by Henry Farrell on August 3, 2012
Justin Fox has a “piece”:http://blogs.hbr.org/fox/2012/08/the-wall-street-book-everyone.html on Doug Henwood’s wonderful book, _Wall Street_
bq. These days, it’s not hard to find people who question the role that financial markets play in our economy, who argue that shareholder value is a flawed metric of corporate success, who say that linking pay to financial markets is a big mistake. In 1997, though, such arguments were pretty close to unheard of. Which is what makes Doug Henwood’s book _Wall Street,_ published that year, such an amazing document. Along with explaining in clear if caustic terms how financial markets work, the book prefigures almost every criticism of the financial system that’s been levied since the crisis of 2008. An overleveraged housing market? Check. A link between financial sector growth and income inequality? Check. A natural tendency toward instability in financial markets? Check. … There’s a saying in investing that “being early is the same as being wrong.” It’s not _quite_ like that in intellectual endeavors, but Henwood clearly hasn’t gotten his due. That’s partly because he was early, partly because he operates in an ill-defined border zone between journalism and academia, partly because, well, he’s a crotchety leftist. But he was describing a lot of important problems with the workings of our capitalist system at a time when practically everyone else was proclaiming the brilliance of the shareholder-dominated Wall Street way. We should have been listening to him then, and we should be rereading him (or reading him for the first time) now.
The “book is available for free download here”:http://wallstreetthebook.com/ (with a suggested donation to the author, who got a relative pittance for writing it; left-leaning publishers sometimes treat their authors like shit). It’s every bit as good as Fox says it is and better – there’s a very strong argument that it’s the best leftwing book on actually-existing-capitalism that’s been written in the last couple of decades. It _is_ a little out of date – a lot has changed in the intervening years. I would love to see an extensively updated second edition, both for purely selfish reasons, and because I think that it could play an important intellectual and political role (most people on the left don’t understand how finance markets actually work). From various conversations, I’m sure that I’m not the only person who thinks this. The obvious way to get such an edition going – if Doug were interested in writing it – would be a Kickstarter or similar. But it might help encourage Doug to do this if there were some evidence of public interest beforehand (again: if he wants to do this – I have not consulted him before writing this). Hence this post – if you would be prepared to kick in to see this book written then say so in comments, or elsewhere as you like. I’m in for a commitment of $100 or over myself (nb that this is _not_ a suggested donation – more a credible commitment and a signal that I personally really, really would love to see this book come into being).
by Chris Bertram on August 3, 2012
Hi there liberal rule-of-law fetishists!
Now that I’ve got your attention, I’d like to mention something that’s been bothering me. This idea that we all order our affairs under a system of predictable rules sounds very nice, but I do wonder whether it’s compatible with some of the other things that you seem to be signed up for. Some of you, I know, are worried about this so-called 1 per cent, and even about the 1 per cent of the 1 per cent: the people who own lots of stuff. Not only do they own lots of stuff, but they own the kind of stuff that is useful if you want to own even more stuff. That’s how it goes. And, of course, they also have the means to bring about a favourable “regulatory environment”, so that they get to hold onto that stuff.
Now I suppose you want to do something about that? Yes? One option would be to let them hang onto all their existing assets – after all, they got them justly (or at least non-criminally) according to the rules of the system they themselves helped to formulate – but to introduce a new system of rules (call it a “basic structure” if you like) that works to the greatest benefit of the least advantaged. Assume you have the knowledge to design it with the distributive effects you want (big assumption that!). Let that system grind away for long enough – a few generations perhaps – and you’ll have shifted things a little bit in the right direction. (Assuming, that is, that the 1 per cent don’t use their residual wealth and influence to throw you off-track as soon as you hit the first bump.)
I think you can see where I’m going by now. If you really want a shift in the distribution of wealth and income, if you really really want it, then realistically you’re going to have to use state power to do a bit of _ex post_ redistribution. You’re going to have to take stuff from some people and give it to others. Doesn’t necessarily have to be that total Marxian expropriation of the expropriators: a comprehensive programme of debt cancellation would fit the bill. Life is about making choices: and you’re going to have to choose. Is it outrageous to dispossess someone of the wealth they acquired under the rules of the game; or are you going to say that substantive fairness sometimes matters more?
Now I know there are some wrinkles there. What about predictability? What about incentives? Sure. (Of course the predictability of stable property rules is a bit overstated: all those people who got their houses repossessed when the economy went bad didn’t see that coming!) You might have to duck and weave. You might have to convince property owners that you’ll only go so far and no further. But don’t kid yourselves that you can do the redistribution you want and treat the rule of law as absolute. If robbing the rich appals you, become a libertarian instead.
(UPDATE: Well I’ve clearly managed to confuse a bunch of people with this post. Probably a consequence of trying to make a serious point in a knockabout style. I had in mind not any old garden-variety idea of the rule of law but something a bit more specific, namely that society ought to be run according to predictable rules that provide individuals with certainty that their efforts won’t be nullified by state action, a view associated with Hayek but endorsed by Rawlsians. So _mea culpa_ for that.)