As the anniversary of Lehman Bros' collapse approaches, it seems fitting to take a moment to reflect upon political theatre of the past year. While the facts are surely important, for a moment I would like to focus simply on the arguments en vogue. Consider the number of hypotheses have arisen in the past year regarding the causes of the financial crisis. This crisis’ Friedman and Schwartz will have to wait, but in the meantime, political operatives have wasted no time finding scapegoats. Interestingly, they find themselves among unfamiliar philosophical bedfellows.
Those on the political left have generally sought to explain the crisis as proof positive that deregulation is not so magical after all, and that the crisis is precisely what we should expect when we leave greedy bankers to their own devices. What’s more, the crisis could not have come at a better time politically. On the cusp of an election which pitted a cerebral former law professor against a battle-tested top gun, few events could have played into Democratic strategists’ hands more effectively.
Those on the political right have tripped over themselves to find any possible way to pin the panic on Big Government: misguided central banking under Greenspan, meddling in the housing market via Fannie, Freddie and the Community Reinvestment Act, government generated oligopoly in the credit ratings industry, etc. Whatever it takes to ensure that the crisis is not painted as a “market failure.”
So what? Old news, you say? The interesting story which has yet to be highlighted is the unfamiliar philosophical territory in which each party finds itself. Sure, conservatives and libertarians almost always see government as a problem. Yet, progressives are usually the ones arguing that we are a product not of our choices, but of broader social forces over which we have little control. Conservatives and libertarians, on the contrary, suggest that we make our own fortunes, and our miseries, too.
The crisis, in concert with the realpolitik of the day, has resulted in an ideological flop which has landed both sides advocating what can only be described as atypical philosophical positions. Let me begin with the Republicans. Whither the party of individual responsibility? Burke, Tocqueville, Hamilton and Hayek would scarcely recognize this GOP. Surely, government should bear their share of the blame. But how is it that a party can simultaneously on the one hand tell recently displaced workers that they are on their own, and on the other defend narcissistically unapologetic bankers whose risk “management” nearly brought the global economy to its knees? Give me a break…
Most unfortunate is that those on the Right have been so shaken by recent events that they have taken to responding to responding to straw-man arguments – a clear sign of trouble. It’s perplexing to be sure: the trouble is not necessarily in the data – as Jeffrey Friedman has so articulately advocated in his essay, “A Crisis of Politics, Not Economics,” bureaucratic fingerprints are all over this thing. The bigger weakness is in conservatives understanding of what they actually believe. Ideology has taken the place of philosophy, and those who question the party line are shouted down and excommunicated.
For some reason those on the Right act as if capitalism itself is under attack. Unlike the 1930s, radical calls for revolution have been quarantined to the fringes of the far left. While he has taken some calculated shots at his ideological adversaries, President Obama has been one of the few moderates in discussing the crisis. There has been some talk of corporate greed, but his explanations have centered on substantive criticisms of hubristic masters of the universe – (outsourcing due diligence, excessive use of leverage, etc), and the corporatist Administration that preceded him (Negative Real Interest Rates, Medicaid Part D, Halliburton, etc); explanations which should assuage any follower of Nobel laureates Buchanan, Friedman and Hayek.
Democrats, particularly those in Congress, deserve their share of criticism as well. A brief cross-reference of Democratic members of congressional committees dealing in finance with a google search for corruption, should turn up plenty of material. There was Barney Frank’s desire back in 2003 to roll the proverbial dice with taxpayer funds on subsidizing housing after a number of Cassandra’s in the financial press had already noted the frothy bubbling of the housing market. The next year, Chris Dodd dubbed Fannie Mae and Freddie Mac as “one of the great success stories of all time.” More importantly for arguments’ sake, in spite of their belief in government’s ability and responsibility to correct the excesses of the market, few Congressional Democrats have been willing to be held accountable for their abject failure to do anything of the sort.
While few have had the courage to say it, capitalists should welcome President Obama. Sure – his fetish for Keynesian deficit spending is a bit outdated, and his belief in government to solve our greatest challenges is a bit optimistic, but history suggests that crises often produce far worse. For all of his faults, he has appointed fairly centrist economic advisors who command the respect of their fiercest critics. The problem is not Obama himself, but the same lack of checks and balances which derailed the Bush Administration’s best intentions for fiscal responsibility. In fact, most of Obama’s unpopularity can be directly tied to his deferring too much to those very Congressional Democrats – e.g. health care and cap and trade.
One can only hope that they will get much deserved pink slips come midterm elections. My fingers are crossed, but I’m not holding my breath….
