A Crisis of Confidence, and Much More
Four inaugurals ago, I attended the swearing-in ceremony of William Jefferson Clinton and Albert Gore. My sense, shared by many others, was that we were witness to the end of 24 bleak years in American political history, from Nixon through Carter, Reagan and George H.W. Bush. The next day, I wrote, “Rarely have such high hopes attended the inauguration of a new president, yet rarely has a new president faced such daunting conditions. Never, in my lifetime, has there been as startling a juxtaposition of hope and apprehension: If these manifestly able men, Bill Clinton and Al Gore, cannot do it, then perhaps it cannot be done.”
However the “it” is defined, they didn’t do it. Newt Gingrich got in the way, Bill Clinton’s appetites got in the way, a wide variety of problems with no obvious solutions got in the way and, in the end, the Clinton-Gore record, however one chooses to summarize it, was clearly less than dazzling. And in the meanwhile, the “daunting conditions” that gave rise to “apprehension” in 1993 have been dwarfed by the events of the last 15 years. The new president will take office in January weighted down as few, if any, of his predecessors have ever been on their first days in office.
The issues are depressingly familiar: two wars, America’s image, climate change, energy, health care, entitlements, education, infrastructure and, above all, the state of the economy. It is a mark of the seriousness of the economic crisis that it has displaced all other issues as the principal focus of Americans’ attention and concern.
And rightly so. Those who imagine that a bushel-full of new regulations will be adequate to set us on the right course are deluded. A lack of adequate regulation is more a symptom than the cause of the economy’s collapse. We have had — and celebrated — a system that encourages greed, and therefore we did not bother to develop or apply the tools with which government might have limited greed’s rewards. Instead, we accepted Ronald Reagan’s dictum: “Government is not the answer to our problems — government is the problem.” And so it was that we anointed Alan Greenspan, champion of the virtues of greed.
That is what it meant and means to be a devoted associate of Ayn Rand, which Greenspan was from 1950 to 1970. Rand was an unapologetic advocate of selfishness and of untethered capitalism — absolute laissez faire. Now comes a chastened Greenspan, testifying before the House Committee on Oversight and Government Reform on October 23. To chairman Henry Waxman’s question, “You found that your view of the world, your ideology was not right, it was not working?”, Greenspan replied: “Absolutely, precisely. You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
And what was the shock? Greenspan: “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.” Hence, no regulation of the financial institutions and the market; trust self-interest to supply the needed restraint.
Now all the talk is about repairing, reforming and, above all, restoring what we’ve had these many years. Thus Ben Bernanke, chairman of the Federal Reserve: “As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets.”
Perhaps that is so for the mega-investors. But for the broad public? Their crisis of confidence goes much deeper. It flows from the slow but accelerating slide of the middle class, the rise in unemployment, the hyperbolic disparity between the very rich and everyone else, the broken health care system, the crumbling infrastructure, and a myriad other insults and injuries. Its repair requires not reformation but transformation.
It will take the masters of the gaming tables some time to figure out how to shape and then again game a reformed system, but they are experts at manipulating the appetites and advancing the symbolic illogic on which our system depends. Most likely, they — all of them, the captains of finance and their hirelings in Congress — will propose tinkering here and tinkering there, in order to restore what passes for health to the system.
Solve the liquidity problem, they say, and all will again be right with the world; save the banks, they say, and we shall all be saved. As if we can re-create yesterday’s world without re-creating the appetites and behaviors that led to the current storm. As if we can plausibly expect those who designed the system that has failed and those who managed that system, often to their own blinding benefit, to be the authors of its fundamental reform, much less its transformation. As if it is sensible to invite those who betrayed us to right the capsizing ship.
So here we are, in bailout season, with the fundamental principle intact: Privatize the gains, socialize the losses.
As The New York Times editorialized on October 25: “[M]uch more will be needed than just putting the bridle back on American banks. The next government must re-establish some notion of equity of opportunity. Investment is desperately needed in health care, education and infrastructure. The social contract and the government’s role in it should be examined anew. Addressing these challenges will be an enormous task — especially amid the bitter recession that most economists expect over the next year or so. But they must be faced. Fixing finance is merely the start.”
Amen to that.