Those Pesky Principles
That sounds cynical and biting. But I think there is actually a powerful underlying logic to this dynamic, one that we classical liberal, market-loving folks are going to have to contend with in the years ahead. I think there’s little question that rules-based, transparent systems are in the long run best for everyone, including the fabled “little guy.” But the results they produce, and the way they produce them, can undercut the political support they need to survive.
Consider the financial crisis and the recession of 2008. Looking at the disruptions in the U.S. and Europe over the last decade, the Wall Street Journal’s Bret Stephens says:
In other words, the “system,” with its high-toned rationale and its high-handed maneuvers, struck millions of people as unaccountable and unjust. It might have been a good thing that the sky didn’t fall on everybody, but shouldn’t it at least have fallen on somebody?
It did, of course; it fell on a lot of folks who had unwisely paid bubble prices for real estate. What Stephens is asking -- what a lot of voters have been asking for years -- is how come the guys at the top seemed to get off scot-free.
One answer is that they didn’t, exactly. People like Dick Fuld, the former chief executive of Lehman Brothers, were fired from their jobs and saw most of their net worths evaporate. They’re still rich, of course, but a humiliating public firing and the loss of the majority of your assets is genuinely painful for them.
But that’s not a very satisfying answer if your house just got foreclosed and your boss just announced more layoffs, and you know that Dick Fuld isn’t spending his days worrying about whether he should buy the generic detergent or can afford to splurge on Tide like the high rollers. People look at the economy and see a whole lot of bankers who still, after everything, have a lot more than they do. People want to know why.
There are actually good answers to this question. The banks got bailed out because no one wanted a repeat of the “let them fail” experiment of 1929, which was devastating to ordinary folks, not just the bankers. And once we’d bailed them out, it was hard to punish them beyond replacing the CEOs of the failed institutions. There simply wasn’t good evidence that top executives had committed jail-worthy financial fraud. (A lot of ambitious prosecutors spent years trying to find some.)
Over the years, people have called for a lot of actions to make all this fairer, from “jail the banksters” to “force banks to write down mortgage principle to the current value of the house.” Unfortunately, doing any of these things would have required either expending vast and politically unpopular sums, or simply suspending the law of the land and giving the federal government substantial new powers to jail people and seize property by fiat.
Despite our recent economic troubles, Americans still enjoy amazing prosperity by historical standards. That prosperity depends on principles-based regulation and the rule of law -- which have also, not incidentally, granted us personal and political liberty undreamt of in the places where the government rules by the whim of the moment.
These well-worn arguments, however true, have the unsavory flavor that Anatole France aptly summed up in an epigram: “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
This is the nature of principles-based systems. They are cold and impersonal, and ostensibly neutral machinery often produces results that look grossly unfair by any common-sense moral standard: rich people getting better treatment from the legal system than poor ones, bankers who gambled on mortgage bonds getting a safer retirement than truck drivers who gambled on an overpriced house. If the “fairness” of following principle departs too widely from the “fairness” of following our intuitions, then people are going to start asking what’s so great about those principles.
In truth, there are great things about those principles. Countries unbound by such principles, where the leaders run around browbeating and cajoling and subsidizing companies into doing what they want, are not great places to live or work. They stagnate, harming consumers and the majority of workers who are not lucky enough to have jobs at the favored companies.
However, leaders who are not abiding by principles do present an illusion of control. Americans can see what the president does or does not do -- and if they don’t like it, they can punish him at the ballot box. (Unlike the principles, which are too large to be seen. No one could ever be familiar with more than a small fraction of the vast sea of our nation’s laws and regulations.)
That’s why Trump’s tiny deal with Carrier was far more politically effective than all the Democratic railing about traitorous companies moving their headquarters abroad. After all that railing, what Democrats were proposing to do in the end was just to create even more impersonal laws, some incomprehensible amendment to an already opaque tax code. What Trump gave them was direct action -- action that said “I’m on your side, and I’m not going to sell you some nonsense about abstract economic principles; I’m going to go out there and save your jobs right now.”
I still think the Carrier browbeating is lousy policy. But those of us who believe in principles-based economic policy and the rule of law need better defenses than “it’s complicated.” Or we need better results.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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