Tuesday, September 23, 2008

Relearning old lessons

In 1776 Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. One would think that after more than 200 years we would have figured out the value of his lessons. Unfortunately, the collapse of the subprime mortgage industry has shown otherwise.

In his own words:

"In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people. As it is the interest of the freeman of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market."

Why do we continue to appoint the fox to guard the hen-house? Time and time again we have seen that certain industries are unable to regulate themselves, yet time and time again we trust those whose 'interest is directly opposite to that of the great body of the people' to unduly influence our regulatory systems.


  1. Good Smith quote.

    This problem-- the fox/henhouse issue-- seems to be a sibling to many in this nation, wherein the trust of the people is given freely to a subgroup which has risen from among them but represents itself as other, or in this case "opposite." America's revolutionary notion of popular sovereignty was revolutionary because it was meant to abolish the difference between leaders and the led, but a painful forgetfulness afflicts our citizens. Through undereducation and absentmindedness we forget, or in many cases fail to learn, that we ourselves are equipped to assess and understand the situations, economic or political, which surround us, and choose freely between the options. Bodies of "experts" or "merchants" or "politicians," who come to be perceived as a result of these distinctions as different in kind from "the people," are trusted for their otherness, rather than recognized as equals and possible competitors, and the citizens pay for their unconsciousness as these "other" complexes grow in momentum. This is especially potent in the mortgage industry but really in any credit-based business, where millions upon millions of people have really just failed to do the math that would demonstrate to them how poor an idea it is to borrow against one's own future on a large scale. a bad example is set and poison fruit is accepted because people are largely unaware of their power to pursue more difficult but more thoroughly righteous options, such as actually saving the money they need for an HDTV instead of putting it on the card. Too often advertisement is taken at face value, and I think the reason for this is a glut of trust based on the "otherness" of these organizations. An individual does not place the agents of his bank or his government on a level playing field with himself, and as a result does not suspect them of the same sort of basic swindling that he might expect from an individual with whom he is involved in smaller negotiations. The challenge of American democracy, at least as far as the individual is concerned, is to view oneself as equal with every other man even if that man should wield more power than himself, and this is one of the best things about the system as well, if it works. Today, unfortunately, a great many people believe (probably without realizing they believe it) themselves to be at the mercy of people who know more than they do, as if they didn't have the power to close that gap. the result of this unconsciousness is that all of the power which goes unclaimed by the majority of individuals pools up in the hands of those with the ambition to seize it. we see this in the uneven distribution of wealth and of responsibility. hopefully this shock to the system will start opening some eyes to the disenfranchisement which our fellow citizens continue to submit to, and begin to turn things around.

  2. While the potential exists to tap into the democratic power inherent in the 'common man' and for them to understand and act upon their interest - there are clearly many barriers to seeing this power realized, or more especially - exercised constructively. I am not optimistic that we are going to see a sudden 'enlightened' transformation - more likely people will continue to do a barely informed knee-jerk to the latest crisis and be led around by those who have the real power (politicians, lobbyist, media, $$$).

    I offer this test - when stockholders in corporations actually exert the control of ownership that is due to them instead of having Boards of Directors give away unnecessarily high pay packages and golden parachutes to CEOs who fail to provide the leadership & returns on investment they were hired to deliver - then I'll say we are headed in the right direction.

  3. so how did we get here and how do we get out - Is the 'Power Elite' entrenched or did the Silent Majority just acquiesce in their easy chairs? Is it better education we need or less spending on prisons?