Shortly before the November election New York Times columnist David Brooks offered an interesting observation on the legacy of Alan Greenspan. I was highly critical of it at the time, though in general Brooks is a moderate and thoughtful Republican who is remarkably innocent of the ideological blinders of the extreme wing of his Party; and, for this very reason he’s an important person with whom those on the Left should be in dialogue.
Brooks began by observing that what most modern economists share is an intense interest in human behavior, an interest in the complex psychological motives (and yes, the faith) that drive so many of our economic choices. In contemporary economic theory, according to Brooks, there are two dominant models of analysis: number crunching and social psychology. In short, Economics is either a subset of high-order Mathematics, or else it is Therapy.
This is an interesting idea, and Brooks is right to notice a peculiar feature of most modern economic analysis. Since the days of Adam Smith, most political economists have used vitalistic and bodily images to talk about the Market. We speak of it as an entity, one in which the circulation of capital is literally a life’s blood. From this perspective, the current aortic blockage of global capital comes dangerously close to creating a global Market arrest.
More recently still, and certainly since the Great Depression, economists have spoken not merely as if the global market has a body; they refer to it now as if it has a psychology, and a mood, as well.
Clearly, investors large and small do have bodies, and they do have moods. But does the super-organism we refer to as “the Market” also have moods? That is more difficult to gauge. So, should an economist facing the bewildering array of current economic problems stick to the numbers or engage in psychological analysis?
We could do worse than break down the current cast of characters based on that question and that approach. Greenspan was a number cruncher, Brooks observed, and unfortunately for him, human psychology caught up with him in the “housing bubble.” The current debate over Timothy Geithner is being conducted in similar terms. No one disputes his number-crunching credentials (just this week, we were reassured that he’s also a “workaholic”). It is his inability to inspire confidence, his inability to soothe as a therapist might, that worries us now.
His tragedy is similar to Greenspan’s; he’s just the right man at just the wrong time.
It is the very interest of this analysis that made David Brooks’s latest column so unsettling. Just before the election, when he was defending the Greenspan legacy, Brooks suggested that Greenspan was a gifted number cruncher but that we had entered a strange and more volatile and more challenging psychological crisis of confidence to which he could not speak. My rejoinder was that there was nothing psychological about the crisis at all; it was an entirely quantitative crisis, resulting from the widespread realization that high-level money managers had lied, or stolen, to amass millions knowing all the while that there was no real money around to cover their debts.
They kept the cash and we inherited the debt. All the rest is smoke and mirrors.
AIG has clarified the popular mind. There’s no need for deep psychological nuance to see that people are angry and with good reason. That is why AIG is the scandal du jour. Now these same Wall Street alley-cats are awarding themselves multi-million dollar bonuses while simultaneously receiving billions of dollars of bail out funds to keep the system they have run aground afloat. Here yet again, no great psychological nuance is needed to see that people are angry and with good reason.
I agree with Brooks that the punitive legislation hastily offered up in the US House of Representatives this week is unhelpful as well as unconstitutional. But I am sure this legislation is coming from a very real and deserved and pervasive moral outrage that needs to find an outlet and a voice.
Instead, Brooks returns to his typology of number crunching versus psychology.
The Washington political class has spent the past week going into made-for-TV hysterics over $165 million in A.I.G. bonuses. We’re in the middle of a multitrillion-dollar crisis, and our political masters—always willing to throw themselves into any issue that is understandable on cable television—have decided to risk destroying the entire bank-rescue plan because of bonuses that account for 0.001 percent of the annual G.D.P.
The problem is quantitative. David Brooks just crunches the numbers. His conclusion is that the AIG bonuses are statistically irrelevant; in other words they are economically irrelevant, irrelevant from the perspective of crunching numbers.
Perhaps so. But they are morally significant. And it is the absence of moral categories in the rich array of mathematical and psychological analysis that is most striking and most misleading about it. We don’t need a President or Treasury Secretary to hold our hand; we don’t need to be reassured, and we don’t need help getting in touch with our anger.
Rather, what the seemingly endless rolling tide of concussive scandals—all the lies, the subterfuge, the duplicity, and the grabbing of one’s own undue share before the rest of populace is stuck with the bill—what all of this requires is some more careful moral accounting.
That is the work of politics. Economics is neither a subset of Mathematics, nor of Therapy; it is of a piece with Politics. That is why the discipline used to be called “political economy.”
For the market is not a body that lives on a vast circulating flow of cash, and it is not a super-computer either. It is a complex and increasingly integrated human system that only works when there are clear rules, and clear accountability structures with which the rules may be enforced, offenders punished and wrongs redressed.
This is what Brooks’s analytic categories seem to miss, and one senses, why he continues to write off populist rage as misguided, or irrelevant, or unhelpful.
Here is one number worth crunching politically. To continue to argue in this fashion as unemployment figures surpass the double-digit mark nationwide is to render your own economic analysis misguided and irrelevant.
Where there is rage, there is often a reason. The riots in Paris and Athens and elsewhere could easily be a harbinger of far greater populist unrest right here at home.