Forcing Markets to Be Free

Via Mike Konczal, an omnibus package of essays about financial reform that have helped lift the sense of despair I felt after finishing John Lanchester’s book about the financial meltdown. Lanchester’s book is sort of a black-humor take on the financial malfeasance that brought on this recession; it won’t tell you anything new if you were following the story all along, but it has some helpful analogies to illustrate how financial derivatives products work and it expresses the right sort of eloquent outrage. Still, the book paints a stark picture of how bankers are institutionally bred to greed and contempt for those outside their sphere, which all convinced me that we will probably remain doomed to repeat the boom-bust cycles and that we’ll continue as a society to be held hostage by financial intermediaries. Lanchester quotes from Keynes’s “Economic Possibilities for Our Grandchildren” (pdf), in which he predicts the material wealth of society will increase to the point where greed will cease to be socially necessary, as invisible-hand Mandevillian types have long argued. Keynes:

Thus for the first time since his creation man will be faced with his real, his permanent problem-how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes….

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semicriminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

Lanchester’s book is basically an extended meditation on how wrong Keynes was about this. Greed is not classified as a mental illness in our world of abundance; instead it is touted as an enlightened virtue and held to be best way to demonstrate ambition. Thus we have permitted those who dare to be greedy on the grandest scale to carve themselves a seemingly permanent niche in the power structure of our society.

(Keynes also makes a point about technological unemployment in that essay, which pertains to my latest post at Generation Bubble — about the possibility that the kids graduating now may be able to look forward to have to “be themselves” as a job, which will either be utopia or the most subtle and soul-sucking form of alienation yet conceived. I also cite Black Flag’s “Damaged II.”)

The essays on financial reform are premised on the notion that the “greed is good” ideology is not synonymous with capitalism. Hence the title for the collection: Make Markets Be Markets. The basic idea is that financial reform should restore transparency and thus true competition to markets that have been corrupted by the bankers and plutocrats and the politicians they have bought and paid for. It’s a retort to the idea that “free” markets are unregulated, when in fact unregulated markets aren’t markets at all. Truly unregulated markets would represent a regression to a Hobbesean world of accumulation by the audacity of brute force. “Free” markets in practice have turned out to be selective enforcement of the rules beneficial to capitalists while dispensing with the fairness principles that may originally have given them their opportunities. And meanwhile the rest of us chumps uphold the social norms (respect for property and the sanctity of contracts) that make the charade possible. A recurring undertone in the “Make Markets Be Markets” essays is that those social norms are in jeopardy if the powers that be continue to flout them and take them for granted. I tend to see the Tea Party movement as an expression of how those norms are fraying.

From a purely theoretical viewpoint, I wonder whether financial reforms are inevitably efforts to valiant efforts to keep a ship that should be evacuated instead and allowed to sink. Less cryptically, capitalism in its ideal form still seems predicated on those character traits that Keynes singles out as semicriminal, so regulation within it will always be a losing battle, worth fighting only because (a) one believes that any other economic system will be worse or (b) one regards human suffering in the here and now more urgent than the theoretical happiness of posterity. But when I think more pragmatically, it seems obvious these reforms be fought for and enacted, even though they aim to preserve capitalism as we know it. Financial reform strikes at the heart of the ideological struggle within capitalism, trying to shift the basis for “freedom” away from the notion of untrammeled and unfettered ambition and toward the idea of respect for the social norms of mutual respect and a recognition of how precious and fragile they are.