Will Wilkinson blames progressive financial reforms for the revolving door Peter Orszag recently went through. Oh no, not progressive financial reform. That’s where I live! Our Peter Orszag problem:
Mr Fallows hits the nail on the head, but what this structural injustice means, politically and ideologically, remains unclear. In my opinion, the seeming inevitability of Orszag-like migrations points to a potentially fatal tension within the progressive strand of liberal thought. Progressives laudably seek to oppose injustice by deploying government power as a countervailing force against the imagined opressive and exploitative tendencies of market institutions. Yet it seems that time and again market institutions find ways to use the government’s regulatory and insurer-of-last-resort functions as countervailing forces against their competitors and, in the end, against the very public these functions were meant to protect.
We are constantly exploited by the tools meant to foil our exploitation. For a progressive to acknowledge as much is tantamount to abandoning progressivism. So it’s no surprise that progressives would rather worry over trivialities such as campaign finance reform than dwell on the paradoxes of political power. But it really isn’t the Citizens United decision that’s about to make Peter Orszag a minor Midas. It’s the vast power of a handful of Washington players, with whom Mr Orszag has become relatively intimate, to make or destroy great fortunes more or less at whim. Well-connected wonks can get rich on Wall Street only because Washington power is now so unconstrained. Washington is so unconstrained in no small part because progressives and New Dealers and Keynesians and neo-cons and neo-liberals for various good and bad reasons wanted it that way. So, what is to be done? Summon a self-bottling genie-bottling genie?
The classically liberal answer is to make government less powerful. The monstrous offspring of entangled markets and states can be defeated only by the most thorough possible separation. But public self-protection through market-state divorce can work only if libertarians are right that unfettered markets are not by nature unstable, that they do not lead to opressive concentrations of power, that we would do better without a central bank, and so on. Most of us don’t believe that. Until more of us do, we’re not going far in that direction.
Read the whole thing. Does classical liberalism have an answer for progressives, particular progressive financial reformers? It’s worth taking a look at this through the lens of the past 30 years of deregulation. If you are mad about Orszag joining Citigroup, you need to go back to 1999 and see the Gramm-Leach-Bliley Act, which repealed Glass-Steagall to allow the creation of Citigroup. Glass-Steagall was non-operational by the late 1990s, except when it came to insurance lines of business. Citicorp (a commercial bank holding company) and Travelers Group (an insurance company) merged to form Citigroup under a temporary waiver, because they were violating Glass-Steagall. Gramm-Leach-Bliley was passed to clear up any confusion about this.
If, at the time, you thought neoliberals sold out progressive financial regulation through deregulation by repealing Glass-Steagall and wanted to turn to classical liberalism, you could pick up Cato’s 1997 policy handbook, flip to the financial services chapter, and see that the second bulletpoint is “Repeal Glass-Steagall.” Wait, that’s the same thing.
If, at the time, you thought neoliberals sold out progressive financial regulation by not extending regulation to the new wave of 1990s derivatives, a series of events cultivating in Brooksley Born being pushed out and fired by Larry Summers and the Rubinites, you could pick up Cato’s 1995 policy handbook, flip to the financial services chapter, and see the warning “We do not need legislation to ‘deal with’ derivatives.” Wait, that’s the same thing.
If, at the time, you thought neoliberals sold out progressive financial regulation by supporting the 2005 bankruptcy reform law, a law which may have primed the shadow banks for shadow banking runs by including an amendment that allowed for mortgage backed securities in the definition of repo for the safe harbors, you could pick up Cato’s 2003 policy handbook, flip to the “financial deregulation” chapter, and see the bullet point for “enact the Bankruptcy Abuse Prevention and Consumer Protection Act of 2002 with stronger provisions.” Wait, that’s the same thing.
Who Needs Liberaltarians When We Have Rubinites?
It’s the holidays so I’m going to get a bit blogosphere navel-gazing for a second and ask a question I’ve been mean to ask for a while: In so much as it comes to practical policy in general, financial reform policy in particular, and political rationality in total, what’s the difference between neoliberal Rubinites and Liberaltarians?
