Sunday, March 16, 2008


On Friday the Federal Reserve took the unprecedented step of bailing out Bear Stearns, one of the big five Wall Street firms that was in danger of running out of funds due to what numerous commentators have described as a "bank run." This morning Treasury Secretary Paulson defended the bailout as essential, a necessary step to ensuring order in the financial markets and preventing a major shock to the American economy. Indeed, there can be little doubt that the failure of Bear Stearns would have devastated the markets and the broader economy. The failure of Bear Stearns would have been the catalyst for a widening circle of bank failures once those firms which had capital investments with B.S. would have had to call in funds from their creditors to ensure adequate liquidity. As it was, the markets fell again substantially on Friday, as they have the past three weeks, and it's hard to see where this cycle ends.

I have little doubt that Bear Stearns if absolutely FULL of workers who have been BIG TIME defenders of free markets for much of their lives. I am fairly certain that they have condemned countless interventions of the Federal government in numerous spheres, lamenting that the efficiency of market solutions have been undermined by top-heavy, interventionist, "socialist planning" guvment meddling. Indeed, I'll even bet that most of them, while relieved at the Fed's lifeline (ensuring that most will continue to have jobs - at least for another several days) will hardly be shaken in their view - in spite of the fact that those very efficient markets would have forced them to shut the doors on those masses of depositors who demanded their money - with little hope that George Bailey could calm them down while pulling out his personal funds to cover the loans.

To this argument, many have pointed out that "Bear Stearns is too big to allow to fail." This is indeed true: its investments are so deeply intertwined in the financial activities of so many other firms and banks that to allow it fail would have meant the failure of countless other institutions, leading to literal bank runs even as your friendly neighborhood bank shut its doors. The very interconnectedness of a vast financial system - itself resembling the interconnectedness of the entire economic system - means that there are certain players in the system whose failure would be tantamount to the failure of the system itself.

This state of affairs suggests two things: first, this condition reveals that at least one of the origins of the current crisis was the confidence of such institutions where the rot has currently set in that they would not be allowed to fail, no matter what reckless and morally dubious financial transactions they participated in. Indeed, the more they could implicate their transactions in those of other institutions, the more buffered they were against the ultimate consequences of their actions. This entire condition is one gigantic "moral hazard," one in which there is an enormous incentive to become huge - through acquisition, merger, and outright hostile takeovers - in order to ensure that financial chicanery would be rewarded no matter what the consequence. The imperative to "get big" (echoing the same cry of Ford's Secretary of Agriculture, Earl Butz, to farmers) is nothing more than the effort to ensure that you will become impervious to the consequences of your actions.

Secondly - and more importantly, in my view - the fact that this firm was "so big it could not be allowed to fail" starkly reveals the fundamental bias in the current economic and political system toward massiveness and centralization. Note well: such largeness is constantly invoked against those who would commend smaller and more local forms of economy and banking as BETTER because, unlike economies of smaller scale, such large scale (national, international, global) enterprises ensure that no ONE local failure will result in deprivation. That is, in small economies, when a crop fails or a bank folds, the whole community is potentially shattered. A large scale economy theoretically spreads risk so that the consequences of small failures are minimized, much like a punch to a Sumo wrestler is absorbed by his gigantic girth. The fact that the failure of Bear Stearns was not permitted to occur because it would have potentially caused the collapse of the entire American and even international financial system suggests that this argument on behalf of bigness has always been false and beside the point. Further, the entire sordid subprime (and increasingly prime) fiasco has shown how this system has been designed to ensure that everyone is able to avoid responsibility - unlike a more local economy, in which responsibility toward one's community, friends, and neighbors is felt with some force. One could easily argue that a Government could just as easily intervene and ensure against the worst effects of a local failure just as it has done in the current instance of defending against the failure of the global system. We should now put aside the riposte by defenders of economies of massive scale that such an economy defends against failure by spreading risk; if anything, the consequences of our current systemic failure are likely to be far more costly and pervasive, even as we have undermined our moral resources that would otherwise need to accompany this challenging moment.

So what is at issue then? Far from representing a "neutral" position toward human ends or the "good" (a laughable article of faith in contemporary liberalism), our current economic and political system is riven with deep preferences that are otherwise most often barely discernible, even if hidden in plain sight. Most fundamentally, no matter the party or the "ideology," there is a deep hostility toward the local. There is a pervasive adversity toward commitment, loyalty, memory, the willingness to be content with what one has and where one is. There is, instead, a systemic pressure to adopt the Hobbesian view of man - "a restless desire of power after power that ceaseth only in death" (a.k.a., "the pursuit of happiness"). Big means more than even just growth, wealth, and power: it is a systemic orientation that encourages avarice, greed, restlessness and a willed (and eventually habitual) ignorance of the costs of our actions. Everyday I see the evidence of this systemic assumption in the students I teach: they have internalized the imperatives of their parents, ones they have learned from everyone around them, from the media, the elites, the leaders of our society, that the only true measure of success in our society is gain, ascent to the centers of power, wealth and power. They accord no special regard to other virtues that one might instead embrace, including the aspiration to make good families in good communities in which we are able stewards of what we are and possess, in which we take pride and are accorded honor for our contributions to those communities (whether monetarily rewarded or not), and in which we tend to the memory of the dead and care for the future of the unborn. We celebrate the "free market" as a neutral means of attaining the various goods we might individually seek, while ignoring an enormous finger on the scale that tends to funnel all conceptions of good to a point of singularity - insatiability. We tend to think of our current way of life as wholly natural, a way of life inherently arising from that "natural" condition described by Hobbes which was itself a masterful redefinition of our nature to fit his particular goal of a certain kind of society - one dominated by Leviathan, the great, massive, central powers that would ensure our safety even as that system wrought in us infinite and unfulfillable appetites.


