what Alexander Hamilton, among others, thought was essential to making a modern industrial economy work.