A paradox arises to the extent that it is true that the market is dependent on normative underpinning (to provide the pre-contractural foundations such as trust, cooperation, and honesty) which all contractural relations require: The more people accept the neoclasical paradigm as a guide for their behavior, the more the ability to sustain a market economy is undermined. This holds for all those who engage in transactions without ever-present inspectors, auditors, lawyers, and police: if they do not limit themselves to legitimate (i.e. normative) means of competition out of internlized values, the system will collapse, because the transaction costs of a fully or even highly “policed” system are prohibitive. This holds even more so for the regulators that every market requires. If those whose duty it is to set and to enforce the rules of the game are out to maximize their own profits, a-la-Public Choice, there is no hope for the system
Amitai Etzioni, The Moral Dimension: Toward a New Economics
I’ve been amazed at the complacency of Americans in the face of rape and pillage by the moneyed classes. Of course, I underestimate the impact of overwork and media brainwashing. If you are a member of the dwindling middle class, you are probably devoting all your energies to hanging on to your job and trying to be a decent partner and for those with families, parent. Any kind of sustained political action (unless you grew up with it in a serious way) is unlikely to rate as high as a tertiary concern. In our total information society, protesting has high odds of getting one’s mug in a video that could come back to haunt you. An arrest would show up in a background check. What a great way to keep the peasantry in line.
Civil disobedience went out of fashion with Thoreau, if not before then. Bourgeois sensibilities and taking to the barricades do not mix. Oh yes, we may admire Gandhi and Mandela, but they were oppressed and had little to lose in bucking the authoriites (well take that back, Mandela did give that great speech at his trial about being willing to die). In the US, with the exception of the 1960s, protests have been mainly working class affairs We have our mortgages and our social standing to consider.
But times may be a changin’. Angry investors tortured a savings-destoying money manager in Germany. Who knows what would have become of Bernie Madoff if his victims had gotten near him. And in an interesting bit of synchronicity, Leo’s post tonight is about the nouveau pauvre.
If the green shooters are proven correct, the odds of upheaval are close to nil. However, if things get worse, the US may reach a tipping point. But Americans like gore only on the big screen, and we don’t have a tradition of general strikes a more civilized way of registering serious discontent.
Marshall Auerback, at the end of a very good piece “Major Social Upheaval Likely if Bank Bonanza Continues,” suggests another angle, that of payment revolt:
By contrast, the current bonanza for banks is neither economically efficient, nor politically sustainable. What is driving the change in portfolio preference shifts is not only a misguided paradigm, but also an inability for the Obama administration to make a sensible, coherent case in what they are doing and why they are doing it. Their actions, in fact, seem to suggest that everything is ad hoc and that they are operating out of their depth, in effect continuing the same policies of the Bush/Paulson period, but on a much greater scale.
Ironically, this ultimately will also prove highly inimical to the interests of finance itself. When most of the home owning voters cannot pay their major debt or have no incentive to pay their mortgage debt, there will either be a debtors revolt that society will sanction or there will be a bailout of such a magnitude that mega moral hazard will affect private lending forever. Once these things happen, you will no longer have the social rules for private risk based lending. In other words, financial markets will be unlike anything ever seen before in private economies. Is this really what Wall Street wants, let alone American society as a whole?
Both FDR and JFK had a brain trust that could help forge public opinion. Obama has his halo, Geithner, and Summers. We’ve known from the start that was a misstep.
In the meantime, beyond automatic stabilizers, the door appears to be shutting to further active fiscal ease. I wonder if the stage is already being set for tax hikes, as rumors of a federal VAT (value added tax) have been floating around of late. Add this to rising commodity prices and interest rates, and the profile of any recovery may become increasingly in question, a la 1937-8. Add to that additional bank write-offs, further credit contraction and a minimalist welfare system which leaves nothing in the way of social cohesion, and the prospects for major social upheaval look dangerously likely. What is missing is a vision of a new growth path for the US. If a public backlash is to be marshalled to something more than retribution, that needs to come to the fore. Once you get beyond the pothole and school patching, what industries can be pushed forward through public seed capital or public private partnerships? The economist Hy Minsky pointed out a better way to solve both the liquidity and the income problem, while also providing full employment: by channeling government expenditure through an employer-of-last-resort program.
The current crisis could have been mitigated if increased household consumption had been financed through wage increases and if financial institutions had used their earnings to augment bank capital rather than employee bonuses.
The current system has failed because it was built on an incentive system that did just the opposite.
Auerback also points out earlier in the piece that the Great Depression government-created jobs were anything but makework:
As Adam Cohen in his new book, NOTHING TO FEAR ,
[WPA] workers constructed or repaired more than 125,000 buildings, including 83,000 schools; 800 aiports; 950 sewage plants; and 650,000 miles of roads. They built or improved 78,000 bridges and 25,000 playgrounds; terraced 271,000 acres of eroded land; and taught two million people to read. They also ran a famous Federal Art Project, which hired destitute artists to create murals for public buildings, posters, and paintings. The WPA produced a highly regarded series of state guidebooks and an acclaimed collection of interviews with former slaves, and it played a major role in building the San Antonio Zoo, New York City’s LaGuardia and Washington’s Reagan airports, and the presidential retreat at Camp David. In 1965, on the program’s thirtieth anniversary, The New York Times quoted a dispossessed North Carolina tenant farmer living in an abandoned gas station, who had been rescued by a WPA job. ‘I’m proud of our United States, and everyting I hear The Star Spangled Banner I feel a lump in my throat,’ he said. ‘There ain’t no other nation in the world that would have had the sense enough to think of WPA.”
One of the towns I lived in had a very large WPA-created park, and it looked as if it must have taken quite a bit of manpower. It is still the best feature of a largely blue collar town. But our Darwinist model of capitlism seems to deem it wiser to blame lack of work on individuals’ refusal to accept low enough wages, than consider that in a high-skill society with narrowly defined jobs, that labor is no longer all that fungible and people really can be unemployed through no fault of their own.
But in our current paradign, enforcing market principles takes precedence over human dignity. And it looks like that paradigm will hold until it shatters under its own contradictions.