Justice and Stabilization


Fist of Money 1

Here’s something I wrote a while ago that’s still relevant today:

In some respects, the general preoccupation with the world of finance seems misguided. Under-regulation unquestionably led to a major financial crisis, which in turn has led to a severe recession, and it is both crucial to prevent a repeat of this series of events and reasonable to worry that the banks’ continued political clout will make it impossible to do what needs to be done. But the driving factor behind the sentiment of outrage at financial malfeasance that animates Prins and pops up at times in the other books is not so much the difficulty of macroeconomic management as the problem of injustice. How is it that we live in a country where illness often leads to bankruptcy, but gross mismanagement of a major bank leads to a generous retirement package? A country where people take home seven-figure bonuses for finding regulatory loopholes but where we “can’t afford” decent schools or mass-transit systems in our cities?

I think where people go wrong in assessing the Bush/Obama Bernanke/Geithner/Paulson/Summers approach to the Panic of 2008 is by running these issues together. Most people have stronger views about morality than they do about macroeconomic stabilization policies, and they look at policies that are unfair and outcomes that are wrong and find it hard to believe that it’s also the case that these policies worked. Conversely, to technocrats things that worked are things that worked, and policies that emphasize just deserts are naive.

The correct synthesis is that we need stabilization policies that work and that we also need policies that produce justice—broadly shared prosperity and adequate public services. Personally, though I have no idea whether or not it would improve any of their political problems, I find it frustrating that the Obama administration hasn’t done more to draw the line between its stabilization agenda and its social justice agenda. The free market, as we see every time there’s a financial panic, is a bit of a myth. And people who get sick and need medicine deserve a bailout.