I just listened to an EconTalk podcast interview with Richard Posner about his new book, A Failure of Capitalism: The Crisis of ‘08 and the Descent into Depression [amazon]. The book has gotten a bit of buzz for the way in which Posner semi-recants certain libertarian or Chicago-style economics positions he is known for. But certain other positions he has not recanted, such as his narrow view of economic actors’ duties to consider negative externalities of their activities (discussed at CT before here and here). In the podcast, Posner basically asserts that those actors in the financial sector who almost crashed the world economy were right to do so, in the sense that it was rational for them, individually, to be massive ‘risk polluters’ (to coin a phrase someone else has probably coined already.) He would probably go further, although he isn’t actually asked to in the podcast: some of these actors were obliged to take the risk. In at least some cases it would have been their strong, positive fiduciary duty, under the circumstances, to do something which – taking a larger view – seriously threatened to run the whole world economy off a cliff. Because that was the apparent route of profit-maximization. It was their job not to take the larger view. Posner blames regulators, not these profit-maximizing actors, for the market failure; for not seeing that the damage to everyone downwind of all that toxic risk was so great that it should not have been permitted.
As a Rawlsian, more or less, I actually sort of like the overall picture here, minus the excessive and rather perverse dogmatic-legalistic strict tidiness of the segregations of duties. It makes sense to have a market in which private actors basically look to their own interests within a system in which regulatory steps have been taken to ensure that they do not, in the aggregate, make a giant, intolerable mess of the whole world. Flawed as any regulatory system is sure to be, it’s less reasonable to expect all the individual actors to be sufficiently attentive to, hence to take individual responsibility for, the whole. We don’t need to go so far as to treat them as weirdly obliged to be totally blinkered to the whole system. But we shouldn’t make each individual responsible for solving what is, in effect, a collective action problem, and a snarly knowledge problem to boot.
But I wonder what Posner would say about the following. Take two cases.
1) there’s a severe recession.
2) there’s serious income inequality.
We’ve got both; the causes of both are broadly similar. Namely, a lot of actors individually engaged in narrowly self-interested, more or less rational economic activities. The regulations in place, such as they are, have permitted these results. But we take it for granted that trying to do something about the former is presumptively permissible. Why should there even be an issue (beyond a practical issue) about whether it’s appropriate to take steps to do something about the latter?
Some people might argue that the second isn’t necessarily bad, but I don’t think we should take that seriously. What this lot are thinking is just that 2 is a possible outcome of a lot of individually permissible activity. Since we don’t want to say those activities were wrong, we shouldn’t say the result is wrong. But even if you accept this (for the sake of argument) you should still reply as follows: no one argues that severe recession cannot be a bad thing, so long as it can be shown to be the result of a lot of activity that was permissibly engaged in. Recessions can be bad without needing to be anyone’s fault. Likewise, we ought to be willing to say, at the very least, that serious income inequality – some people are rich, others don’t have enough to eat – is a bad thing. Because people going hungry is bad thing. Whether any individual actors are to blame for the bad thing is a separate question.
And some folks might persist in quibbling, even past this point, that it’s tendentious to characterize a hunger problem – an absolute poverty problem – as though it were a relative income problem. But I don’t think so. Why do we regard a recession as a problem? Recession, too, is a relative wealth comparison. We take ‘recession’ to be the relevant category in part because the fact that we were doing significantly better just a year or so back suggests this is something we should be able to get out of. Likewise, income inequality is provoking to people, not because they are inherently resentful of the rich (not necessarily) but because it suggests to them, prima facie, that poverty in this environment ought to be get-outable-of. At least we ought to try.
Now: I think there is a tendency among liberals – hence by extension, conservatives, when engaging liberal views – to treat the case of a severe recession morally differently from that of income inequality. The latter is, presumptively, a ‘social justice’ issue. The former an unfortunate event. It isn’t unjust for the economy to go into recession. That would sound odd, because everyone takes for granted that no one wanted this result, let alone engineered it expressly. But no one wants income inequality either. Not per se. Yet we may be inclined to say the latter result is not just bad but unjust.
It would make a certain amount of sense to recalibrate our notions so that both problems look morally equivalent. When bad things happen, overall, that it is no individual’s job to fix – like recessions, or severe income inequality – then it is the job of the government to do something about it, if possible.
