The economic crisis of 2008: Moral indignation and political degradation

Politicians and pundits speak of “crises” with such frequency that it is difficult to discern when a problem has festered to the point that we confront a major danger  – as well as the opportunities that genuine crises provide.  The current financial mess and the response of our political processes to this mess certainly feels like a crisis, as the viability of our economy and our democracy are brought into question.

The defeat of the rescue plan Monday in the House reflected widespread moral indignation with those who precipitated the collapse of financial institutions and credit markets.  As Robert Kuttner has documented in The Squandering of America, we are witnesses to widespread corruption by key Wall Street actors (those stockbrokers, underwriters, accountants, lawyers, and corporate board of directors who manipulated the prices of stocks, bonds, and other investments) and compliant governmental agents (ranging from the Securities and Exchange Commission to legislators of both parties who have developed and enforced lax regulations).  They have enriched themselves and favored clients at the expense of others: those who made poor investment decisions based on misleading information;  the broader public adversely affected by the cascading economic risks that accompany unsecured investments; and future generations potentially saddled with the bills of cleaning up this mess.

Our moral indignation is not that some investments have been highly profitable or that some folks have become fabulously rich during the past quarter century.  It is certainly part of the American ethos that individuals can pursue their self-interests, profit from their investments, and become wealthy if warranted by their talents and contributions.  Most moral philosophies do not require that we abandon our self-interests, but they do impose restraints on us.  They deny that we can harm others in the process of pursuing our own interests or as a result of such pursuits.

Perhaps at one time there was extensive compliance with such moral codes, but during the past few decades more and more people – seduced by the attractions of reaping untold luxuries and dominant power in the new political economy – regard such moral restraints as anachronisms of a society that has not accommodated itself to the benefits offered by the ruthless competition of a global free market economy.  Such people justify the harms to some people that result from the unbounded pursuit of profits as more than offset by the aggregate gains that a minimally regulated market might produce.

Our contemporary moral deficit requires more than a moral awakening.  Most people have the moral sense to recognize limits on self-interested actions.  Most of the agents responsible for the current crisis are members of professional associations having codes of ethics.  In a society where such “voluntary” restraints are inadequate, coercion is required.   Governmental regulations can provide detailed rules prohibiting harmful acts and employing stiff penalties to coerce compliance.  Politics is the process by which various people affected by the harm done by others can seek protection.

But most people do not understand politics in this way.  While liberal democratic politics has during the past few centuries produced enormous protections and benefits for most citizens, most people have forgotten or were never aware of the good that governments can produce.   What is evident to most people is that American government has become subjected to the same forces of corruption that have come to dominate Wall Street.  There is considerable validity in their views.  Some people have turned to politics to acquire the power to pursue their narrow interests.   Other people have been seduced by the same sorts of misinformation that Wall Street has dispensed, “buying” very poor policy choices.  Thus, many others have turned away from politics in disgust.

Rather than understanding politics as a vehicle for pursuing our public interest, we see it as a process by which a few pursue their private interests at the expense of the public.   Rather than understanding politics as the search for a full array of justice ideals – including equal individual rights, the provision of certain social benefits to all citizens, and assistance to those in dire circumstances through no fault of their own – protecting property rights has become the central focus of our justice concerns.  Rather than understanding democracy as a process by which citizens can seek the public interest and justice in its various forms, we see democracy as a process in which public officials preoccupied with partisan advantage become deadlocked on urgent issues, where candidates preoccupied with winning elections engage in deceit and gamesmanship, and where voters are thus left with little capacity to attain the corrections that a (potential) crisis provides.

But this degraded understanding of democratic politics need not prevail.   While the November elections will not enable our society to eliminate all the problems confronting our economy and our government, they can lead us back from the abyss.   Democratic elections provide citizens an opportunity to express their moral outrage.

Both Republican and Democratic incumbents can be appropriate targets of this outrage.  There are members of both parties in Congress and our state legislatures who are honorable men and women, whose differences involve principled disagreements about the requirements of the public interest and justice on the particular issues they address.  But there are scoundrels whose interests center on partisan advantage, benefiting their donors, and enriching themselves.  There are incompetents who hew to an ideological perspective without bothering to understand the complexities of the issues before them.  It may require a certain diligence on the part of voters, but sorting out the worthy from the unworthy is within our collective capacity.

Both John McCain and Barack Obama seem to be honorable men who pledge to fight the corruption and restore democracy, but we must choose between them.  If we look beyond the sound bites, the negative accusations, and even the details of their policy positions, is there anything that differentiates them that might be decisive for those of us who are morally indignant and dismayed by our degraded politics?  An understanding of the possibility of democratic politics suggests the key difference.

Only a cynic would deny that both McCain and Obama are committed to pursuing the public interest.  Their support for the plan to rescue our financial institutions and divert an economic meltdown is one testament to this.  But a commitment to the public interest is not the only concern of democratic politics; it must be complemented with a devotion to justice.  It is not enough to seek “the greater good,” because such (utilitarian) commitments can lead a political leader to pursue policies that promise to increase overall economic growth, even though that growth may come through processes that are unjust to those sacrificed on the alter of maximizing profits.  Such, of course, was the mindset of those who supported the deregulation of financial markets that got us into this mess.  Such is the mindset of those whose “rescue” policies focus on coming to the aid of those at the commanding heights of our economy, but are inadequately focused on punishing those responsible for the crisis and rescuing those whose homes are subject to foreclosure, whose retirements have been derailed by the plummeting values of their 401(k) accounts, and whose jobs are endangered by a deep recession.

Are McCain and Obama equally committed to justice?  This is a question that should be at the center of our attention in the month ahead.