A Pragmatist Response to the Current Economic Turmoil

The following is based on a piece entitled “Morals and Markets” which will likely be published sometime in 2009 in the Journal of Speculative Philosophy.  I was asked by editors of the journal to conclude this piece with some reflections on the practical upshot of my discussion.  I took their useful advice of considering the current economic turmoil in light of my Dewey and Hayek inspired account of reconsidering the relations between morals and markets.  What follows, then, is drawn from the final pages of that piece.  The whole thing, in a previous iteration, is availble here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1226437.  There is still time for small revisions to this part of the paper so I appreciate any comments readers may have.

The thought with which the discussion excerpted here begins is the following:  Market-based opportunities for ethical innovation have been consistently ignored throughout the history of liberal democratic political theory and they are only just  now being taken seriously in contemporary liberal democratic practice.  Now is an ideal time for taking these opportunities seriously. The paper continues as follows (with slight modifications):

Consider now some of these opportunities as they might appear in the present moment.  The recent turmoil in the financial markets and its subsequent outward spread to other economic sectors offers an occasion for reflection on these possibilities.  I believe that such philosophical reflections should take the form of a considered diagnosis of our current problems as preparatory for an eventual ameliorative reconstruction of our situation.  I can here only sketch bare outlines of what such a philosophical diagnosis and reconstruction should look like.  That is because this sketch is more of an attempt to explicate the upshot of the preceding discussion than it is a serious attempt at a policy proposal or a political predication.  I do not make predictions and policies take far more work than I here have space for.

It is unsurprising that recent market turmoil has given rise to the renewal of fruitless debates over the issue of the pros and cons of regulation.  These debates reiterate that much-loved great debate in the twentieth century between pro-planning egalitarian-leaning figures like Keynes or Roosevelt and anti-planning libertarian-leaning figures like Hayek or Reagan.  But the questions fueling these debates are really red herrings.  The question we should be asking is not “whether regulation?” but “how regulation?”.

On a Deweyan view part of our problems can be seen as stemming from an overplayed dichotomy between public and private that has bewitched those on both Left and Right.  By thinking in the terms offered by this dichotomy we have failed to seriously rethink questions about how we might regulate.  A classical conception of regulation thus proceeds unquestioned.  Leftists like Keynes, Johnson, and Rawls and Rightists like Hayek, Reagan, and Nozick are all in agreement that regulation is a matter of using the public power of the state to influence the private powers of the market.  On their view public and private are opposed such that regulation generally takes one of two forms.  In one form the state opposes market action by prescribing limits that put a check on market agents.  In another form the state is co-opted by market forces seeking subsidies, bailouts, and other such privileges.  Both of these forms of regulation are proving inadequate as tools for addressing the problems of the present.  And yet few politicians, commentators, and theorists have managed to think beyond these dualisms midst the present turmoil.  Hence the supposedly needed reiteration of the misleading “whether regulation?” question.  If these are the only forms that regulation might take, then we rightly ought to wonder whether we should do something drastic or do nothing at all.

But are there other tools for regulation?  On a Deweyan view we can begin to consider this important question from a standpoint no longer beholden to the rigid separation of public and private spheres.  On Dewey’s view we can affirm that regulation is already present in both state and market contexts.  On this view states and markets represent different sets of publics in which our lives are always already being organized.  If we want our lives to be organized otherwise than they are, then we must more energetically participate in whatever publics are organizing us.  At times this may take the form of playing one public off of another (using states to oppose markets or using markets to direct states, two forms we are already quite familiar with) but at other times it might take other forms such as intervening in certain aspects of our state publics and market publics in concert.  The Deweyan view thus acknowledges that the familiar regulatory tools of state limitations on market actions and market uses of state powers are in some contexts quite useful.  But the view goes on to suggest that there are other contexts where we need newer regulatory practices that are not well-framed in terms of the separation of public and private spheres.  In these other contexts we might do better to think of both states and markets as public venues in which we can effectively deploy our democratic energies.  In these other contexts we would do well to make simultaneous use of both states and markets, both governments and corporations.

In the present context in which we are faced with the problem of severe economic volatility resulting from unwise capital allocations, we would do good to remember that there are plenty of start-up financial institutions, automobile manufacturers, and eager entrepreneurs who are waiting to reallocate capital until market opportunities are stabilized by market actions rather than volatile state-sponsored subsidy programs.  The state can facilitate economic stability and growth by, for instance, providing incentives for consumer spending such as consumer stimulus payments to those in the lower and middle classes.  The thinking here is that capital can be reallocated to saner economic cycles through consumer-side expenditures more effectively than through producer-side subsidies.  This is because in a consumption-driven and surplus-based economy the allocation of capital is dictated not by production (investors) but by consumption (consumers).  By fostering consumer-led growth the state furthers the realization of a broad economic agenda through market activities.  This strategy thus offers an example of a Deweyan integration of public and private which carefully refuses to collapse public into private or private into public.  For if either state or market by itself sets both the agenda and the means for realizing it, then we will not find ourselves coordinating our manifold publics so much as imposing one public on other publics.  Using state powers to subsidize certain market actors not only creates market inequalities (note all the clamor amongst corporations seeking subsidies or insisting that they too are banks) but can also easily perpetuate unproductive capital allocation cycles.  Using state powers to oppose certain market activities can not only create unmanageable market inefficiencies but also presupposes that state regulators can always stay one step ahead of market actors (and this is almost never the case).  We ought to acknowledge that it takes time to deleverage bad investments in order to reroute capital into more productive cycles.  Hayek is right that if the state plays manager by insisting that certain bad investments are really good investments, then this rerouting process will take even longer and be even more painful.  But Hayek is wrong to think that market agents need to divest and reinvest on their own without the coordinated involvement of agents from other publics, such as states institutions.  The key point is that restabilization can occur neither through the state alone nor the market alone insofar as we are already embroiled in and organized by both sets of publics.  State agents and market agents must fashion ways of working together without imposing themselves on one another.  A Deweyan view is invaluable for recognizing this crucial feature of our situation.

But, Deweyan democrats will wonder at this point, what insures that in reorganized conditions our democratic values will be realizing?  Nothing does.  In a democracy the flourishing of democracy is incumbent on us.  Democracy is a politics of hunches, hedges, and hopes.  It is not a politics of certainty.  Democracy requires that we put forth our energies in all of the public contexts where we find our lives being organized (these include states, markets, schools, churches, even friendships).  Hayek thought that we frail humans are generally incapable of purposive democratic self-organization.  Perhaps we are.  But we shall better equip ourselves to experimentally test our democratic hopes if we understand with Dewey that democracy is a way of life which must be practiced throughout or lives, in our halls of government as officials and voters, in our marketplaces as managers and consumers, and in many other venues besides.

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