Saturday, October 11, 2008

"The Excesses of Pragmatism"

Christopher Caldwell occasionally writes a column that, whether you agree with it or not, will be worth reading years after the news that prompted him to write it is off the front pages. His essay in yesterday's Financial Times, "The Excesses of Pragmatism", looks to be one of these. In it, Caldwell takes aim at those who blame free market dogmatism for the current crisis and argues that the excesses of pragmatism, not dogmatism, have led us here. He goes on to write,

“Bold, persistent experimentation” was Franklin Delano Roosevelt’s formula for getting out of an economic crisis. In fact, bold, persistent experimentation is all we ever have. In the 1930s, FDR brought Americans hope with massive government involvement in the economy. Whether the New Deal’s economic effects were positive or negative is open to debate. But because it was politically popular, it was extended and expanded over the decades. The same pattern was followed throughout the west: sensible, pragmatic help for working-class families was, by popular demand, extended until it turned into a bubble – a benefits bubble, or a wage bubble or a unionisation bubble, or call it what you will1. In the 1970s, that bubble popped, putting the global economy at risk. The result was “bold, persistent experimentation” √† la Thatcher and Reagan, the most effective part of which was the idea of an “ownership society”. It has left us here.

Dogmatism is pragmatism that has stood the test of time. Institutions tend to be forged in moments of crisis. Ideas that fail are discarded; ideas that succeed are retained, elaborated and then over-elaborated until they collapse. The problems of 30 years from now will turn out to have been hidden somewhere in the parts of today’s bail-out packages that wind up being most effective. If we are lucky, the most effective parts will be the most morally admirable parts. But that is not inevitable. In politics, correlation often passes for causation2. The recovery of the Russian economy after the rouble crisis of 1998 coincides with the arrival of Vladimir Putin in power. If a strong hand coincides with prosperity, the public sometimes assumes a stronger hand will mean more prosperity. Needless to say, leaders always think like that.

1The higher education bubble I posited in a recent post ("The Next Bubble to Burst in the Deleveraging Process: Higher Education?") seems to be consistent with Caldwell's point here.

2Interesting parallel between Caldwell's point here and role of contingency in politics that Larry Bartels described, as we discussed in a recent post ("Contingency and Causation").


DaveinHackensack said...

I mentioned Caldwell's column in a comment on Barry Ritholtz's Big Picture blog and he e-mailed me to say that Caldwell was "insanely wrong". Ritholtz said he'd write a post in response. I'll link to it here when he does.

DaveinHackensack said...

Here is Barry Ritholtz's post in response to Caldwell's column, "Putting the Dog back in Dogma".