Tuesday, April 10, 2012

The First M: Mistakes



I can remember a number of recent family dinner table conversations in which one relative or another denounced leaders in both government and business as variously inept, incompetent, or corrupt. A favorite target of my clan of first and second generation immigrant strivers has been the Community Reinvestment Act (CRA), the 1977 law that sought to end practices like redlining and compel banks to expand lending and investment in poor and working class neighborhoods, particularly those with large populations of people of color.

For them, the CRA was yet another mistake made by the "liberal elite," a giveaway to the undeserving (read: African-American or Latino) poor that loaded up the banks' balance sheets with unpayable debts and caused the financial crisis of 2008. Never mind the fact that this narrative is demonstrably false. The need to identify and condemn those perceieved to be responsible for wrecking the supposedly self-regulating market is deeply ingrained in American political culture, and tends to make itself felt in times of economic and social crisis.

It's an integral aspect of what the eminent historian Gordon S. Wood called the "Whig science of politics" in his classic book The Creation of the American Republic. The American revolutionaries were Whigs, and their impulse to establish a scientific foundation for politics compelled them to look for a “grand plan” behind the seemingly incomprehensible events of their time. Paradoxically, it was this very scientific, rationalistic impulse to establish causality in political affairs that inspired Whigs to see a conspiracy against American liberty behind every action of the British crown, even where none existed. This insight also lies at the heart of Richard Hofstadter's seminal work on The Paranoid Style in American Politics.

But perhaps the logic of large, complex, social systems like capitalism makes it impossible to locate the causes of crisis in the mistakes made by specific individuals or institutions. Perhaps human error isn't the only threat to the smooth operation of self-regulating markets. Perhaps recurrent crises are a normal, natural, unavoidable aspect of the system itself. Perhaps they are, so to speak, nobody's fault.

That's part of the argument that James Livingston makes in Chapter Two of Against Thrift, and that's the essence of the case that he makes against the first of the "Four Ms" typically employed to explain the origins of the current economic crisis.

According to Livingston, the crisis can't be blamed on, say, Alan Greenspan keeping interest rates too low during his tenure as Federal Reserve chief, or the short-term greed of bankers and hedge-fund managers, or the academic economists who dreamt up theories soothing theories like the efficient market hypothesis. Livingston doesn't deny that there was lots of incompetence, greed, and chicanery going on in the chambers of public and private power in the years leading up to the crash. But he doesn't think that these mistakes were significant enough to bring the global economy to the brink of collapse. He also thinks that it's kind of beside the point to berate decision-makers for doing little more than playing the roles they're supposed to according to the logic of whatever institution they are part of - whether that's University of Chicago academics coming up with pro-market theories or business executives pursuing short-term profits at the expense of longer-term economic stability.

Bear with me - we will eventually get to what Livingston identifies as the ultimate source of the Great Recession in particular and of economic crisis generally. But first, we need to follow him as he rejects possible alternatives to his point of view, one by one. Tomorrow, we'll tackle Livington's second M: Monopoly.

Until then, I'll leave you with the music video for the song "My Mistakes" by Eleanor Friedberger, up at the top of the post. It has nothing really to do with our discussion here. All this talk about mistakes just reminded me of that great song!

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