Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it. BP continues to obliterate the Gulf of BP (as far as I'm concerned, they broke it, they now own all of it), the party of personal accountability and small government somehow thinks the buck for this private sector fiasco stops at President Obama, and as far as I can tell President Obama seems to have drunk this convenient kool-aid, too, with a little nudging from the furies on both sides of the MSM. (I know, I know, it was the guvmint regulators' fault, so it was Obama's fault AND we should stop trying to regulate anything. Convenient, that.) Meanwhile, our lawmakers in Washington appear to be beating a hasty retreat from anything that would pass as fair and just for the unemployed, who have lost not just jobs and income, but have lost their COBRA subsidies for health insurance. According to an analysis by the National Conference of State Legislatures 50 states are facing an almost $90 billion budget gap as the close of the fiscal year approaches, which could lead to a further 900,000 jobs loss. At the same time, the AMA is claiming that cuts in Medicare payments are putting Medicare beneficiaries at risk because docs will scale back the number of elderly patients they treat. (I have an idea. Let's create a whole new primary care health sector run by nurse practitioners. Not only are they cheaper, they're probably as good if not better at managing chronic disease and delivering primary and acute care.) Cash-strapped state governments are putting pressure on Washington to help them pay their Medicaid bills. (See my last parenthetical remark.) And last, but certainly never least from BusinessWeek via NakedCapitalism:
Goldman Sachs sent more than a billion pages of documents, FCIC Vice Chairman Bill Thomas said on a conference call with reporters today. Not all of the information is what the panel requested, and Goldman Sachs didn’t cooperate with requests to interview Chief Executive Officer Lloyd Blankfein, Chief Operating Officer Gary Cohn and Chief Financial Officer David Viniar, FCIC Chairman Phil Angelides said.
“We did not ask them to pull up a dump truck to our offices and dump a bunch of rubbish,” said Angelides, 56, who previously served as California’s treasurer. “This has been a very deliberate effort over time to run out the clock.”
This is easy to understand. "A billion" probably seems like a very small number to Goldman. And, of course, there may yet again be no downside on anything for Goldman. Elizabeth Warren, Chair of the Congressional Oversight Panel, which is monitoring the Wall Street bailout reports that
“…[T]hey’re going to get one line changed, and they’re going to get one little provision dropped, and they’re going to get one more piece compromised out,” Warren said in an interview Monday night with “On Point” host Tom Ashbrook, as part of a WBUR event. “And at the end of the day, we can all congratulate ourselves that we got something that has the right title and has no real impact.”
Sometimes it's just too much to take in and process and I'm left feeling a tad out of sorts.
So this week I did what has become my usual strategy when the 21st century overwhelms me: I retreat to the 18th century.
I don't really want to go back to the 18th century. For one thing, as far as I can tell there were no girl economists and certainly no blogs then. Also, I like to vote and own property and I especially like it that I am not property, my husband's or my father's. And I suspect they're both glad about that, too.
What I want to retrieve from the 18th century are men (and there must have been some women) like Adam Smith. I want to retrieve not just his ideas. I want to retrieve his way of thinking, his world view (except anchoring everything to feudalism as the standard for comparison, although maybe in time that will become relevant again), and most of all I want to retrieve his way of expressing himself. He is eloquent, clear if not always concise, thoughtful, and seems motivated in most things by a kind and generous heart. He seems the perfect balance justice, prudence, and beneficence as he examines both our evolution as moral beings and the evolution of the wealth of nations.
His way of thinking encompassed history, other nations, the well-being of nations, the well-being of individuals, particularly those less advantaged, the problems that arise when economic interests influence governance, and the forces seen and unseen that cohere society into something we all might like to live in. He was not an entirely impartial spectator from his window on the 18th century. He seems to have cared about people at the bottom of the economic and educational pyramid and he most certainly cared about the effects on the general welfare of backroom deals between business interests and between business and political interests. His impartiality was in his willingness to step back and outside of his place in space and time. To consider the world from what he imagined to be the perspective of others, those more advantaged and those less advantaged, those from other countries, and those with whom he probably had very little in common.
I especially envy his world view. He seems convinced that there is a natural order and that natural order will eventually move us as a species (with some detours and dead ends) over time to a better world. I have often wondered if his beliefs in a natural order that inevitably moves us to a better place accounts for his apparent beneficence.
