The Pit and the Pendulum

Last fall, I predicted that the financial crisis "would foster regulatory overkill and embolden those less committed to the free market." Over-regulation already has been attempted , and appears to have been incorporated into the Democratic legislative agenda. Now the pendulum has swung so far that the free market itself is under attack; indeed, if journalist Matthew Yglesias is representative, his May 4th post at Foreign Policy heralds the return of "Commie-Chic":

With the world facing the most serious economic crisis in many decades, the free-market orthodoxies that have governed the United States for the past 30 years -- and proven increasingly influential abroad -- are increasingly coming under question. Under the circumstances, it's perhaps natural that we're seeing something of a resurgence of interest in the work of Karl Marx . . .

Further re-enforcing this sense is the heavy emphasis currently being placed on Marx's argument that periodic financial crises were endemic to the capitalist system. At the time Marx was writing, the modern era of financial crises was quite new, and so this point was both original and by no means obvious. Subsequently, we've had more than 100 years to study the operations of capitalist financial systems and that time has proven Marx so overwhelmingly correct that the observation no longer counts as distinctively Marxian. Everyone, from followers of John Maynard Keynes to Milton Friedman's monetarists to the "Austrian School" of extreme libertarians agrees that periodic episodes of crisis are endemic to the system. This is not to take anything away from Marx, who got to the point quickly. But bringing him up only to cite him making a now-banal point seems almost as if we're exhuming the corpse in order to demonstrate to the village that it's still dead. Not to explore our doubts about capitalism, in other words, but to quiet them by making it seem as if Marx doesn't have anything to say that we don't already know.

I would suggest on the contrary that there's no time like the present to learn from Marx's theory of ideology -- the idea that wealth and power have a tremendous ability to gin up self-justifying narratives. Global elites' curious passivity in the face of the growing housing bubble was an excellent example. That prices were out of line with historical trends was easy enough to see, and the fact that asset bubbles recur periodically and lead to financial crises was once well-known and then swiftly rediscovered after the bubble popped. But during the bubble years, prominent policymakers on both sides of the aisle found themselves in the grips of an extremely naive rationalism that held that there couldn't possibly be a bubble, since the market should be magically self-correcting.

Naturally, nobody believes that now. And, indeed, it seems like a slightly ridiculous thing to have ever believed. Marx can be helpful in letting us understand how it ever came to be so widely believed.

Nonsense squared. If Marx was right about anything, it was purely random, given his profound ignorance of capitalism as well as the consequences for his theories of subsequent workers' rights legislation. And, before we abandon the free market, I have these questions for Yglesias: Exactly where, and how, has Marxism worked as a political, economic or social doctrine? Are any success stories superior to liberal markets? Or is Commie-Chic merely faith-based?

Plainly, a pit we should avoid.

BTW, Yglesias would start by raising taxes, arguing the "Obama administration’s budget . . . leaves revenue as a percent of GDP far too low to pay for the government services we need."

(via The Corner, Wolf Howling, Mickey Kaus, Maggie's Farm)