Friday, October 7, 2011

The "Malefactors of Great Wealth"

As I noted yesterday, the “occupation of Wall Street” is street theater getting sparkling reviews from liberal pundits despite its indecipherable plot. That’s hardly surprising because it’s a revival of a morality play that's an old chestnut of the progressive stage. The occupiers have cast themselves as the 99% of virtuous Americans victimized by Wall Street fats cats personifying greed. Theodore Roosevelt wrote the original script at the dawn of the progressive era under the title: “The Malefactors of Great Wealth”:
“Too much cannot be said against the men of wealth who sacrifice everything to getting wealth. There is not in the world a more ignoble character than the mere money-getting American, insensible to every duty, regardless of every principle, bent only on amassing a fortune, and putting his fortune only to the basest uses. . . . These men are equally careless of the working men, whom they oppress, and of the State, whose existence they imperil. There are not very many of them, but there is a very great number of men who approach more or less closely to the type, and, just in so far as they do so approach, they are curses to the country.”
There’s no denying that, as a class, financiers aren't very inspiring moral specimens and that, if you’re a liberal, “malefactors of great wealth” has a nice ring to it. Yet you might have thought that this sort of thing would be too crudely moralistic for professional macro-economists.  They're in the business, after all, of understanding economic conditions as the unintended consequence of the interaction of rational actors, each pursing his own interests under the prevailing rules of the economic game. But here’s Paul Krugman, riffing on Roosevelt’s title (“Confronting the Malefactors”) and updating his plot:
“[I]t has been easy to forget just how outrageous the story of our economic woes really is. So, in case you’ve forgotten, it was a play in three acts.

“In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst — but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers’ sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support — and the wealth they still possessed thanks to the bailouts — behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis.”
The last time I checked, “malefactors” are people who have victimized other people by doing something criminal, or otherwise evil.   Roosevelt had chosen the word wisely because he had no trouble identifying anti-social misconduct on the part of rich people.  He was a dedicated trust-buster, for example, because he thought industrialists were conspiring to suppress competition in violation of their common law and statutory duties not to restrain trade.

So who are the "malefactors" in Krugman’s drama? If the bankers who are supposed to have victimized the rest of us in the first act were “t[aking] advantage of deregulation to run wild” they weren’t doing anything criminal. And it’s hard to see why they were doing anything particularly evil either. Lending money to people who can’t pay it back so that they can own houses they otherwise couldn’t afford may be a stupid thing for a banker to do. But giving people cash to buy something they want is a strange way of victimizing them. And what, for that matter, is criminal or evil about securitizing the income stream from those mortgages and selling the paper to professional investors who, had they bothered, were perfectly capable of figuring out what they were getting into?

Nor am I seeing any malefactors in Krugman's second and third acts. Yes it was a stroke of undeserved good fortune for improvident banks to get bailed out by the American taxpayer, but that hardly makes it criminal or evil for bankers to accept the bailouts.  Indeed, they had a fiduciary duty to their shareholders to accept them.  And since when did it become criminal/evil for people in a democracy to support political candidates of whom Krugman disapproves?

If Krugman’s saying that it’s a bad idea to structure the political economy so that a bunch of improvident bankers can help bring on a deep recession, I couldn’t agree more. And if he's saying that our society would be more just if we could arrange things so that rich people being somewhat worse-off permitted poorer people to be measurably better-off, I agree with that too. But when Krugman joins the Wall Street occupiers waxing indignant about the greed and civic irresponsibility of bankers, that's just the sound of demoralized progressives stroking themselves--and expecting everyone to be impressed because they do it so lovingly.


Mean Voter said...

Paul Krugman should know better. To sum up an economic crisis by blaming one group is just silly. It is intellectually weak.

It reminds me of a Steve Martin bit from many years ago. How to make a million dollars and never pay taxes. Steve Martin explains the part of how never to pay taxes -- tell the tax man "I forgot" -- but as to the first part, he just says: First, make a million dollars.

Paul Krugman simply blames the bankers because they took advantage of deregulation to run wild, blah blah blah. Oh Paul, what about the deregulation part? Who did that? The bankers' fairy godmother?

To blame Wall Street bankers for all our economic woes is just plain lazy and stupid. There are many blameworthy. But even if bankers share part of the blame, what do the protesters want bankers to do. Go home to Greenwich and sell their homes and move to the Caymans?

And, as you point out, why is he calling bankers the malefactors?

If you ask me, Paul Krugman is the malefactor. Violating the laws of journalism and economics on a weekly basis.

Anonymous said...

Wasn't the whole dervirative business highly duboius from an ethicaj point of view, Many competent economists pointed our it would lead to disaster. First of all there was historical evidnee to show that finaicial deregulation lead to speculation and finaicial bubbles. Wasn't the willful ignorance or willful disregard of credible evidence of harm a moral failing. You are no doubt familair with what philosophers term weakness of the will.