Background: Liberaltarians is a description that comes from this essay by Brink Lindsey and is also associated with Will Wilkinson (W.W. at Democracy in America). Short-hand, it might be thought of as left-liberaltarian, or liberaltarians who acknowledge public-goods and explicitly reject a kind of anarcho-capitalism you see implicitly in some of the writings among libertarians. It wants public goods – there is such a thing as a lighthouse – and a safety net, driven through market and price mechanisms. It’s more of a debate within libertarianism, arguably a debate that’s really about the Iraq War and the Imperial Executive but was debuted in the economic space.
So what makes this different from the Rubinite neoliberals? I ask this sincerely. The Liberaltarian push seems to be privatizing Social Security, which is probably the hardest ask it is going to do. Let’s start more simply. Let’s go to one sense of why we might want financial reform regulation. Jumping to Treasury Deputy Secretary Larry Summers testimony to the AG Committee, July 30, 1998, where he explains why they are pushing Born and her team at the CFTC out:
Government regulation of different financial instruments in the United States has been based on one or more of the following rationales, after a demonstration of the need for additional regulation. Such rationales are first, to protect retail investors from unscrupulous traders and second, to guard against manipulation in markets where the scope for such manipulation exists. As Chairman Greenspan has noted, these have been the major concerns guiding regulation of American commodities markets from the CEA onwards…
But I would note that it is not immediately obvious how either of these rationales applies in the case of the vast majority of OTC derivatives:
first, the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.
I assume this could fall into a liberaltarian framework. Protecting retail investors from unscrupulous traders and guarding against manipulation, with a huge assumption that sophisticated parties will largely regulate themselves. There’s little implicit worry about manipulation at a systemic level.
If we take neoliberalism not as a short-hand for a certain type of Washington Consensus Democrat but instead as a political rationality, the difference is even harder to follow. Using a working definition from Foucault’s genealogy of the neoliberal thinkers who contributed to the journal Ordos, we have neoliberalism as a political rationality that “does not ask the state what freedom it will leave to the economy, but asks the economy how its freedom can have a state-creating function and role, in the sense that it will really make possible the foundation of the state’s legitimacy.” What’s new is that the state has an active role in the creation and maintenance of markets. When the state intervenes in the functioning of markets it isn’t to rectify injustices but instead to further create and maintain the rigor of the economy itself. Neoliberalism doesn’t presume the ontological givenness of the economy but instead needs to act to institutionalize and circulate the economy. Why would that be different than a liberaltarian movement?
In some ways, I think we can think of the first two years of the Obama administration as a neoliberal project. As the critical geographers Jamie Peck and Adam Tickell argue in Neoliberalizing Space (2002):
the pattern of deregulation and dismantlement so dominant during the 1980s, which might be characterized as “roll-back neoliberalism,” to an emergent phase of active state-building and regulatory reform-an ascendant moment of “roll-out neoliberalism.” In the course of this shift, the agenda has gradually moved from one preoccupied with the active destruction and discreditation of Keynesian-welfarist and social-collectivist institutions (broadly defined) to one focused on the purposeful construction and consolidation of neoliberalized state forms, modes of governance, and regulatory relations.
If you view the three major policy initiatives of the Obama administration through this lens, they all fall under a type of “roll-out neoliberalism”, efforts to construct markets and regulatory relations in spaces where they did not exist before, and would not exist on their own. The way to get universal coverage in a private health care market is with an individual mandate. The way to get a market for the pollution of excess carbon is to cap the overall level and let companies trade the right to pollute. And the way to deal with capital-markets lending and bank-like facilities is to backstop them through the Federal Reserve, and then reform regulators to manage the new consolidated and incredibly massive entities.
It’s equally interesting for what it doesn’t do, namely expand public health insurance or reorganize the financial sector into silo’ed, more competitive mechanisms. I find it a bit off and under-theorized when people bluntly throw out the term “corporatist” in relations to these efforts. Yes, for better or worse the Obama team has negotiated by buying off vested interests; but such an assessment misses the rationality behind this move, which blends the power of the government in a way to complete, reinforce and reify the market structure into spaces it does not exist.
This doesn’t necessarily bother me. Like James Ferguson, I think the tools of governance in one regime can be used simply as moves in a more progressive direction to counter that regime, and neoliberalism will be no different. His example, of statistics originating in factories controlling costs and later becoming the basis of social insurance is a great one. But the question remains: What does a self-conscious liberaltarian movement put onto the table that neoliberalism does not? In so much as I’d join one over the other, I’m confident that the Rubinites can at least make it rain.