Simon Johnson tells a simple and compelling story: the U.S. has been afflicted by a version of the crony capitalism that has been the scourge of so many emerging markets, except that Wall Street has bought its influence and power not by bribery but by shaping the ideology of our times
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As with any story built around clear villains easy solutions, there is something in this account that is quite unsatisfying. For one thing, I think it puts the blame too narrowly on the bankers. Yes, there can be little doubt that banks badly misjudged the risks they were taking on. But they were aided in all this by the broader economics and policymaking community--not because the latter thought the policies in question were good for bankers, but because they thought these would be good for the economy. Simon himself says as much. So why pick on the bankers? Surely the blame must be spread much more widely.
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Simon's account is based on a very simple, and I believe misguided, theory of politics and economics. It is an odd marriage of populist and technocratic visions. Countries fail because political elites always end up in bed with economic elites. The solution, apparently, is to let the technocrats (read the IMF) run your affairs.
I was a bit miffed. First, umm ... our country did in fact fail largely because the political elites ended up in bed with the economic elites. There's blame to go around beyond that, and it's certainly not enough to just stop there, without asking why the political system collapsed into the economic system, but there's really no need to spend much time attacking this explanation as incorrect -- it was the proximate cause of the problem. So Johnson may have oversimplified his diagnosis for the magazine, but I don't see how you can say he was wrong, or even misleading, and I further don't see how Rodrik waving his hands and saying "it's more complicated" helps us think about the problem anymore clearly. Yeah, sure, in some sense we are all always at fault for everything. This is not, however, a very useful observation from a policy perspective. There is always a mechanism by which we are all at fault, a mechanism by which "the broader economic and policymaking community" is also to blame. And this mechanism is the only thing that matters. Ever. Morality is an execrable cover up we use when we don't know why someone did something. It merely serves to obscure the functioning of the machine. But of course, it's not that hard to ask yourself what mechanism was involved in the broader failure that Rodrik seems so concerned we acknowledge, and, drum-roll please, it was the political elites being in bed with the economic elites. So, yeah, it's more complicated, it's more abstract, it's about the centralization of power and the remarkable ability of suit wearing monkeys to line up and goosestep towards a brave no paradise of home equity withdrawals ... but it's mostly about the resonance of the political elites being in bed with economic elites.
Second, the flippant charge that Johnson just wants us to put him and the other technocrats in charge makes sense (and I just leveled essentially the same charge at Galbraith) but I don't think it actually reflects what Johnson said in the Atlantic. Johnson made a diagnosis, and prescribed a general treatment, which does, it is true, involve the government stepping in. I would hardly say that this involves the economy being run by technocrats. Nor would I say that this is Johnson's overall perspective in general; having read his blog a bit for the last few months, I would say that he is as aware as anyone I've encountered that every proposed government solution provides the opportunity for another lever of power that can subsequently (or contemporaneously, as his tunnelling and looting work makes clear) be abused. Johnson, in short, seems to believe in real free markets, which would of course be the kiss of death for both the political and economic elite, as well as their demonic union.
In preparation for expressing my miffedness in accordance with my characteristic verbal opulence -- ie. before I posted a comment -- I actually read some of the comments and Rodrik's response to a previous critique related to my own (sadly lacking the aforesaid opulence, but cleverly sycophantic in tone, a skill unpracticed by your humble blogger)
The conundrum in which the practitioners of "modern political economy" find themselves is the following: either you say that policy is determined by the interests of the politically powerful (here, banks), in which case you are left with no way out (banks will remain powerful and veto any meaningful reform). Or, you accept some autonomous role for the intellectuals and policy makers to make a difference, in which case, you can hardly attribute all the blame for the mess on the special interests.
Failure to account for the fact that both forces are at play simultaneously results in the kind of attitudes I was objecting to: holier-than-thou moralism about the insidious effect of the banks (as if economists weren't equally complicit); preference for technocratic solutions (as if the IMF wasn't equally under the influence of Wall Street and the U.S. Treasury); and over-confidence on the technocratic policy recommendations of the moment (as if we had not been equally confident on the previous set of policies that brought us here).
This, I think, is a valid point. It's almost a rephrasing of what I was saying above though. You never understand these cases of corruption if you stick with an "us versus them" attitude and lament the exploitation of the poor masses by the elites. The elites always need a mechanism to enforce this corruption, and the populace always has to go along with it. Once you realize that people have always had to cooperate in their own exploitation, the conundrum Rodrik sees here dissolves. Of course the intellectuals and policy makers have an autonomous impact and of course all the blame (in some deeper sense) cannot lie with special interests. How could it? How could Bush involve us in Iraq or Guantanamo without our cooperation as a nation, without some mechanism for pushing forward with what many of us loudly proclaimed was a clearly dangerous and corrupt war. How could Hitler have marched the Germans off to their grand orgy of collective suicidal homicide without a mechanism for centralizing power? You can't say that the elites were responsible, you can't claim that the population was simply deceived, and you can't claim that they were any more foolish or more evil than any other group of people. No, I think we all get the government we deserve, and we all deserve the government we let accrete around us.
