Wally & Volstead
February 9, 2013Posted by on
I thought that the first two of the following strip were quite funny, although I had never come across a ‘free beer Friday’. While being aware of the television series Boardwalk Empire I did not understand the ‘Volstead’ connection. Apparently it refers to The National Prohibition Act of 1919 (commonly called the Volstead Act) this was the legislation that lead to the Eighteenth Amendment to the U.S. Constitution, establishing National Prohibition of alcoholic beverages.
The Eighteenth Amendment stated simply that “the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited”
Hardly the first time, and will most certainly not be the last time, that a governing administration has enacted laws that are entirely counter-productive. Laws that fail in their intended purpose, engendering instead an increase in illicit practices. Volstead effectively encouraged and enriched gangsters and corrupt politicians. Nearly a century later public cynicism regarding the political class may have actually regressed from that which prevailed during the Volstead era. Today, the toast made to “those beautiful ignorant bastards” at the celebratory dinner (shown in the video clip from the Boardwalk Empire) would seem quite apropos. The corruption of politicians is assumed and their role taken as being synonymous with that of gangsters.
This in a democracy; where in this case, the ‘Volstead effect’ makes Boardwalk Empire an allegory for the encouragement and enrichment of a banking gangster class. Bankers who created illicit debt with the complicity of ignorant politicians. The 2001 Financial Services and Markets Act confirmed the Faustian pact between politicians and bankers, while the Financial Services Authority, at the governments behest, laid down the terms of trade for London’s banks and hedge funds. The FSA was:
- “Not to discourage the launch of new financial products”.
- “To avoid erecting regulatory barriers”.
- “To consider the international mobility of the financial business”.
- “To avoid damaging the UK‘s competitiveness”.
The Chancellor of the Exchequer, at the time Gordon Brown, gushed to a meeting of City bankers.
“What you have achieved for the financial services sector, we, as a country, now aspires to achieve for the whole British economy”.
The banks peddled bootleg debt to willing personal consumers who binged on easy access to debt, until personal debt in 2007 was greater than the value of everything made by every office and factory in the country. Personal indebtedness now made up some 20% of the total private sector debt. Meanwhile the banks, themselves intoxicated by the ease of marketing their financial brew, indulged in a Bacchanalian orgy of fiscal imprudence.
In their sponsoring of this debt, the banks achieved what the alchemists had failed to do. In fact they surpassed it. Rather than the transmutation of base metal into gold, the banks created their wealth from nothing. However, it was wealth without substance, a wealth which, for the most part, only existed in the financial records held by the banks. A wealth based on the indebtedness of an ever increasing pool of debtors unable to support their debt. Yet the government didn’t destroy the illicit stills, in the form of banks that created and sold the debt. It didn’t destroy the banks’ barrels of wealth, which were found to be empty. Instead the government bought the banks and guaranteed their notional wealth, financing their continuance with public debt.
So the celebratory toast of the Boardwalk Empire continues unabated. The politicians and bankers now sit at the same table, gangsters all, gluttonously self indulgent still toasting “those beautiful ignorant bastards’, whom together they have now transmuted into the taxpayer.
The Volstead effect is really The law of unintended consequences. Often cited but rarely defined.
‘The law of unintended consequences‘, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.