requiem for certainty

A Pragmatist Response to the Current Economic Turmoil

with 3 comments

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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Written by Colin Koopman

December 13, 2008 at 10:33 pm

3 Responses

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  1. “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.”

    I’m not sure what this means. If you’re attributing to Hayek the view that the state should play no role in regulating market activities (a view that the putative “followers” of Hayek also attribute to him), then that is in error.

    Hayek’s critique of regulation breaks down, at base, to two distinct, albeit related, considerations:

    1) What effects (pro and con) does economic science predict a given instance of regulation will have? Are these effects consistent with what the public believes the effects will be?

    2) What is the precedent set by a given instance of regulation? Is it made in accordance with the rule of law?

    Now, it would be wrong to say that Hayek viewed all regulation as failing by these criteria. In fact he allows rather broad margins for regulating time, place, and circumstance of economic activities in order to set standards and procedures (but never to set outcomes), as long as they are passed either as statutes or as the regulatory directives of a body with proper democratic oversight and an appropriately narrow mandate. Hayek’s examples include municipal fire code building regulations, and a prohibition or restriction on the use of white phosphorous in matches; I can see no reason why the principle shouldn’t extend into any industry.

    (Note that a good Hayekian would not make the mistake Alan Greenspan admitted: Greenspan thought that markets could regulate themselves to prevent fraud, whereas Hayek allows a role for regulatory bodies to define what counts as fraud in the details.)

    A more general question about your approach: there is a serious difference between pragmatist and Austrian methods of analysis. Pragmatists like Dewey are interested in those loci where our conventional categories (like “public” vs “private”) break down; the tendency is therefore for any discussion of institutions to become indiscriminate. The Austrian method, on the other hand, is keenly interested in how different institutions are set up and how they operate; what incentive structures are at play; who is represented in a decision making procedure, and how they are represented; etc. “Public” and “private” are useful only insofar as they serve as shorthand for organs of the collective apparatus of law, on the one hand, and other associations that are established on other bases and that are subject to different pressures, on the other. I am not sure how these two kinds of discourse (an “indiscriminate” and a “discriminate”) can be combined fruitfully. Do you have thoughts on this?

    Jeremy Livingston

    December 20, 2008 at 1:30 am

  2. I think your distinction between “indiscriminate and “discriminate” is a useful one but it seems to me to be a reiteration of the “intellectualist” versus “empiricist” distinction such that both Dewey and Hayek are discriminators. Both, that is, are empiricists who want us to attend to the differences at work in the way that different institutions (conglomerates of processes) function. Pragmatists may want to break down big dichotomies but they do not want to overturn distinctions. The pragmatist point, for me at least, is that the differences characteristic of different publics are, beginning in the late 20c., no longer adequately captured by the public versus private distinction. We need new sets of distinctions. In part because many processes formerly regarded as private begin to spill over into the public and the border between the two becomes increasingly porous.

    As to your first point: yes. Hayek wants regulation in some instance and certainly he was no laissez-faireist. My point is only that he tends to want less regulation than more leftist economists such as Keynes. The point was not meant to be controversial and should be taken in a sense in which it is obviously true. But if that did not come across then I put the point poorly.

    Colin Koopman

    December 20, 2008 at 10:18 pm

  3. Yes, that’s fair, but yet there’s still a difference between their respective methods (and between pragmatism and the Austrian school) that I think is escaping our terms. I’m not at all comfortable with an “intellectualist” vs “empiricist” distinction — but I think that distinction is more important to Dewey than it is to Hayek (ie., it is more important for Dewey to be an “empiricist” rather than an “intellectualist” than it is for Hayek, who could comfortably be understood in either terms).

    Here is perhaps another way of framing the issue, drawing upon Husserl. In Ideas, Husserl distinguishes deductive from descriptive systems. The former, eg. arithmetic or geometry, attend to ideal forms, eg. numbers and figures. The latter, eg. biology, have instead to deal with morphological forms, eg. “scalloped”, “falcate”, “having reticulate venation”, etc., that don’t lend themselves to analysis directly into ideal forms, although individuals often exhibit instantiations of these or those ideal forms (eg. a scalloped leaf has lobes that are half-circles, but there are a random number of them and they are of random radius and are irregular).

    Now, it seems to me that Dewey is at his most acute as a discriminator when he is engaged in morphological description. But he is weak when it comes to ideal deductive systems, and in fact seems to have a big blind spot toward the very possibility of undertaking that kind of inquiry. Hayek, on the other hand, seems to me to be pretty handy with both, but the Austrian method is, historically and conceptually, deeply rooted in the ideal deductive side of things.

    What do you think of this description?

    Jeremy Livingston

    December 29, 2008 at 5:41 pm


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