Michael Simpson said...

I don't dispute the preference for "bigness" but it's probably worth pointing out that this was hardly a move to "save" Bear-Stearns, since they've been bought out for practically nothing and the firm now ceases to exist as an independent entity...

Anonymous said...

There is a pervasive adversity toward commitment, loyalty, memory, the willingness to be content with what one has and where one is.

This is very true.

Take this thought, and add it to your prior post about how everyone is "going green" even when their behavior shows otherwise.

This is what we get with the "crunchy" mentality. The main deal with Americans is individuality - we won't give it up - and yet we can't understand why we move towards bigness and consumerism. The end result is always bigness and image, not real local community.

brierrabbit said...

I agree with m_david, until the American love of individuality is finally, if not given up, at least moderated somewhat, things won't get any better. We have a whole society, raised for decades on the " I want what I want, and I should have it, my way" Everything, economics,technology, our politics, even our pick and choose religous faith, is designed to appeal to the individuals personal choice. Not the community. Also, nobody can say no, anymore, as a community.We feel insulted if the community says other things other than your "personal choice" might matter too. It's going to take a serious societal shock to change people.

Anonymous said...

Dr. Deneen,

Decoupling "social conservatism" from "economic conservatism" is an interest I share: the God-and-Mammon observation remains cogent.

But are people of faith willing to suffer the loss of short-run politcal influence that would come from ending their alliance with those who preach that whatever is, is right, due to the perfection of our markets? And in the long run, can people of faith craft a fundamental modification of neoclassical economic theory that encompasses not merely imperfect competition, but, more importantly, moral choice?

To make your present course fully fruitful, it seems to me that you might consider either reading in micro theory or trying to find some like-minded economists.

You might consider trying to slog through Mark Blaug's "Economic theory in retrospect" (Cambridge, 1997 -- revised edited). And you might check out the Association of Christian Economists both for the UK and the U.S. The UK association makes its journal freely available online: see and .

Patrick Deneen said...

Pym -
Thank you for the suggestions. I may check them out. I have to admit that my own preferences for economics are out of date (or, perhaps it's better to say "timeless") including Chesterbelloc's Distributivism, Schumaker's "Small is Beautiful" and Roepke's "The Humane Economy" and Wendell Berry. I.S.I. has been publishing great books exploring an alternative conception of economics to that of the liberal orthodoxy.

But your first point is central: people of faith or conservatives who seek conservation must first come to the realization that they in fact don't really HAVE political influence in spite of decades of alignment with the Republican party. Their support has been happily used by the Republican party to advance an agenda that almost entirely undermines commitments to a moral society, community and culture (I agree with part of Thomas Frank's assessment in "What's the Matter with Kansas"; I disagree with the view that social conservatives don't understand their own interest - this is an old Marxist canard of false consciousness). People of faith have been willing to accept the "pay off" of some Supreme Court justice nominations (though, let's remember during their time of "influence" they also got Kennedy, Souter, and nearly Meirs), in my view based on the defective or at least radically incomplete belief that reform to Constitutional jurisprudence will change the culture. I would submit that Supreme Court jurisprudence in many, if not most, instances follows the culture (true, it was in the lead in Roe v. Wade, but the culture was heading that way, conservative protestations notwithstanding). I'm not proposing that people of this view retreat from politics; rather, that they properly understand the politics that would accord with their aims, and seek to articulate that in a strong, coherent, and forceful manner. Perhaps what is needed is another - but doubtless very different - William F. Buckley (apologies to A. MacIntyre).

Anonymous said...

Dr. Deneen,

Thank you.

The aspirations of distributism are inspiring, and the literature well worth reading; the means need work.

Sadly, we no more know how best to share and cooperate than we know how best to make people free or how best to conserve what is good from the past. What does seem clear is that narrow ideologies that rigidly promote one of these complementary activities at the expense of the others are folly.

Anonymous said...

We repent in dust and ashes. Our constructions though earnest have fallen into same.

Perhaps before all is lost some persons of good will can gather together and make statement of resounding truth. Even if there is no hope left for this nation, perhaps there will be for those who follow in our footsteps, for the hope of future generations.

"If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land."

Let us work and pray.