Now that financial reform has reached the front burner, it has become clear that there is no coherent progressive response. Many of us focus on the ideas put forward by a small group of well-known economists, including Jamie Galbraith, Dean Baker and Paul Krugman, and a few others we have discovered who got it right on the disastrous policies of the 30 year Republican deregulation movement, including Joseph Stiglitz, Simon Johnson and James Kwak. Their ideas may be wiser than the ideas put forward by mouthpieces for the wealthy elites, including their lobbyists and unreconstructed Chicago School economists; but there isn’t a set of progressive ideals that justifies listening to one group of economists over another.
In fact, as Yves Smith demonstrates in her book ECONned, How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, one of the causes of the Great Crash is that the range of acceptable discourse on financial and economic matters was set by a relatively small group of neoclassical economists. Smith explains the nature and extent of the collapse of those theories, and at the end, leaves only the dried husks of their notions scattered across the intellectual floor.
Her criticism is based in part on the sterile mathematical models produced by neoclassical economists, and theories created from the use of those models. These theories were so far abstracted from the complexities of the real world that they *seem* useless. In retrospect, they see ludicrous. We see the results in practice, trillions lost, millions wiped out, more millions unemployed and becoming unemployable, the entire economic landscape scoured of small businesses and the jobs they create, leaving gargantuan businesses in their wake with no interest in this country unless they can use us to make more money.
The people who created this devastation, the Wall Street traders, the giant banks, the massive corporations, are still in place. So are their legions of enablers, ranging from what we used to call professionals, like lawyers and accountants, to academic economists and business school professors. They intend to use their failed theories to define regulation going forward.
As much as I appreciate the efforts of the few economists able to see the failure of their brethren, I don’t think we should just find own team of economists to lead us. Instead, I think we have to make sure we understand the political principles that should underlie a progressive approach to the economy. Then we can ask for input from economists as to plausible ways we might move towards those ends.
Like most liberals, my thinking on the issues of economics is heavily influenced by A Theory of Justice, by John Rawls. However, my work experience is equally important. I have seen the impact of the economic system on the rich and the poor and people in between, and I have seen the impact that the system has on people’s bodies and spirits, both in success and in failure. Rawls says that economic efficiency has to take second place to the principles of justice. Regardless of the merits of his principles of justice, that point seems obvious and right. With that, here are three progressive principles of economic regulation.
Principle1. Society creates the conditions for all business and personal activity, using law, regulation, policing, institutions, and other tools. This power should be used for the benefit of all citizens, not just a few.
Principle 2. The focus should be on good jobs, and the interests of capital should be subordinate to that focus. A progressive economics should find ways to encourage uses of capital that produce good jobs and to discourage uses of capital that don’t produce jobs.
Principle 3. There is every reason to use government to achieve these goals. Wealthy elites have demonstrated that they won’t do this on their own. The Great Crash is the direct result of policies that worked against these goals.
The proposals pending in the Senate and the bill passed by the House won’t change the system towards the principles I propose. The President’s common sense proposals entrench the financial elites, exactly as his health care reforms entrenched insurance companies. I see no evidence that the people dealing with this problem have any set of principles to guide them. As long as Congress and the President insist on protecting the finance companies, we are merely moneymeat for Wall Street’s dining pleasure.