I was going to do this as a comment to Jessica’s post on Frank Pasquale’s post on the rot in America’s financial system, but it got a bit long, so I decided to make it a post.
There is much to be said in response to the Pasquale post (which I agree is provocative), but I want to focus on one part that Jessica highlights:
Can anyone doubt that our economy is exposed (with each passing day) as more Sicilian in its “winners’” casual acceptance of fraud, more Russian in its oligarchic tendencies, more Brazilian in its inequality?
Well, I think I can.
It is a natural human tendency to overemphasize whatever happened yesterday. But let’s take the financial meltdown as somehow emblematic of “our economy.” Over the past few months, I yet to read a convincing argument (as opposed to an assertions) that the problem was a result of fraud (although there certainly was some, as there will always be) or deregualtion.
One can always imagine regulation along the lines of “don’t do that again,” which will seem wise in hindsight. The one bit of proposed regulation that might have helped (reining in Freddy and Fannie) was opposed by the Democrats, who, in the words of Barney Frank, did not want “to raise safety and soundness as a kind of general type of shibboleth.” Another type – tightening lending standards – would have been dead on arrival.
Pasquale wants to say that a market economy does not recognize the ways in which wealth is commonly created. That’s not true. Markets (which are always a product of some form of regulation – they require rules) permit interaction for the creation of wealth by voluntary exchanges between participants.
The results may not always be what we would like them to be, and they are influenced by the existing distribution of wealth and talent. But, in the American context, no one really suggests that market forces should determine everything. Even over the last thirty years, government’s share of GDP has continued to rise, albeit only slightly.
Inequality is, I think, a problem, but lack of wealth can be a larger one. Pasquale quotes Patrick S. O’Donnell’s recitation of a a number of tenets of Catholic social teaching in response to a post of mine over at Prawfsblawg.
I disagree with none of them, although I think Patrick’s restatement of the idea of subsidiarity is incomplete; it is not simply about which level of government should do some thing.
But to accept these aspirations is not to accept any particular way of accomplishing them. Nor does it imply any particular tradeoff between conflicting goals. To move substantially in the direction of a more statist society (at least as concerns the economy) would, I think, be a mistake that would disserve these principles.
Cross posted (with modifications) at PrawfsBlawg.