However, just because blame is a diffuse and complex concept doesn't mean that there isn't a precise and useful way to state what the cause of the problem was. And Johnson pinpointed what the cause of the problem is, in some important proximate sense that leads to specific recommendations for action. And so this then bring me finally back to my original epiphany. What bothered me was the original use of the phrase "morality tale".
Because I agree with Rodrik that morality tales are useless. Economists have regularly, and often correctly in my opinion, critiqued those demanding blood from the bankers, the return to old time values, and the liquidation of stocks, labor, etc ... as moralistic solutions to what is fundamentally a technical problem. The preeminent question is not one of fairness in the short term, but of minimizing the suffering that comes with a depression. Retribution be damned, if the only way to keep people in China from starving is to give Ken Lewis gold plated teeth, then by all means, let's get smelting. The question is never ever ever one of morality. It's always a question of mechanism.
Clearly, the concept of morality is part of monkey mechanism in all kinds of ways. Accordingly, many who have been accused of spinning a morality tale -- like the Austrian economist and their hangover theories, or Buiter's dogged hammering on the question of moral hazard -- have been falsely accused. Monkey mechanism can often involve "immoral" free-riding behavior that looks only at the short term, and sabotages our mechanisms of cooperation in the long term (this latter is maybe even the proper definition of immoral). Conversely, monkey mechanism for getting through a crisis in the short term can involve a rhetorical appeal to monkey morality that dresses up a technical fix in morally acceptable terms. So it's not that morality is irrelevant, but just that invoking it almost always serves to obscure the actually operating machines. Getting at the mechanism is the only thing that counts.
Anyhow, my deep seated belief that morality tales are useless, coupled with my agreement that the proximate cause of the crisis were corrupt political and economic elites, caused a short-circuit when I read the first line of the Rodrik thing. I have tracked down the frisson now, and aren't you glad you could participate?
Incidentally, I simply don't agree at all the Johnson proposed a morality tale on this definition. He isolated a mechanism, and even proposed a mechanistic solution to the problem -- in fact, the very one I myself generally favor.
DECENTRALIZATION. Nothing in today's world is as dangerously centralized as the US government's credit system. These guys make the pharaohs look like anarchists.
However, just because blame is a diffuse and complex concept doesn't mean that there isn't a precise and useful way to state what the cause of the problem was. And Johnson pinpointed what the cause of the problem is, in some important proximate sense that leads to specific recommendations for action. And so this then bring me finally back to my original epiphany. What bothered me was the original use of the phrase "morality tale".
Because I agree with Rodrik that morality tales are useless. Economists have regularly, and often correctly in my opinion, critiqued those demanding blood from the bankers, the return to old time values, and the liquidation of stocks, labor, etc ... as moralistic solutions to what is fundamentally a technical problem. The preeminent question is not one of fairness in the short term, but of minimizing the suffering that comes with a depression. Retribution be damned, if the only way to keep people in China from starving is to give Ken Lewis gold plated teeth, then by all means, let's get smelting. The question is never ever ever one of morality. It's always a question of mechanism.
Clearly, the concept of morality is part of monkey mechanism in all kinds of ways. Accordingly, many who have been accused of spinning a morality tale -- like the Austrian economist and their hangover theories, or Buiter's dogged hammering on the question of moral hazard -- have been falsely accused. Monkey mechanism can often involve "immoral" free-riding behavior that looks only at the short term, and sabotages our mechanisms of cooperation in the long term (this latter is maybe even the proper definition of immoral). Conversely, monkey mechanism for getting through a crisis in the short term can involve a rhetorical appeal to monkey morality that dresses up a technical fix in morally acceptable terms. So it's not that morality is irrelevant, but just that invoking it almost always serves to obscure the actually operating machines. Getting at the mechanism is the only thing that counts.
Anyhow, my deep seated belief that morality tales are useless, coupled with my agreement that the proximate cause of the crisis were corrupt political and economic elites, caused a short-circuit when I read the first line of the Rodrik thing. I have tracked down the frisson now, and aren't you glad you could participate?
Incidentally, I simply don't agree at all the Johnson proposed a morality tale on this definition. He isolated a mechanism, and even proposed a mechanistic solution to the problem -- in fact, the very one I myself generally favor.
DECENTRALIZATION. Nothing in today's world is as dangerously centralized as the US government's credit system. These guys make the pharaohs look like anarchists.
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