Blind faith in the efficiency of markets has not always existed, though mainstream political discourse does little to question our neoliberal zeitgeist. The regulatory programs of the New Deal, despite being gutted to an extent pre-2008, were formed under the assumption that simply writing off economic catastrophe as a “market correction” was not good enough, as there is always a human cost to be paid during economic crisis.
As an easy example of an unconsidered set of externalities, a market is established in the sale of cars: One can go to car dealerships, compare prices, make what appears to be a good deal and drive home in a new car. However, no car dealership considers the impact adding the cars they sell to the road will have in increasing traffic, pollution, gas prices, steel prices and so on. These are all things governments have to and do consider, though. There are entire federal and state bureaus to deal with pollution, road congestion, license administration and so on. As a society, we accept that having as many cars on the road as possible is not always the optimal outcome (hence public transport investment, among other things), and that the standards to which these cars are built is something the country has a stake in. The automakers and dealers do not share all of the same immediate concern the general public does, as well we wouldn’t expect them to assuming they are looking after themselves first and foremost.
With the deregulation and commodification of the banking industry, banks were encouraged to take the sort of risks that got everyone into this mess through a few different ways. Deregulation is one, the “free market” dogma behind that is another. Most often, though, we hear criticism of the implied contract between the largest businesses and the government: If you get into trouble, the American taxpayer will bail you out. That’s how the Tea Party started out not that long ago, after all. This would be considered a moral hazard in any sane dialogue.
The New Deal-era regulations were aimed at preventing future crises, and succeeded for the better part of a century for this country and many other nations in the developed world. To put it bluntly, there is a reason we largely avoided economic catastrophe from the dawn of the post-war period until the early 1980s. The crises that followed (like the Latin American debt disasters) occurred only after the substantial liberalization of international finance. This liberalization was based on an unflinching faith in markets, which has in large part come to define the neoliberal period.
It is incredibly rare to hear anyone in politics, much less in a position of real power, articulate how markets do not consider externalities the way most humans do. As the world discovered, the encouragement and subsidization of risky behavior is one hell of an externality. The job of humans, as represented by governments, is to account for externalities and to regulate things as a reflection of this understanding. Unfortunately for us, the primary neoliberal attack of the 1970s and 80s was focused on that bit of rationality and now our government hardly provides a check against risky behavior at all.
The entire modern financial sector has been built on short-term profit, and unless there are different rules, we should not expect different results from what we got in the late part of the last decade. As long as “externalities” like financial collapse aren’t considered by the all-knowing and all-powerful markets, and so long as we have a government that isn’t willing to question the status-quo, this will keep happening almost like clockwork.
Scott Schroder is a senior political science major from Houston.