I think Posner would not like this result, as he would think it puts us on a slippery slope to more aggressive interventions against the entity formerly known as ‘social injustice’ – now excitingly rebranded as: big bad things – than he would think wise. That is, regulators acquire a mindset in which we assume that it is their (the government’s) job to fix anything big and bad that it’s no one else’s job to fix. But really, that is the government’s job, on Posner’s view. It isn’t anyone else’s job, by hypothesis, and – if it’s bad enough – the bad does need fixing. The only proper restriction on the government’s efforts, in this regard, are legal/Constitutional, plus a due sense of humility about the technical possibility of fixing any given ‘big bad’ thing, without making too many other things worse.
No one thinks trying to get out of a recession is, per se, wrong, just because we should let ‘the market decide’. We don’t like recessions. But then the same goes for anything else we really don’t like: like people going hungry. The effect of thinking this way would be to bleed ‘let the market decide’ of any vestige of moral, as opposed to prudential, authority. And the prudential point reduces to: don’t rock the boat too much. Don’t make regulatory interventions in complex situations that might make things worse. (Of course, if you are arguing with someone who doesn’t see any value in any market mechanisms whatsoever, then ‘let the market decide’ can amount to a substantive suggestion that, in general, markets can work pretty well. But, since liberals and progressives are not Maoists, we can ignore this as presently irrelevant – not that Glenn Beck will ignore it, oh no.)
Posner’s extreme position seems to me most useful for helping to map out a range of possible positions. We’ll start with his.
1) Individual economic actors are permitted to be (and may be obliged to be) borderline psychopathic in their solipsistic pursuit of narrow self-interest. In this case, you really need a government/regulatory system that is very actively concerned with the entity formerly known as social injustice – a.k.a. really big bad things.
2) Matthew Yglesias gets what he wants: “What’s really wanted here is for the United States to be a different kind of country with a more public-spirited business class wherein the bank executives could be persuaded to “do the right thing” in light of all the crap that taxpayers were doing on their behalf. But we live in the United States of America. Fundamentally, though, as with a lot of this stuff I think what’s being implicated is much less America’s financial crisis emergency response policies than our background conditions of social justice.”
3) We should ‘let the market decide’. That is, there is some reason to suppose the market gets things ‘morally right’, so if some people have less money, we should presume, prima facie, that this is the ‘right’ result. But then what is the justification for trying to moderate the business cycle? If we trust the market to decide what everyone deserves to have, then why not conclude that the reason why we all do less well in recessions, on average, is that we all become inherently less deserving people, on average. The business cycle has always been a bit of a mystery: maybe it’s fueled by an underlying moral cycle of inherent desert. Some years you get out of bed and you are just plain a worse person, economically, hence more likely to be unemployed for the next 18 months or so. And rightly so. (It’s a metaphysical thing. You wouldn’t understand.)
I could take 3 a bit more seriously, but I’m not really going to bother. The idea that you can’t make at least some judgments about what overall social-economic situations are desirable or undesirable, is pretty silly. Obviously there can be cases in which people really seriously do dispute whether a given arrangement is desirable or undesirable, in some global sense. But there are enough clear cases that we can stick with those, and grant upfront that the government has a lot less business – quite possibly none – intervening when it isn’t clear to everyone that we should want to get rid of state of affair x, if just waving a fairy wand were all it would take. (No one likes recessions or hungry poor people. We all agree that waving a fairy wand to eliminate those problems, if we could, would be an appropriate policy.) Once you grant this much, the rest is just arguing practical policy limits, pending the invention of functional fairy wands.
What I think is notable here is that liberals/progressives are more or less ok with 1 or 2, if they are spelled out in some satisfactory way. Whereas conservatives are really only happy with 3, philosophically. Very few of them will regard either 1 or 2 as philosophically tolerable, spell them out how you like. But this doesn’t seem to me like a good situation to be in.
I expect that one major line of resistance to all this would be: seriously, dude, you are underestimating the practical limits on government. You change one thing here and 12 things go wrong over there. Part of the problem with this is it assumes liberals and progressives are all Jacobin lunatics. Part of the problem is that it is actually an argument for 2 being a better option than 1. But mostly the problem is that it implicitly concedes that either 1 or 2 could still be philosophically correct.
I hammered all that out pretty quick. I’ll bet people won’t like it. I could write a post about fonts, if you want.