And I wonder what he would make of our current situation? Would he still be using feudalism as his point of comparison? I doubt it. I think he would almost certainly conclude that at least in developed countries, we are all much better off materially and in terms of education, skills, transportation, health, disease control, and sanitation and that most of us enjoy far better work environments than 18th century laborers. He would probably also think that despite BP, we are better off environmentally. (If you doubt it, imagine wading through horse, cow and sheep droppings every time you left your front door. Imagine cesspools that leech into municipal water supplies.) But I wonder if he wouldn't be troubled by many of the same things that troubled him in the 18th century: backroom deals between business interests and between business and political interests that harm the public.
The thing I think I like most about Smith is that he did not live in a world of randomized controlled trials, existence proofs, and simplified models. Smith was interested in causes, not associations, so would most likely have been happy to rely on results from a randomized experiment. However, in Smith's world, X seldom "caused" Y, unless X was a highly complex vector of intended and unintended effects of some political and/or economic action or actions that played out over history and led eventually to Y. He pays attention to sorting out those unintended effects. When he finds they lead to positive things for a country, like courts that are independent of monarchs or rationally self-interested owners of capital who employ that capital within their own country rather than other countries, he finds this evidence of the natural order wending to a better place for all of us.
I believe another dimension of our current situation that would trouble Smith is the potential regress of our ethics. My reading of Smith suggests that he conceptualized the moral evolution of humans, both in a single lifetime and over time in a society, as a complex feedback relationship between individual moral sentiments and the moral norms and institutions of a society. Initially moral sentiments that shape moral behavior are ingrained in children by parents and other significant adults. Over time, as the child matures, there are positive (!) peer effects that shape the child to care about what others think of him or her. The peer effects cause a child to develop feelings for others that in turn cause the child to want their approval and they the child's. Smith imagined though that over time a mature ethical being would develop a moral center that no longer depended on the approval or admiration of others. Instead, an inner man (or woman) would become the arbiter of moral intent and action. That inner arbiter would be impartial, able to observe and evaluate intent and action, not only from the self-interested perspective of oneself, which we now know to be fraught with the potential for cognitive dissonance, but from the perspective of all persons, the larger society, and even (gasp!) future generations. At this point, a person has stopped merely conforming to societal norms and has become an autonomously moral being.
Autonomously moral beings seem like a good thing. In an ideal world they internalize externalities, they reduce transactions costs, they would almost certainly reduce the size of the legal system. An autonomously moral person would not ask "Is it legal?" She would ask, "Is it right?" and, having answered in the negative, would refrain from, say, offering pick-your-payment ARM mortgages to people who have no hope of repaying the loan.
Smith viewed society as progressing to greater "opulence" and more virtue. However, he recognized that moral sentiments are shaped by a society's practices. Someone who grows up in a society where, say, slavery is viewed as morally right, is likely to internalize that view and may never come to question it. This is one reason why an inner impartial observer that can put itself in the place of the slave might result in that person realizing that slavery is wrong regardless of the prevailing norms. To the extent that individuals are able to do this, they will over time shape norms and institutions, which in turn will cause moral sentiments to progress.
It is when I come to this part of Smith that the 18th century no longer brings comfort to me. I find myself asking: how are the recent failures of large corporations, recently granted by law the right of a citizen to participate in and shape political discourse, sentiment, and outcomes, but apparently exempt from a citizen's obligation to refrain from harming others (even in the absence of alert regulators) shaping norms and institutions in the 21st century? How does failure to hold investment bankers and rating agencies accountable affect the hard-wired sense of fairness and the moral sentiment of resentment that many of us feel? If BP is not held accountable, how will that trickle down and shape the moral sentiments of the citizenry? Will our inner impartial moral arbiter waiver as we confront decisions about how we should act toward our neighbor, our community, and our nation?
Adam Smith believed humanity (or at least England) was progressing in wealth and in ethics. To date, we have all tended to focus on the financial aspects of these crises in corporate judgment and management. I'm pretty sure Adam Smith would also have noticed that the potential for moral hazard extends far beyond the relatively unscathed main players. There will almost certainly be a moral trickle down that corrupts production and exchange at all levels of our society. An advanced, technologically complex nation that cannot or will not achieve the basics of accountability and restitution (aka justice) with financial and corporate entities that have harmed its citizenry deeply and lastingly is (I very much fear) evidence of the beginnings of a failed state. That the failure will be economic and moral, as well as political, is probably no coincidence.